The Office of General Counsel issued the following informal opinion on November 8, 2001, representing the position of the New York State Insurance Department.
Re: Life Insurance Company Guaranty Corporation of New York
1) Is the annuity that that inquirer purchased from the Life Insurance Company guaranteed by The Life Insurance Company Guaranty Corporation of New York?
2) What is the extent of the guarantee protection afforded by The Life Insurance Company Guaranty Corporation of New York on the annuity issued to the inquirer?
1) Yes, if the contract that the inquirer purchased from the Insurance Company is a fixed rate annuity contract that was issued on or after August 2, 1985 and the inquirer is a New York "resident" as such term is defined in Article 77 of the N.Y. Ins. Law (McKinney 2000), the annuity contract would be guaranteed by The Life Insurance Company Guaranty Corporation of New York.
2) As to the annuity contract issued to the inquirer by the Insurance Company, a foreign insurer, the aggregate liability of The Life Insurance Company Guaranty Corporation of New York would be the excess over the statutory obligation of the guaranty corporation or association of the foreign insurers state of domicile, in this case Connecticut, up to a total of $500,000 for all benefits with respect to any one life.
The inquirer states that,
The inquirer purchased through a bank, here in NY a Insurance Company product referred to as a Fixed Annuity or at times a Fixed Rate Contract - - ie: the inquirer "deposited" with the insurance company, funds for 6 years at a fixed annual rate. As the inquirer understands it, the inquirer is able to withdraw these funds before the 6 years, but would take a penalty. The Insurance Company product name that is marketed by the bank, as agent, is known as "X".
Since the inquirers initial inquiry to the Department, the inquirer learned (from a Department employee) that there exists an entity known as the Life Insurance Company Guaranty Company of New York and that it offers protection of up to $500,000 for any life insurance or annuity contract made in New York. As the inquirer understands it all life insurers licensed in NY must be a member of the LICGS[sic].
The inquirer has not informed the Department of the date that the inquirer purchased the annuity.
The Department has not been able to identify the particular product that was issued to the inquirer by the Insurance Company from its product name, "X". The Department maintains its records of form filings not by insurance company product name, but rather by its filing number with the Department. However, since the inquirer describes the contract that the inquirer purchased as being referred to as a "fixed annuity" and a "fixed rate contract", coupled with the fact that the inquirer contributed funds that can only be withdrawn by you with a penalty, and that it pays you interest at a fixed rate, it appears likely that it is a fixed rate annuity contract. For purposes of this response, we shall assume it to be such, and refer to the contract herein as the "annuity".
The Insurance Company is licensed as a life insurance company in New York. It is incorporated and domiciled in Connecticut. As such, the Insurance Company is a "foreign insurer" for purposes of the N.Y. Ins. Law, as that term is defined in § 107(a)(21) (McKinney 2000).
The Life Insurance Company Guaranty Corporation ("LICGC") was established as a not-for-profit membership corporation by Chapter 802 of the Laws of 1985 and is governed by Article 77 of the N.Y. Ins. Law (McKinney 2000), known as " The Life Insurance Company Guaranty Corporation of New York Act". The Act applies to covered policies that were issued on or after August 2, 1985. The scope of Article 77 is set forth in N.Y. Ins. Law § 7703(a) and it provides as follows:
This article shall apply to direct life insurance policies, health insurance policies, annuity contracts, funding agreements and contracts supplemental to life and health insurance policies, annuity contracts or funding agreements issued to a resident by a life insurance company licensed to transact life or health insurance or annuities in this state at the time the policy, contract or agreement was issued or at the time it became an impaired or insolvent insurer, as the case may be. [Emphasis added]
All life insurance companies licensed to transact life or health insurance or an annuity business in the State of New York are members of LICGC. The LICGC is funded by assessments made against its members after a member insurer is declared insolvent by a court of law. Among other things, the LICGC provides a guarantee to New York residents upon certain annuity contracts issued by foreign life insurers.
