OGC Opinion No. 09-08-07

The Office of General Counsel issued the following opinion on August 4, 2009, representing the position of the New York State Insurance Department.

RE: Home and Auto Plan

Question Presented:

Does the revised Home and Auto Plan (the “Plan”) comport with the New York Insurance Law and regulations promulgated thereunder?

Conclusion:

Yes. The revised Plan comports with the Insurance Law and regulations promulgated thereunder.

Facts:

ABC, Inc., DEF Motor Club (the “Motor Club”), and HIJ, Inc. (“HIJ”) (collectively referred to as “ABC”) ¹ offer the Plan, which provides a number of benefits to Plan members. Under the current Plan, XYZ, Inc. (“XYZ”), a New York-authorized insurance company, provides certain Plan coverages under blanket insurance policies issued to the Motor Club and HIJ. The Motor Club and HIJ are the policyholders, and the insurance policies cover members of the Plan as insureds. Each member receives evidence of coverage, and a Delaware third-party administrator that is licensed as an insurance adjuster and that acts as a trustee issues the blanket policies to the Plan. The Delaware third-party administrator filed the blanket policy forms with the Delaware Insurance Department, and that Department approved them.

Members of the Plan do not pay a separate fee for the indemnification benefits. The Plan pays the insurance premium to XYZ and makes the coverages available automatically to its members. The Plan is offered as a package, and the coverages are not provided on an optional basis.

In May 1987, the New York Insurance Department’s Office of General Counsel opined that the Plan then offered by ABC did not violate the Insurance Law. Although ABC asserts that the program is virtually unchanged, that opinion did not specify the details of the program, or detail the facts and provisions of law upon which its conclusions are based. The Department therefore undertook a review of the Plan to ascertain whether the Plan operates in accordance with the Insurance Law and regulations promulgated thereunder.

On July 9, 2009, counsel for ABC submitted a revised Plan membership agreement (the “revised Plan”), on which this opinion opines. The revised Plan membership agreement describes the benefits and services as follows:

1. Official Motor Club Emblem – This benefit provides a member with a decal that the member may apply to his or her automobile that identifies the person as a Motor Club member to patrolmen and emergency personnel.

2. Emergency Medical I.D. Card – This benefit provides a member with an emergency medical I.D. card that permits the member to authorize emergency treatment.

3. Emergency Medical Expense Benefit – This benefit provides coverage to a member or eligible family member for the first 48 hours of emergency treatment in an outpatient facility that is not covered by another insurance policy, and results from an injury received in a home or auto-related accident. This benefit is covered under a blanket accident/health insurance policy issued by XYZ and administered by QRS.

4. Ambulance and Paramedic Expense Benefit – This benefit provides coverage if a member or eligible family member requires ambulance transportation or paramedic services as result of an injury received in a home or auto-related accident. This benefit pays those costs that are not covered by another insurance policy, and is covered under a blanket accident/health insurance policy issued by XYZ and administered by QRS.

5. Child’s Accident Expense Benefit – This benefit provides coverage if a child (who is an eligible family member) suffers accidental bodily injury anywhere within the United States, Puerto Rico, or Canada and requires: emergency treatment in an outpatient facility during the first 48 hours; ambulance transportation; and/or paramedic services. This benefit pays those costs that are not covered by any other insurance available to the member or an eligible family member, and is covered under a blanket accident/health insurance policy issued by XYZ and administered by QRS.

6. Health Insurance Deductible Reimbursement Benefit Up to $500 – Under this benefit, XYZ pays an amount equal to a member or an eligible family member’s health insurance policy deductible up to $500 if the member or eligible family member is hospitalized as a result of an injury sustained in an auto or home-related accident, and is covered under a health insurance policy.

7. Emergency Towing and Road Service Benefit – Under this benefit, if a member’s car is disabled, then the Motor Club will make arrangements to have an emergency road service dispatched to the member to perform certain covered services when the member’s car will not start, has a flat tire, is stuck, or is in need of liquids or parts. If a contract service station cannot render the service, then the member may utilize a non-contract service station and either have the non-contract service station call the Motor Club for authorization of payment, or submit a receipt to the Motor Club for reimbursement for services rendered.

