The Office of General Counsel issued the following informal opinion on September 5, 2000, representing the position of the New York State Insurance Department.
RE: Mechanical breakdown insurance
Questions Presented:
1. May an insurer write mechanical breakdown insurance?
2. May an insurer register as a service contract provider?
Conclusions:
1. An insurer may write mechanical breakdown insurance only in regard to motor vehicle or aircraft insurance under N.Y. Ins. Law § 1113 (a) (19) (McKinney 1985 & Supp. 2000), or as part of an all risk policy written under N.Y. Ins. Law § 1113 (a) (7) or (20) (McKinney 1985).
2. There is no statutory bar per se against an insurer registering as a service contract provider, but the Superintendent would have to approve such application pursuant to N.Y. Ins. Law § 1610 (b) (McKinney 1985 & Supp. 2000).
Analysis:
An insurer inquired whether it may issue coverage under an insurance policy that provides essentially the same kind of coverage as provided under a service contract, which is governed by N.Y. Ins. Law Article 79 (McKinney Supp. 2000). Because of the rather specific definitions of the kinds of insurance that are authorized by N.Y. Ins. Law § 1113 (McKinney 1985 & Supp. 2000), this Department has opined that such "mechanical breakdown" coverage is authorized only in connection with motor vehicles or aircraft under N.Y. Ins. Law § 1113 (a) (19) (McKinney 1985 & Supp. 2000), or if written as part of an all risk policy under N.Y. Ins. Law § 1113 (a) (7) or (20) (McKinney 1985). Such policies would, of course, be subject to the requirements of the Insurance Law applicable to these kinds of insurance.
The insurer also inquired whether it may register as a service contract provider, in accordance with Article 79. Assuming that the insurers charter is broad enough to allow it to engage in such business, there is nothing in the Insurance Law that per se prohibits an insurer from registering as a service contract provider. N.Y. Ins. Law § 1610 (b) (McKinney 1985 & Supp. 2000) permits a domestic property/casualty insurer to engage in:
any other business activity reasonably ancillary to an insurance business to the extent any such business is approved by the superintendent and subject to the limitations he may prescribe to protect the interests of the policyholders of the insurer after taking into account:
the effect of such business on the insurers existing insurance business and its surplus,
the proposed allocation of the estimated cost of such business,
the risks inherent in such business, and
the relative advantages to the insurer and its policyholders of conducting such business directly instead of through a subsidiary.
Foreign insurers and United States branches of alien insurers are subject to N.Y. Ins. Law § 1106 (e) (McKinney 1985), which requires any such insurer to substantially comply with any requirement or limitation of the Insurance Law applicable to similar domestic insurers that in the judgment of the Superintendent is reasonably necessary to protect the interests of the people of this State.
However, there are no insurers registered as service contract providers in this State. In the absence of a specific proposal from an insurer that addressed the above matters, it would be premature to address whether the Superintendent would find it acceptable for an insurer to engage in such business.
The question was raised whether N.Y. Ins. Law § 7906 (a) (McKinney Supp. 2000) would be a practical bar to an insurer becoming a service contract provider. This subsection prohibits any provider from using the words insurance, casualty, guaranty, surety, mutual or any other word descriptive of such businesses, or a name deceptively similar to the name or description of any insurance or surety corporation or other provider. Obviously, most insurers names contain these prohibited words. However, this provision was intended to prevent any provider from misleading the public into thinking that it is an insurer when it was not. It would not be deceptive for an insurer to use its proper name; in fact, the opposite would be the case. Should the Superintendent find it acceptable for an insurer to register as a provider, this provision would not prevent the insurer from using its proper name. However, any marketing or other materials or contracts entered into by such an insurer in its role as a service contract provider would have to clearly and prominently note that a service contract is not insurance and that the insurer is not acting as an insurer in engaging in such activities.
For further information you may contact Supervising Attorney Paul A. Zuckerman at the New York City Office.