Covered policies do not have to be made in New York in order to be protected by the LICGC. Covered policies are those which are made by an insurance company licensed in New York State and issued to a New York resident, no matter where the life insurance policy or annuity contract is made. "Resident" is defined for purposes of N.Y. Ins. Law Article 77, in § 7705(k) (McKinney 2000) to mean:
any person to whom contractual obligations are owed and who either (1) resides in this state at the time a member insurer is determined to be an impaired or insolvent insurer, or (2) resided in this state at the time a member insurer issued a covered policy to such person.
If the inquirer is a resident, as defined in the foregoing statute, and purchased the annuity on or after August 2, 1985, the protection of the LICGC would apply to the inquirers annuity should the Insurance Company be declared insolvent by a court. Then, if the Insurance Company were to fail to meet its contractual obligation to the inquirer under the annuity due to its impairment or insolvency under Article 74 of the N.Y. Ins. Law (McKinney 2000), the LICGC would be available to pay the inquirers policyholder claim. The inquirer should be aware that the Insurance Company is neither impaired nor is it insolvent and, therefore, the protection of the LICGC has not been triggered.
The limit of LICGC protection for a qualified contract holder of a fixed rate annuity contract issued by a foreign insurer, such as the Insurance Company mentioned, is an aggregate amount of $500,000. Not all of this amount would be paid by LICGC since such limit is offset by amounts available from the guaranty corporation or association in Connecticut, the insurers state of domicile. The second part of subsection (b) of N.Y. Ins. Law § 7708 (McKinney 2000) addresses this aggregate limit, in pertinent part, as follows:
(b) * * *
The aggregate liability of [LICGC] under this subsection shall be the excess over any amount that the superintendent determines to be the statutory obligation of the guaranty corporation or association of the foreign...insurers state or domicile but in no event shall the corporations liability, when added to the amount so determined to be available from such other guaranty corporation or association, exceed five hundred thousand dollars for all benefits, including cash values, with respect to any one life, or, to the extent benefits are not allocated pursuant to a covered policy to any one life, to any one covered policy; [Emphasis added]
As to covered policies issued by a foreign insurer, there is an aggregate limitation of $500,000 with respect to any one life, but guaranty monies available from sources in the insurers state of domicile are credited to the LICGC and these offset obligations of the LICGC. Under § 7708(b) of the N.Y. Ins. Law (McKinney 2000) the liability of the LICGC as to the obligations of a foreign insurer which is impaired or insolvent is the excess over any amount that the Superintendent of Insurance determines to be the statutory obligation of the guaranty corporation or association of the foreign insurers state of domicile (in this instance, Connecticut).
Under N.Y. Ins. Law § 7708(f) (McKinney 2000) when any person receives benefits from the LICGC under Article 77 the LICGC assumes all of the rights under the covered policy that such person had immediately prior to such receipt. As to the priority of claims were a life insurer licensed in New York to be liquidated, rehabilitated, conserved or dissolved pursuant to Article 74, N.Y. Ins. Law § 7435 (McKinney 2000) specifies that the LICGC enjoys the same priority against the assets of the impaired or insolvent insurer as would the annuitant or other contract holder under N.Y. Ins Law § 7435 (McKinney 2000). The statute provides for the priority of distribution of claims from the estate of a life insurance company in any proceeding subject to Article 74 (rehabilitation, liquidation, conservation and dissolution). The order in which payment is made is based upon the classes of risk specified therein. The first paid is class one and the last is class eight. Claims under annuity contracts fall within class four of N.Y. Ins. Law § 7435(a)(4) (McKinney 2000) which provides, as follows:
(4) Class four. All claims under insurance policies, annuity contracts and funding agreements, and all claims of The Life Insurance Company Guaranty Corporation of New York or any other guaranty corporation or association of this state or another jurisdiction, other than (i) claims provided for in paragraph one of this subsection, and (ii) claims for interest. [Emphasis added]
For further information you may contact Associate Attorney Barbara A. Kluger in the New York City Office.