8. Legal Benefit – This benefit provides a member with access to a team of qualified advisors for any personal legal and financial concerns, including telephone helpline consultations, toll-free access to a financial counselor, and preparation of up to two basic personal wills. If a member wishes to obtain legal representation, then the member will receive an initial half-hour consultation at no charge, and a 25% discount off any legal fees when using the legal benefit referral network.

9. Family Medical History and Emergency Treatment Authorization Document – This benefit provides a document that can authorize medical treatment to begin immediately, and ensure that the correct information is provided to medical personnel.

10. “Life-Saving Protection” Benefit – This benefit reimburses a member for taking a nationally known First Aid or C.P.R. course in the member’s local area.

11. Discount Pharmacy Benefit – This benefit permits a member to save between 5% and 50% on the member’s prescription drugs through the Plan’s retail and home delivery pharmacy service.

12. Extended Warranty Benefit – This benefit extends the period of the manufacturer’s warranty by doubling the coverage for up to one additional year for valid U.S. warranties of five years or less.

13. Savings on Eye Glasses – This benefit permits a member and all covered family members to save up to 60% on eyewear at eye centers throughout the United States through discounts on frames, lenses, coatings and tint options, bifocals and eye examinations.

14. Complete Video Guide to Home Security – This benefit provides a video on home security, at no additional charge, to teach the member first-hand, simple methods to protect the member and his or her family from attack and burglary.

15. Self-Defense Benefit – This benefit reimburses a member up to $50 for taking a self-defense class or classes sponsored by a professional instructor established in the member’s local area, or in lieu of the classes, provides a member with a video tape on self-defense training methods.

16. Crime Prevention Kit – This benefit provides a member with a kit that includes $5,000 reward warning stickers and a valuable possessions inventory document.

17. Child I.D. Kit – This benefit provides a member with a kit for each member’s child (age 12 and under), which includes a fingerprint chart and space for a recent photo and other identifying information.

18. Pet Benefit – This benefit provides members with a 25% discount on services through a network of veterinarians, a 10% to 30% discount at participating service providers and merchants, and free pet I.D. tags with a 24/7 location service.

19. Locksmith Service – This benefit pays for a service call by a professional locksmith to open the member’s car door and/or re-key the member’s locks if the member desires locksmith services for the member’s car. Also, if a member desires the use of a professional locksmith to open the member’s home door for any reason or circumstance whatsoever, including, but not limited to, where the member’s keys are lost, stolen, or left somewhere, then this benefit pays for a service call by a professional locksmith to open the member’s door and/or re-key the member’s locks.

20. Identity Theft Benefit – This benefit provides a member with 24/7 identity theft protection that includes early warning alerts, identity monitoring, and social security number protection, in addition to toll-free access to the identity theft benefit hotline, which answers identity theft questions and assists with managing a member’s identity theft benefit account.

21. Home Improvement Benefit – This benefit provides a member with access to a home improvement affiliate program through which the member may bid out home improvement projects to participating area contractors.

22. Cancer-Causing “Radon” Gas Test Kit – This benefit sends a member a home radon test kit at no additional charge upon mailing in a voucher.

23. Personal Mechanic Hotline – This benefit permits a member to call the Motor Club, which will refer the member to a professional service technician to obtain general diagnostic and car repair information. The Motor Club also will refer the member to a local mechanic for repairs at the member’s request. Once the final price is set for the repairs, the member is guaranteed a 10% discount off the cost of parts and labor, excluding tax.

24. Auto Body Repair Referral Network – This benefit permits a member to call the Motor Club if the member’s automobile is damaged in an accident, storm or just needs cosmetic refinishing, for a referral to a local network repair center, which will evaluate the damage, provide a written estimate, supervise the repair process and trouble shoot possible problems or difficulties. The member’s automobile will be repaired at the network center and returned to the member with the repair guaranteed in writing by the network repair center in accordance with the network repair center’s policy.

25. Auto Care Discounts – This benefit permits a member to save 10% or more through the Motor Club on tires, mufflers, brake service, glass replacement, wheel alignment, transmission service, and other everyday automobile care needs at service facilities nationwide.

26. New and Used Car Locator Service – Under this benefit, the Motor Club will locate and price any new or used vehicle for the member.

