The Office of General Counsel issued the following opinion on August 12, 2003, representing the position of the New York State Insurance Department.
Re: Regulation 135 and Aggregate Limits
Under New York State Insurance Regulation 135 (N.Y. Comp. Codes R. & Regs. tit. 11 § 153 (1995)), where a policy is issued outside of New York on an excess line basis insuring a not-for-profit organization and affiliated agencies, may the policy insure the New York affiliated agencies when the insureds are subject to a group aggregate liability limit?
The policy in regard to the New York members would not be permissible, in that, as a group policy, an aggregate limit is not allowed.
The inquirers company is the broker of record representing Big Brothers Big Sisters of America ("BBBSA") in connection with a nation-wide program of property/casualty insurance to be effective September 12, 2003. BBBSA is headquartered in Philadelphia, which is the location of the national chapter, and there are approximately 470 affiliated agencies nationwide, each of which is a separately incorporated charitable entity pursuant to 26 U.S.C. § 501(c)(3)(2003). Fifteen of these corporations are located in New York State.
The proposed coverage is a Professional Liability/Sexual Molestation Coverage group program to be written on a single master policy for BBBSA and its affiliated agencies with the following limits:
$ 1,000,000 Each Wrongful Act Limit
$ 2,000,000 Each Affiliated Agency Limit
$10,000,000 Total Limit.
The master policy will be issued outside New York in Pennsylvania on a surplus (excess) line basis. The inquirer has stated that the insurer, St. Paul Surplus Line Insurance Company, is concerned about the enforceability of the $10,000,000 for those BBBSA entities located in New York. The Department assumes, for the purposes of this response, that coverage for the New York entities would be effected by delivery of a certificate or otherwise to New York or that there would be some other activity in New York.
N.Y. Ins. Law § 3435 (McKinney 2000) authorizes the writing of group property/casualty insurance1 for public entities and not-for-profit/tax exempt entities. The rules governing the issuance of such policies are contained in N. Y. Comp. Codes R. & Regs. tit. 11, § 153.0 et seq. (1995) (Regulation 135). Of particular note is N. Y. Comp. Codes R. & Regs., tit. 11, § 153.4(c) (1995), which provides as follows:
(c) No group policy, master policy or certificate shall be subject to a group or sub-group aggregate liability limit of any kind at any time, and any liability limit applicable to a group member shall:
(1) be separate and apart from any liability limit to which any other group member insured under the group policy may be subject; and
(2) operate unaffected by the experience of any other group member or the overall experience of the group itself.
As indicated by this provision, the proposed coverage would not be acceptable in that it is a group policy that is subject to an aggregate liability limit. In addition, the individual liability limits of the members will be affected by the experience of the group itself and that of other group members.
The fact that the master policy is issued outside of New York does not exempt the transaction from Regulation 135. The Department has consistently interpreted the provisions of the Insurance Law to apply to each certificate under a group property/casualty insurance policy as if the certificate was a separate policy of insurance, except where the law expressly provides otherwise. Of particular relevance, New Yorks law prohibiting unauthorized insurers from doing an insurance business in this State would apply to each certificate. Under N.Y. Ins. Law § 1101(b)(2) (McKinney 2000 & Supp. 2003), the only relevant exception for the New York members coverage is the excess line exception contained in § 1101(b)(2)(F). Accordingly, New Yorks excess line laws would be applicable to the placement of coverage for each New York member.
By its terms, Regulation 135 applies to all policies issued on a group basis, whether the insurer is authorized or otherwise. The only exceptions are those sections that specifically refer to "authorized insurer", such as § 153.6, which addresses rate and form filings. Since § 153.4 is not limited to authorized insurers, it applies in this case to any certificate delivered in New York.
Accordingly, the proposed policy would not be permitted in New York with the group aggregate limitation.
For further information one may contact Supervising Attorney Michael Campanelli at the New York City office.
1Based upon the inquirers representations, the proposed policy is a group policy. In addition, an examination of the applicable Regulation indicates that group treatment is proper. Under § 153.1(g)(2) of the Regulation, where the insurer elects to issue a single policy with a first named insured and additional insureds, such policy will not be considered a group policy in regard to the following:
(i) corporations or other entities under common control as defined N.Y. Ins. Law § 107(a)(16) with regard to their related interests;
(ii) franchisors and franchisees with regard to their related interests;
(iii) members of a joint venture or partnership, with regard to their related interests;
(iv) family members (only for policies subject to N.Y. Ins. Law § 3425) or
(v) shared interests [as defined in § 153.1(s)], provided that such shared interests exist among all additional insureds, and only to the extent of such shared interests.
None of these exceptions applies. Therefore, the policy is a group policy