The office of General Counsel issued the following informal opinion on March 22, 2002, representing the position of the New York State Insurance Department.
Re: Service Contract Reimbursement Insurance
Question Presented:
May a service contract reimbursement policy that is issued to a provider in satisfaction of the financial security requirements of N.Y. Ins. Law Art. 79 (McKinney 2000, Supp. 2001-2002) cover only the providers obligations and liabilities under service contracts issued by the provider in New York State, or may it also cover the providers obligations and liabilities under service contracts issued by the service contract provider in other states?
Conclusion:
A service contract reimbursement insurance policy issued in satisfaction of the financial security requirements of N.Y. Ins. Law Art 79 (McKinney 2000, Supp. 2001-2002) may, but is not required to, cover thereunder the providers obligations and liabilities under service contracts issued in other states.
Facts:
The Inquirer did not present any factual situation.
Analysis:
N.Y. Ins. Law Article 79 (McKinney 2000, Supp. 2001-2002) and N.Y. Comp. Codes R. & Regs. tit. 11 §§ 390.0-390.13 (Department Regulation 155) (2001), which implements the service contract law, govern the sale and marketing of service contracts in New York (i.e. New York service contacts). N.Y. Ins. Law § 7903(b) (McKinney 2000 and Supp. 2001-2002) provides that service contracts shall not be issued, sold or offered for sale in this state unless the provider:
provides the contract holder with a receipt for, or other evidence of, the purchase of the service contract and a copy of the terms and conditions of the service contract at the place of sale;
gives a copy of the service contract to the service contract holder within a reasonable time after its purchase; and
otherwise complies with Article 79.
Before a provider (i.e., a person who markets or sells a service contract and who is contractually obligated to provide service thereunder) can sell such contracts in New York State, it must apply for and obtain the Superintendents approval of a service contract provider registration. Under N.Y. Ins. Law § 7903(c) (McKinney Supp. 2001-2002), each provider must demonstrate one of three kinds of proof of its financial responsibility to assure the faithful performance of its obligations to service contract holders. The inquiry is only as to the first of these kinds that is addressed in paragraph (1) and provides, in pertinent part, as follows:
insure the performance of all its obligations under all service contracts pursuant to a service contract reimbursement insurance policy issued by an insurer authorized to issue service contract reimbursement insurance in this state or procured by an excess line licensee pursuant to section two thousand one hundred eighteen of this chapter
The financial responsibility requirement is met thereunder by a service contract reimbursement insurance policy covering the providers obligations under service contracts it issues in New York.
"Service contact reimbursement insurance" is defined in N.Y. Ins. Law § 1113(a)(28) (McKinney Supp. 2001-2002) as follows:
insurance issued to a provider pursuant to article seventy-nine of this chapter whereby the insurer agrees, for the benefit of service contract holders, to discharge the obligations and liabilities of such provider under the terms of the service contracts issued by such provider, including the return of unearned provider fees upon any termination or cancellation of service contracts, in the event of non-performance of any such obligations or liabilities by such provider. Such insurance may also include insurance issued to a provider to indemnify the provider for losses sustained by reason of the performance of such providers obligations under service contracts issued pursuant to article seventy-nine of this chapter.
The N.Y. service contract law does not require that a service contract reimbursement policy that is issued in New York cover service contracts issued by the provider outside of New York, but neither does it prohibit such policies from covering non-New York service contracts. There is nothing in the N.Y. Ins. Law that prohibits a service contract reimbursement insurance policy that a registered service provider obtains as proof of its financial responsibility as to New York service contracts from also including coverage as to service contracts the provider may issue, sell or offer for sale in other states.
We offer no opinion as to whether the coverage provided under a New York service contract reimbursement insurance policy that is applicable to non-New York service contracts would satisfy statutory requirements in those states in which such service contracts are issued. The laws of those other states govern as to service providers doing business in those states.
For further information you may contact Associate Attorney Barbara Kluger at the New York City Office.