27. Personalized Trip Routing – This benefit provides a member with a map that guides the member over the most scenic or direct routes to and from the member’s destination, and highlights points of interest along the way.

28. Entertainment Book Benefit – This benefit provides a member with a book that permits a member to receive savings at over 230,000 locations throughout the United States, Canada, and Puerto Rico.

29. Vacation Travel Service – This benefit provides a member with certain travel services and discounts.

30. Motel Discounts – This benefit provides a member with various discounts for hotel and motels.

31. Car Rental Discounts – This benefit provides a member with car rental discounts with several major national car rental agencies.

Analysis:

Each of the benefits discussed in the preceding is analyzed seriatim below.

(1) Official Motor Club Emblem and (2) Emergency Medical I.D. Card

Insurance Law § 1102(a) prohibits any person, firm, association, corporation or joint-stock company from doing an insurance business in New York unless authorized by a license or exempted by the Insurance Law from licensure. Insurance Law § 1101(b)(1) defines “doing an insurance business” in relevant part as:

Further, Insurance Law § 1101(a)(1) defines an “insurance contract” as:

Insurance Law § 1101(a)(2) defines a “fortuitous event” as “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. “

Here, the official Motor Club emblem and emergency medical I.D. card are not insurance, because the Plan provides them at a member’s request, and they are not dependent upon the happening of a fortuitous event.

(3) Emergency Medical Expense Benefit; (4) Ambulance and Paramedic Expense Benefit; (5) Child’s Accident Expense Benefit; and (6) Health Insurance Deductible Reimbursement Benefit Up to $500

Pursuant to the revised Plan, these benefits are covered under a blanket accident and health insurance policy issued by XYZ to the Motor Club. The master policy is issued in Delaware, and administered by QRS.

Insurance Law § 4237(a)(3) sets forth the groups that are eligible to purchase a blanket accident and health insurance policy in New York. Specifically, Insurance Law § 4237(a)(3)(E), which deems the following group of persons eligible to purchase such a policy, reads as follows:

The Motor Club is an eligible recognized group pursuant to Insurance Law § 4237(a)(3)(E), because it qualifies as an “association of persons having a common interest or calling.” As a result, XYZ is not required to file its policy forms with, and seek approval from, the Department, because the master policy was issued in Delaware. Insurance Law § 3201(b)(1) does not deem an insurer’s health insurance policy forms delivered in New York when the insurer issues the master policy outside of New York in a jurisdiction where the insurer is authorized to do an insurance business (in this case, Delaware) to a group that is eligible to purchase a blanket accident and health insurance policy pursuant to Insurance Law § 4237(a)(3) (with the exception of Insurance Law § 4237(a)(3)(F)).

(7) Emergency Towing and Road Service Benefit

Under this benefit, if a member’s car is disabled, then the Motor Club will make arrangements to have an emergency road service dispatched to the member to perform certain covered services when the member’s car: will not start; needs to be towed; has a flat tire; is stuck in a ditch, snow, mud, or sand; or is in need of an emergency supply of gas, oil or water or other materials or parts necessary to get the member’s car back on the road. If a contract service station cannot render services to the member, then the member may have his or her car serviced or towed by a non-contract service station. The non-contract service station must call the Motor Club for authorization of payment, or the member may obtain a receipt for services rendered and submit it with a completed claim form to the Motor Club for reimbursement.

Circular Letter No. 2 (1979) sets forth the guidelines under which a motor club may provide certain services to its members. Since the Motor Club characterizes itself as a motor club, it falls within the purview of Circular Letter No. 2. The Department has not objected to a motor club providing towing and emergency road services so long as the motor club follows the guidelines set forth in Circular Letter No. 2 (1979). For example, Circular Letter No. 2 permits a motor club to provide towing and emergency road services through contract service stations, but the motor club may not reimburse a member for payment made to obtain the services on his or her own, unless a contract service station cannot render the services.

Here, the Motor Club may offer the emergency towing and road service benefit to Plan members, since it appears to be following the guidelines set forth in Circular Letter No. 2.

(8) Legal Benefit

The legal benefit provides a member with access to a team of qualified advisors for any personal legal and financial concerns, including telephone helpline consultations, toll-free access to a financial counselor, and preparation of up to two basic personal wills. If a member wishes to obtain legal representation, then the member receives an initial half-hour consultation at no charge, and a 25% discount off any legal fees when using the legal benefit referral network.

