The Office of General Counsel issued the following opinion on January 22, 2003, representing the position of the New York State Insurance Department.
Re: Service Contract Provider
1) May a domestic insurance company, which does not have the word "insurance" in its name, be registered as a service contract provider pursuant to N.Y. Ins. Law Art. 79 (McKinney 2000 & 2003 Supp.)?
2) Does one who markets service contracts constitute a "provider" under N.Y. Ins. Law § 7902(h) (McKinney 2000)?
1) 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 2000).
2) One who markets service contracts, but who is not contractually obligated to provide service under such contracts, is not a "provider" under N.Y. Ins. Law § 7902(h) (McKinney 2000).
The inquiry was general in nature and no specific facts were provided.
Domestic Insurer Registering as Service Contract Provider
The New York Insurance Law does not effect a statutory bar per se against an insurer registering as a service contract provider, so long as the insurers charter is broad enough to allow the insurer to engage in such business. However, the Superintendent would have to approve an insurers application pursuant to N.Y. Ins. Law § 1610(b) (McKinney 2000), which states:
(b) A domestic insurance company subject to this article may, provided that it maintains books and records which separately account for such business, engage directly 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 any limitations he may prescribe to protect the interests of the policyholders of the insurer after taking into account:
(1) the effect of such business on the insurer's existing insurance business and its surplus,
(2) the proposed allocation of the estimated cost of such business,
(3) the risks inherent in such business, and
(4) the relative advantages to the insurer and its policyholders of conducting such business directly instead of through a subsidiary.
With respect to the name of a service contract provider, N.Y. Ins. Law § 7906(a) (McKinney 2000) states:
A provider shall not use in its name the words insurance, casualty, guaranty, surety, mutual or any other words descriptive of the insurance, casualty, guaranty or surety business, or a name deceptively similar to the name or description of any insurance or surety corporation or any other provider.
This provision was intended to prevent any provider from misleading the public into thinking that it is an insurer when it is not. 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.
Marketing of Service Contracts
N.Y. Ins. Law § 7907 (McKinney 2000) provides that no person shall act as a service contract provider without having first obtained the Superintendents approval of registration. N.Y. Ins. Law § 7902(h) (McKinney 2000) states: "Provider means a person who markets, sells, offers for sale, issues, makes or proposes to make or administers a service contract, and who is contractually obligated to provide service under a service contract." (emphasis added). Based on N.Y. Ins. Law § 7902(h), one who markets service contracts, but who is not contractually obligated to provide service under such contracts, is not a "provider," and thus does not need to register with the Department.
For further information you may contact Senior Attorney Sally Geisel at the New York City Office.