OGC Op. No. 07-09-02

The Office of General Counsel issued the following opinion on September 5, 2007, representing the position of the New York State Insurance Department.

Paintless Dent Repair Protection Plan

Question Presented:

Is the proposed Paintless Dent Repair Protection Plan a service contract for purposes of Article 79 of the Insurance Law?

Conclusion:

No. The proposed Paintless Dent Repair Protection Plan is not a service contract for purposes of Article 79 of the Insurance Law; rather, it constitutes an insurance contract and the doing of an insurance business under N.Y. Ins. Law § 1101 (McKinney 2006).

Facts:

The inquirer represented an insurer that provides reimbursement insurance policies to registered service contract providers in the State of New York. The providers would like to market service agreements that provide coverage to repair small dings and dents on automobiles. The inquirer characterized these dings and dents as occurring due to normal wear and tear. For a separately stated charge and for a specified duration, the service agreement provider would agree to provide a service to remove dings and small dents (no larger than a credit card) that occur by utilizing a “paintless dent removal” process.¹ The coverage would not provide any collision repairs that are covered under automobile insurance policies. Nor would it cover or reimburse for any automobile insurance claim deductible or reimburse or pay any monetary amount to the customer. It would only provide the service to repair the vehicle within the terms and conditions of the agreement through the paintless dent removal process, and only through the provider’s network of paintless dent removal technicians. The inquirer asked whether the proposed program conforms with the Insurance Law.

Analysis:

Insurance Law § 7902(k) is relevant to the inquiry. It defines “service contract” as follows:

"Service contract" means a contract or agreement, for a separate or additional consideration, for a specific duration to perform the repair, replacement or maintenance of property, or indemnification for repair, replacement or maintenance, due to a defect in materials or workmanship or wear and tear, with or without additional provision for indemnity payments for incidental damages, provided any such indemnity payment per incident shall not exceed the purchase price of the property serviced. Service contracts may include towing, rental and emergency road service, and may also provide for the repair, replacement or maintenance of property for damage resulting from power surges and accidental damage from handling. Service contracts may also include contracts to repair, replace or maintain residential appliances and systems. Such term shall also mean a contract or agreement made by or for the manufacturer or seller of a motor vehicle tire for repair or replacement of the tire or wheel as the result of damage arising from a road hazard.

Coverage under the Paintless Dent Repair Protection Plan is not limited to small dents and dings from ordinary wear and tear, but also extends to the occurrence of “fortuitous events,” as defined by Insurance Law § 1101. That statute provides: “‘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.”

A service contract may not provide coverage for loss or damage arising out of an external cause except in the limited circumstances set forth in Insurance Law § 7902(k), which states that a service contact may provide coverage for the repair, replacement or maintenance of property for damage resulting from “accidental damage from handling.” The Insurance Department has interpreted “accidental damage from handling” to mean accidental damage from handling in the normal and customary use of the product (here, the automobile). See Opinions of Office of General Counsel No. 06-03-04 (March 8, 2006) and No. 07-07-19 (July 23, 2007). However, coverage for accidental damage from handling may be made available only as incidental to coverage for defects.Id. In the instant matter, no coverage is being afforded for defects, so accidental damage from handling may not be covered.

The inquirer suggested that the 2006 amendment to Insurance Law § 7902(k), which occurred subsequent to the Insurance Department’s issuance of OGC Opinion Number 06-03-04, should change the Department’s position that Paintless Dent Repair Programs are insurance contracts. However, the recent amendment to Insurance Law § 7902(k) to include as service contracts those contracts or agreements made by the manufacturer or seller of a motor vehicle tire for repair or replacement of the tire or wheel as a result of damage arising from a road hazard does not apply to the Paintless Dent Repair Protection Plan, because no coverage is being afforded for tire or wheel replacement as a result of damage caused by a road hazard.

The Paintless Dent Repair Protection Plan is, instead, a contract of insurance within the meaning of Insurance Law § 1101 and as such, it may only be offered by an insurer that is authorized to do an insurance business in New York. Further, only a licensed insurance producer may sell such contracts in New York.

For further information you may contact Special Counsel Athan Shinas at the Albany Office.

¹ Paintless dent removal means the process of removing small dents, dings, and creases, from a vehicle without affecting the existing paint finish. It does not include services that involve the replacement of vehicle body panels or sanding, bonding, or painting.