The making of a service plan, which for a prepaid fee provides unlimited services dependent upon the happening of a fortuitous event, constitutes the doing of an insurance business pursuant to Insurance Law § 1101(a) and requires a license pursuant to Insurance Law § 1102, because the service provider bears the risk of incurring a loss if the cost of rendition, including reasonable overhead, exceeds the fees paid. See OGC Opinion 2000-8 (NILS) (Jan. 25, 2000); 11 NYCRR § 261.0(e).

However, a service plan that charges a prepaid membership fee and offers certain services (which are based upon the happening of a fortuitous event) for an additional discounted fee per service does not constitute the doing of an insurance business, so long as the fee per service covers the cost of rendition, including reasonable overhead. See OGC Opinion 2000-8 (NILS); 11 NYCRR § 261.0(g). Additionally, the prepaid membership fee may include services offered at no charge or at a nominal separate charge, so long as the benefits are of a non-fortuitous nature. See 11 NYCRR § 261.0(e).

With regard to drafting two basic personal wills per membership year, such a service is not dependent up on the happening of a fortuitous event and therefore is not insurance. See OGC Opinion 2000-8 (NILS). Nor are the telephone and office consultation benefits insurance, because a non-insurance legal services plan may include, as part of its benefits, consultations to determine whether a legal problem exists. Id.

The 25% discount on attorney’s fees may constitute the doing of an insurance business if the discounted fee does not cover the cost of rendition, including reasonable overhead. See OGC Opinion 2003-269 (NILS) (Sept. 25, 2003). Counsel for ABC states in his May 30, 2008 letter that the third party vendor that offers the legal benefit can represent that the discounted fees charged for such additional representation fully cover the cost of rendition, including reasonable overhead. Given that representation, the 25% discount on attorney’s fees does not constitute the doing of an insurance business.

(9) Family Medical History and Emergency Treatment Authorization Document; (10) “Life-Saving Protection” Benefit; and (11) Discount Pharmacy Benefit

The Department does not consider these benefits to be insurance, because they are not dependent upon the happening of a fortuitous event.

(13) Savings on Eye Glasses

This benefit permits a member and all covered family members to save up to 60% on eyewear at eye centers throughout the United States through discounts on frames, lenses, coatings and tint options, bifocals and eye examinations.

As noted above, the making of a service plan, which for a prepaid fee provides unlimited services dependent upon the happening of a fortuitous event, constitutes the doing of an insurance business pursuant to Insurance Law § 1101(a) and requires a license pursuant to Insurance Law § 1102, because the service provider bears the risk of incurring a loss if the cost of rendition, including reasonable overhead, exceeds the fees paid. OGC Opinion 05-05-01 (May 2, 2005).

However, a service plan that charges a prepaid membership fee and offers certain services (which are based upon the happening of a fortuitous event) for an additional discounted fee per service does not constitute the doing of an insurance business, so long as the fee per service covers the cost of rendition, including reasonable overhead. Id. Additionally, the prepaid membership fee may include services offered at no charge or at a nominal separate charge, so long as the benefits are of a non-fortuitous nature (such as a routine annual examination). Id.

So long as the fee charged for each eye examination covers the cost of rendition, including reasonable overhead, this benefit does not constitute the doing of an insurance business.

(12) Extended Warranty Benefit

As previously stated, Insurance Law § 1102 generally prohibits any person, firm, association, corporation or joint-stock company from doing an insurance business in New York without a license. “Doing an insurance business” includes “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,” and “making, or proposing to make, as warrantor, guarantor or surety, any contract of warranty, guaranty or suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the warrantor, guarantor or surety.” Ins. Law § 1101(b)(1).

However, pursuant to Insurance Law § 1101(b)(3-a), the “marketing, sale, offer[ing] for sale, issuance, making, proposing to make or administration” of a service contract pursuant to Article 79 of the Insurance Law does not constitute doing an insurance business in New York. Insurance Law § 7902(k) defines a “service contract” as:

Any person or entity obligated to provide service under a service contract may not issue, sell, or offer for sale a service contract in New York unless the person or entity first registers with the Superintendent as a service contract provider pursuant to Insurance Law § 7907. OGC Opinion 07-09-15 (Sept. 17, 2007); OGC Opinion 03-07-32 (July 29, 2003).

