OGC Opinion No. 07-01-10

The Office of General Counsel issued the following opinion on January 29, 2007 representing the position of the New York State Insurance Department.

Re: Towing and Emergency Road Services

QUESTION PRESENTED:

Are motor clubs subject to licensure or regulation by the New York State Insurance Department?

CONCLUSION:

No. Motor clubs are not subject to licensure or regulations by this Department. However, if any of the services provided by a motor club constitute doing an insurance business in this state, those services may be offered only by an authorized insurer in accordance with the Insurance Law and regulations.

FACTS:

A company provides emergency rides (utilizing licensed taxi services) for an annual membership fee to students seeking to avoid drunk driving, threatening dates, and abusive situations. On December 24, 1991, the Office of General Counsel issued an opinion to it stating that, in providing such services, the company was not doing an insurance business in violation of New York Insurance Law § 1102 (McKinney's 2007). The opinion noted that because the company was not obligated to supply a taxi each time a cardholder called to request a ride, an element of an insurance contract-namely, the obligation to confer a benefit of pecuniary value-was missing.

For an annual membership fee of $12.95 payable by the students, the company is now proposing to add towing and emergency road services to its menu of emergency related services. It reports that it will contract with a motor club to provide these additional services. The motor club's members" guide also indicates that the club will reimburse a member for emergency ambulance charges up to $50. The company asks whether the motor club with which it intends to contract would be engaged in an unauthorized insurance business in New York.

ANALYSIS:

The definition of an "insurance contract" is set forth in New York Insurance Law § 1101(a) (McKinney's 2007). That section provides:

(1) "Insurance contract" means any agreement or other transaction whereby one party, the "insurer", is obligated to confer benefit of pecuniary value upon another party, the "insured" or "beneficiary", dependent upon the happening of a fortuitous event in which the insured or beneficiary has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of such event.

(2) "Fortuitous event" means any occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party.

In Circular Letter No. 2 (1979), the Insurance Department set forth guidelines describing how motor clubs may provide certain benefits in New York. The Department has not objected to a motor club providing towing or roadside assistance services, so long as the club follows those guidelines. There is, however, one exception: a motor club may not obtain a master or group policy for towing, emergency, trip interruption or legal services, as described in item 2 of the Circular Letter, as such a policy would constitute group property/casualty insurance of a kind not authorized under New York law.

All of the items under the emergency road service coverage that the company proposes to offer-including mechanical first aid, battery service, tire change, fuel and water delivery, and towing-come within the scope of the Circular Letter for any motor club offering such coverage. Previously, it had been the Department's position that lost keys and lockout coverage did not come within the purview of the Circular Letter.¹ But, upon reconsideration, the Department believes that such services, too, constitute emergency road service coverage and trip interruption service within the meaning of the Circular Letter.

Nevertheless, the proposed ambulance reimbursement services that the company aims to provide do not fall within the scope of the governing Circular Letter. Historically, the Department has concluded that the provision of such ambulance services constitutes doing an insurance business.² In a letter dated September 24, 1986, the Department opined that where a company was not contractually obligated to provide ambulance service each and every time requested by the subscriber, the arrangement was not the business of insurance. In a May 29, 2001 opinion, however, the Department reversed course and revised the 1986 opinion to conclude that such an ambulance service subscription plan would violate the New York Insurance Law. That opinion stated:

The lack of a guarantee that the subscriber will actually receive the ambulance service does render the chance of receiving benefits of the Plan more uncertain. However, if the benefits are received, the nature of the operation of the Plan still meets the definition of insurance in that a promised benefit of pecuniary value is conferred in the event of the occurrence of a fortuitous event.

Thus, it is the Department's view that to provide emergency ambulance service whereby a motor club would reimburse a member for emergency charges up to $50 would violate N.Y. Ins. Law § 1102.

Moreover, given that the Department's December 24, 1991 opinion to the company relied upon the same analysis as the Department's September 24, 1986 opinion superseded by the May 29, 2001 opinion, it now appears that the company's business of providing taxi service may constitute doing an insurance business. If the taxi service is provided as the result of the occurrence of a fortuitous event, it would constitute insurance as defined in N.Y. Ins. Law § 1102. However, if the taxi service is provided in the absence of a fortuitous event, it would not be insurance

Please note that Department in the past has opined that a person is not engaged in the business of insurance where there is an agreement for a pre-paid membership fee and the services occasioned by the happening of a fortuitous event are offered for an additional fee per service at the time the benefit is conferred, but is discounted from the usual fee so long as the fee per service covers the cost of rendering the services (including reasonable overhead) (See, e.g., General Counsel Opinions dated February 26, 1996 and May 29, 2001). In effect, such an arrangement amounts to the providing of a discount. The Department has stated that the prepaid membership fee may include services that are nominally priced or at no separate charge, as long as these benefits are of a non-fortuitous nature.

For further information, you may contact Assistant Attorney Sapna S. Maloor at the New York City Office.

¹ General Counsel Opinions dated July 23, 2004, and March 22, 2005.

² See, e.g., General Counsel Opinions dated March 12, 1956, May 21, 1958, July 8, 1960 and July 17, 1962.