OGC Opinion No. 07-08-12
The Office of General Counsel issued the following opinion on August 30, 2007 representing the position of the New York State Insurance Department.
RE: Multi-State Risks
Questions Presented:
1. May a New York licensed excess line broker procure an excess line policy with an unauthorized insurer where portions of the risk are in other states?
2. Is the New York licensed excess line broker required to be licensed in the other states where portions of the risk are located?
3. Is the New York licensed producing broker required to be licensed in the other states where portions of the risk are located?
4. Must the unauthorized insurer also be an unauthorized insurer in the other states where portions of the risk are located?
5. If the excess line broker and/or producing broker are not required to be licensed in the other states, then is it permissible for commissions to be paid on the portions of the risk where the brokers are not licensed?
Conclusions:
1. Yes. Under N.Y. Ins. Law § 2118(b)(8) (McKinney 2006), when a portion of the risk is in this state, only a New York licensed excess line broker may procure a policy in this state from an unauthorized insurer.
2, 3, 4 and 5. These questions implicate other states’ laws, about which the New York Insurance Department will offer no opinion.
Facts:
Your inquiry involves an excess line policy that covers advertising billboards that is written in this State. You report that some of the covered billboards are located in Connecticut and Pennsylvania. The excess line broker and producing broker are not licensed in either Connecticut or Pennsylvania. The excess line broker and producing broker are licensed by New York. From the facts presented, it is unclear whether the excess line policy would cover liability or property risks, or both.
Analysis:
Insurance Law § 1102(a) prohibits any person, firm, association, corporation or joint-stock company from doing an insurance business in this state, unless licensed as an insurer or exempted from licensing pursuant to the Insurance Law. Insurance Law § 1101(b)(1) defines the term "doing an insurance business" in pertinent part as follows:
(A) making, or proposing to make, as insurer, any insurance contract, including either issuance or delivery of a policy or contract of insurance to a resident of this state or to any firm, association or corporation authorized to do business herein, or solicitation of applications for any such policies or contracts. . .
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(C) collecting any premium, membership fee, assessment or other consideration for any policy or contract of insurance. . .
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(E) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this chapter. . . .
Insurance Law § 1101(b)(2) sets forth certain exceptions for transactions performed by an unauthorized foreign or alien insurer if effected by mail from outside of New York, provided that the insurer is licensed by its place of domicile to transact an insurance business. Insurance Law § 1101(b)(2) provides, in pertinent part, as follows:
(b)(2) Notwithstanding the foregoing, the following acts or transactions, if effected by mail from outside this state by an unauthorized foreign or alien insurer duly licensed to transact the business of insurance in and by the laws of its domicile, shall not constitute doing an insurance business in this state, but section one thousand two hundred thirteen of this chapter shall nevertheless be applicable to such insurers:
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(F) transactions authorized by section two thousand one hundred five of this chapter with respect to excess lines insurance.
If an ordinary broker places insurance with an unauthorized insurer, that broker would stand in violation of Insurance Law § 2117(a), which prohibits any person from acting as an agent, broker, or, in any way or manner, aiding any unlicensed or unauthorized insurer in selling insurance in New York State.1 Insurance Law § 2117(a) states:
(a) No person, firm, association or corporation shall in this state act as agent for any insurer or health maintenance organization which is not licensed or authorized to do an insurance or health maintenance organization business in this state, in the doing of any insurance or health maintenance organization business in this state or in soliciting, negotiating or effectuating any insurance, health maintenance organization or annuity contract or shall in this state act as insurance broker in soliciting, negotiating or in any way effectuating any insurance, health maintenance organization or annuity contract of, or in placing risks with, any such insurer or health maintenance organization, or shall in this state in any way or manner aid any such insurer or health maintenance organization in effecting any insurance, health maintenance organization or annuity contract.
However, Insurance Law § 1101(b)(2)(F) provides an exception for insurance coverage placed through the excess line market, and Insurance Law § 2105(a) authorizes excess line brokers to procure insurance coverage from unauthorized insurers. But in placing such insurance, the excess line broker must comply with the requirements set forth in N.Y. Comp. Codes R. & Regs. 11, Part 27 (Regulation 41), and Insurance Law §§ 2105, 2118 and 2130. The onus is on the excess line broker to ensure that the unauthorized insurer satisfies the financial and other requirements contained in Regulation 41. 11 NYCRR §§ 27.0 – 27.24 (Regulation 41). If the insurer fails to meet these requirements, the excess line broker may not place insurance with the unauthorized insurer. 11 NYCRR §§ 27.0 – 27.24 (Regulation 41).
Insurance Law § 2118(b) directly addresses your first question, which inquires about when only a portion of the property or risk exposure is sited in this state. Insurance Law § 2118(b)(8) states:
(8) For purposes of this article, unless exempt under the provisions of section two thousand one hundred seventeen of this article, a policy of insurance obtained from an insurer not authorized to transact business in this state must be procured pursuant to an excess line license when the entire property or risk exposure insured or any part thereof, is located in this state and:
(A) the insured negotiated to acquire the coverage from within this state; or
(B) the policy was delivered to the insured in this state.
Thus, when a portion of the risk is in this state, Insurance Law § 2118(b)(8) provides that only a New York licensed excess line broker may procure a policy in this state from an unauthorized insurer.
However, Insurance Law § 2118(b)(9) allows an excess line licensee to place excess line insurance in another state when the property or risk exposure is both in this state and in another state, provided that certain other requirements are met. Insurance Law § 2118(b)(9) states:
(9) Nothing in this article shall prohibit an excess line licensee from placing risks under the excess or surplus line law of another state provided that the excess line licensee:
(A) is licensed under the applicable state law as an excess or surplus line broker or places such risk through a licensed excess or surplus line broker in such state; and
(B) either no portion of the property or risk exposure is in this state, or the insured has property or risk exposure both in this state and in another state where the insured maintains a bona fide office from which it negotiated to acquire the coverage and to which the policy is delivered.
Your other questions concerning whether the New York licensed excess line broker and producing broker are also required to be licensed in the other states where portions of the risk are located; whether the unauthorized insurer is also required to be an unauthorized insurer in the other states; and whether it is permissible for commissions to be paid on the portions of the risk where the brokers are not licensed, each implicate other states’ laws, about which the New York Insurance Department will offer no opinion. You may wish to consult with the insurance departments of those other states about any applicable licensing requirements and laws concerning commissions.
For further information you may contact Senior Attorney Elizabeth Barrett at the New York City Office.
1 Insurance Law § 2117(b) and (c) set forth several exceptions for a licensed insurance broker with respect to placing business with an unauthorized insurer, but those exceptions do not apply here.