The Insurance Law and regulations promulgated thereunder do not define the term “warranty.” However, a warranty generally relates in some way to the nature or efficiency of the product sold. Ollendorf Watch Co. v. Pink, 279 N.Y.32, 36 (1938); OGC Opinion 07-09-15. Typically, a warranty is a statement by a manufacturer or seller that a product is free from defects and will perform the functions for which it is sold. NILS INSource Glossary at http://insource.nils.com/gloss/GlossaryTerm.asp?tid=6040; OGC Opinion 07-09-15. A product warranty is a promise to repair or replace the product, or to refund the purchase price if the purchaser discovers a defect under normal conditions of use. Id.

In certain regards, warranties and service contracts are similar in that both relate to the nature or efficiency of a product. OGC Opinion 07-09-15. But in order to be a warranty, the contract maker must have a relationship to the product or service, or do some act that imparts knowledge of the product or service to the extent of minimizing, if not eliminating, the element of risk contemplated by Insurance Law § 1101(a). OGC Opinion 07-09-15; OGC Opinion 01-07-06 (July 13, 2001). Where there is no relationship or act, the contract maker undertakes an obligation involving a fortuitous risk, and the agreement is an insurance contract that constitutes the doing of an insurance business. OGC Opinion 07-09-15; OGC Opinion 01-07-06. ²

Here, the “extended warranty” benefit doubles the manufacturer’s repair period on any new retail article or item, excluding items previously owned, sold “as is,” or refurbished, that are used primarily for personal, family or household purposes (“consumer products”) with a warranty of one year or less. Consumer products with a manufacturer’s warranty of one to five years will be extended one additional year. The manufacturer’s warranty must be five years or less and valid in the United States.

Further, coverage under the “extended warranty” is effective the day the manufacturer’s warranty expires, provided that the person is a member of the Plan when the manufacturer’s warranty expires, and coverage ceases when the member’s membership in the Plan terminates. Items that are covered are consumer products a member purchases that come with a written manufacturer’s warranty of five years or less, as well as consumer products given to a member of the Plan member’s household. There is no coverage for claims arising from or caused by: fraud; abuse; negligence; neglect; misapplication of the consumer product; intentional acts of a covered person; war or hostilities of any kind, including invasion, rebellion or insurrection; confiscation by any government, public authority, or customs official; risks of contraband, illegal activity or acts; normal wear and tear; radioactive contamination; flood; or earthquake.

In addition, the revised Plan specifically states that “[t]he provider fee for this agreement is [$10.00] per year (the “Provider Fee”),” and that:

Moreover, the “extended warranty” contract sets forth the steps that a member must take to obtain service under the contract, including offering a 24-hour toll-free telephone number, and states that if a member has not been provided services within sixty days after the member has filed a proper claim, then the member may contact XYZ at XYZ’s mailing address or toll-free telephone number as provided in the “extended warranty” contract.

Performance under the extended warranty is the obligation of TUV Company (“TUV”), a registered New York service contract provider. The Motor Club, on behalf of TUV, is the administrator of the “extended warranty,” and XYZ insures the obligations of TUV under a service contract reimbursement insurance policy.

In light of the foregoing, the “extended warranty” benefit is not a warranty, because ABC does not have a relationship to the consumer products, and is not engaging in an “act that imparts knowledge of the product to the extent of minimizing, if not eliminating, the element of risk contemplated by Insurance Law § 1101(a).” Therefore, if the “extended warranty” benefit is not a warranty, then it is insurance unless it falls within the service contract exception set forth in Insurance Law § 1101(b)(3-a). Since ABC is entering into a contract with Plan members to “perform the repair, replacement or maintenance of property” for an additional fee for a specified duration, the “extended warranty” would be insurance unless provided in accordance with Article 79 of the Insurance Law, and by a registered service contract provider.

TUV, which is the obligor, is a registered service contract provider. Thus, it appears that the revised “extended warranty” benefit comports with Article 79 of the Insurance Law. Therefore, the Department does not consider this revised benefit to be insurance, but rather a service contract issued in conformance with Article 79.

(14) Complete Video Guide to Home Security; (15) Self-Defense Benefit; (16) Crime Prevention Kit; and (17) Child I.D. Kit

The Department does not consider these benefits to be insurance, because the Plan provides them at a member’s request, and they are not dependent upon the happening of a fortuitous event.

(18) Pet Benefit

The pet benefit provides members with a 25% discount on services through a network of veterinarians, a 10% to 30% discount at participating service providers and merchants, and free pet I.D. tags with a 24/7 location service.

As stated previously, the making of a service plan, which for a prepaid fee provides unlimited services dependent upon the happening of a fortuitous event, constitutes the doing of an insurance business pursuant to Insurance Law § 1101(a) and requires a license pursuant to Insurance Law §1102, because the service provider bears the risk of incurring a loss if the cost of rendition, including reasonable overhead, exceeds the fees paid. OGC Opinion 05-05-01 (May 2, 2005).

However, a service plan that charges a prepaid membership fee and offers certain services (which are based upon the happening of a fortuitous event) for an additional discounted fee per service does not constitute the doing of an insurance business, so long as the fee per service covers the cost of rendition, including reasonable overhead. Id. Additionally, the prepaid membership fee may include services offered at no charge or at a nominal separate charge, so long as the benefits are of a non-fortuitous nature (such as a routine annual examination). Id.

So long as the fee charged per service covers the cost of rendition, including reasonable overhead, the pet benefit does not constitute the doing of an insurance business.

(19) Locksmith Service

Under the revised locksmith service benefit, if a member desires locksmith services for the member’s car, then the Motor Club will pay for a service call by a professional locksmith to open the member’s car door and/or re-key the member’s locks. A member must call the Motor Club at its nationwide toll-free telephone number, and the Motor Club will make arrangements to have a contract locksmith service dispatched to the member. If the contract locksmith professional cannot render the service, then the member may call a non-contract locksmith and have the locksmith call the Motor Club for authorization of payment, or the member may obtain a receipt for services rendered and submit it with the member’s completed claim form to the Motor Club for reimbursement.

As noted above, Circular Letter No. 2 (1979) sets forth the guidelines under which a motor club may provide certain services to its members. Since the Motor Club characterizes itself as a motor club, it falls within the purview of Circular Letter No. 2. The Department has not objected to a motor club providing towing and emergency road services so long as the motor club follows the guidelines set forth in Circular Letter No. 2 (1979). For example, Circular Letter No. 2 permits a motor club to provide towing and emergency road services through contract service stations, but the motor club may not reimburse a member for payment made to a non-contract service station, unless a contract service station cannot render the services.

In addition, the Department has opined that emergency locksmith services constitute emergency road services within the meaning of Circular Letter No. 2. See OGC Opinion 07-01-10 (Jan. 29, 2007). Therefore, the Motor Club may offer the locksmith service to Plan members, since it appears to be following the guidelines set forth in Circular Letter No. 2.

Further, under the revised locksmith service, if a member desires the use of a professional locksmith to open the member’s home door for any reason or circumstance whatsoever, including, but not limited to, where the member’s keys are lost, stolen, or left somewhere, then this benefit will pay for a service call by a professional locksmith to open the member’s door and/or re-key the member’s locks.

The Department does not consider this home locksmith benefit to be insurance, because the use of a professional locksmith is not dependent upon the happening of a fortuitous event, but rather is available if the member wishes to open his or her door or re-key his or her locks for any reason whatsoever.

(20) Identity Theft Benefit

Under the benefit, a Plan member receives access to 24/7 identity theft protection that includes early warning alerts, identity monitoring, and social security number protection. Monitoring services include an online fraud protection dashboard that monitors social security numbers, credit card numbers, physical addresses, telephone numbers and email addresses. In addition, a member receives toll-free access to the identity theft benefit hotline, staffed by experts to answer identity theft questions and assist with managing the member’s identity theft benefit account. The identity theft benefit also provides a monitoring wizard that a member may set to schedule regular scans of fraudulent websites. If a member’s personal information is found on a fraudulent website, then the member receives an email alert. In an email dated February 11, 2009, counsel for ABC confirmed that the identity theft benefit does not itself delete any member information it finds on fraudulent websites.

The Department opined in OGC Opinion 06-12-02 (Dec. 4, 2006) that an a company may “assist members in obtaining federally mandated free credit reports, deliver these credit reports, and provide assistance in reading and understanding credit reports” because “[t]he rendering of this service does not appear to depend upon the occurrence of any fortuitous event,” and therefore does not constitute the doing of an insurance business. However, the part of the program that involved pre-screening a potential identity theft victim and conducting an investigation into the circumstances and nature of the fraud, in addition to providing the customer with support and advisory information, was dependent upon a fortuitous event (i.e., identity theft) and therefore constituted the doing of an insurance business. See OGC Opinion 06-12-02.

Moreover, the Department opined in OGC Opinion 07-08-14 (Aug. 31, 2007) that the portion of the Identity Theft Shield Plan that provided a credit report and continuous credit monitoring did not constitute the doing of an insurance business, but that the part of that Plan that provided a trained expert to assist in the restoration of the name and credit of the covered identity theft victim constituted the doing of an insurance business because it was dependent upon the happening of a fortuitous event.

Here, the identity theft benefit “sweeps” the Internet for any sign that a member’s information is being posted on fraudulent websites. If a member’s personal information is found on a fraudulent website, then the member will receive an email alert. In view of counsel for ABC’s representations that the identity theft benefit does not itself delete any member information it finds being traded on the Internet, the identity theft benefit is merely providing monitoring services, which do not constitute the doing of an insurance business, because they are not dependent upon the happening of a fortuitous event.

(21) Home Improvement Benefit; (22) Cancer-Causing “Radon” Gas Test Kit; (24) Auto Body Repair Referral Network; (26) New and Used Car Locator Service; (27) Personalized Trip Routing; (28) Entertainment Book Benefit; (29) Vacation Travel Service; (30) Motel Discounts; and (31) Car Rental Discounts

The Department does not consider these benefits to be insurance, because the Plan provides them at a member’s request, and they are not dependent upon the happening of a fortuitous event.

(23) Personal Mechanic Hotline and (25) Auto Care Discounts

The personal mechanic hotline benefit permits a member to call the Motor Club to receive a referral to a professional service technician to obtain general diagnostic and car repair information. The Motor Club also will refer the member to a local mechanic for repairs at the member’s request. Once the final price is set for the repairs, the member is guaranteed a 10% discount off the cost of parts and labor, excluding tax. Further, the auto care discount benefit permits a member to save 10% or more through the Motor Club on tires, mufflers, brake service, glass replacement, wheel alignment, transmission service, and other everyday automobile care needs at service facilities nationwide.

The making of a service plan, which for a prepaid fee provides unlimited services dependent upon the happening of a fortuitous event, constitutes the doing of an insurance business pursuant to Insurance Law § 1101(a) and requires a license pursuant to Insurance Law §1102, because the service provider bears the risk of incurring a loss if the cost of rendition, including reasonable overhead, exceeds the fees paid. OGC Opinion 05-05-01 (May 2, 2005).

However, a service plan that charges a prepaid membership fee and offers certain services (which are based upon the happening of a fortuitous event) for an additional discounted fee per service does not constitute the doing of an insurance business, so long as the fee per service covers the cost of rendition, including reasonable overhead. Id. Additionally, the prepaid membership fee may include services offered at no charge or at a nominal separate charge, so long as the benefits are of a non-fortuitous nature (such as a routine annual examination). Id.

So long as the fee charged per service covers the cost of rendition, including reasonable overhead, providing a discount off the cost of labor or other services under the personal mechanic hotline and auto care discount benefits does not constitute the doing of an insurance business.

Conclusion

In light of the foregoing, ABC may utilize the revised Plan in New York in accordance with the analysis set forth in the instant opinion. To the extent that the analysis here is inconsistent with that set forth in the May 1987 opinion, the prior opinion no longer should be followed.

For further information, you may contact Senior Attorney Joana Lucashuk at the New York City office.

¹ The Motor Club and HIJ are subsidiaries of ABC.

² Additionally, there are certain coverages – such as road hazard and accidental damage from handling – that do not relate to the nature or efficiency of the product, but may nonetheless be provided under a service contract by a registered service contract provider.