OGC Op. No. 04-01-20
The Office of General Counsel issued the following informal opinion on January 21, 2004, representing the position of the New York State Insurance Department.
Re: Policy Issued to an Insurer and its Agents and the Representatives of its Affiliate, a Securities Broker/Dealer
1. May a policy that insures a life insurance company, its insurance agents and the representatives of the insurers affiliate, a securities broker/dealer, be issued as a group personal excess insurance policy under N.Y. Ins. Law § 3445 (McKinney 2000)?
2. May a life insurance company or securities broker/dealer require that its agents or representatives purchase insurance under a group insurance policy insuring the life insurer, its insurance agents and the broker/dealers representatives?
3. May a policy that insures a life insurance company, its insurance agents and the broker/dealers representatives provide coverage subject to a group aggregate liability limit?
1. No, a policy that insures a life insurance company, its insurance agents and the representatives of the insurers affiliate, a securities broker/dealer, may not be issued as a group personal excess insurance policy under N.Y. Ins. Law § 3445 (McKinney 2000). However, a group commercial liability policy may be issued if it complies with the requirements of N.Y. Ins. Law Article 59 (McKinney 2000); the Federal Liability Risk Retention Act 15 U.S.C. §§ 3901, et seq. ("LRRA"); N. Y. Comp. Codes R. & Regs., tit. 11, § 153.0 et seq. (1995) (Regulation No. 135); and N. Y. Comp. Codes R. & Regs., tit. 11, § 301.0 et seq. (1995) (Regulation No. 134).
2. No, a life insurance company or securities broker/dealer may not require that its agents or representatives purchase insurance under a group insurance policy insuring the life insurer, its insurance agents and the broker/dealers representatives.
3. No, a policy that insures a life insurance company, its insurance agents and the broker/dealers representatives may not provide coverage subject to a group aggregate liability limit.
The Department received a complaint from an insurance agent of a life insurance company. The agent is also a securities broker/dealer representative for a securities affiliate of the life insurer. The agent had been told by the life insurer that he was required to purchase liability insurance from XYZ Casualty Insurance Co. ("XYZ"), a New York authorized insurer, even though he already had liability insurance. The policy provided coverage for both the life insurance company and its agents and the securities affiliates representatives. The policy did not insure the securities affiliate itself and a separate policy was issued to it. Unlike the agents existing policy, which provided coverage regardless of which insurer or broker/dealer the insured was affiliated with, the XYZ policy provided coverage only in connection with transactions involving the securities affiliate. (Apparently, the representatives are not allowed to represent other broker/dealers.) However, the policy provided coverage to an insurance agent regardless of whether the agent was acting on behalf of the life insurer. The policy also contained an overall aggregate liability limit so that a particular agent or representatives coverage could be exhausted by claims against other agents or representatives.
During discussions, the life insurance company advised us that prior to the policy period August 1, 2002 through August 1, 2003, the master policy had been issued to the life insurance company outside of New York but that the 2002-2003 policy had been issued to it in New York in error. In addition, prior to the 2002-2003 year, coverage under the policy was optional and the life insurance company had not required its agents to purchase the coverage. XYZ stated that the requirement to purchase the XYZ policy had been imposed by the insurance company and not by XYZ.
Based upon our review of the facts, we advised the inquirer that XYZ had issued an illegal group insurance policy in New York and that the only way the coverage could be offered on a group basis was on a purchasing group basis. However, even if the policy was restructured and a purchasing group was formed, the policy may not contain a group aggregate nor may the group policyholder (the life insurance company) or the securities affiliate require that the members of the group (the agents and representatives) purchase the insurance.
In a July 11, 2003 letter, and in subsequent discussions, XYZ advised us that the renewal policy would be issued on a purchasing group basis. Further, XYZ stated that the policy will not have a group aggregate limit. Both the life insurance company and the securities affiliate have agreed that they will not mandate that the agents or representatives be covered under the policy.
Although XYZ has agreed to revise the policy in accordance with our conversations, it requested that we provide it with a written response regarding the legal issues involved. In particular, XYZ wished us to address why the Department has concluded that the policy could not be written under N.Y. Ins. Law § 3445 (McKinney 2000) since XYZ believes that N. Y. Comp. Codes R. & Regs., tit. 11, § 153.0 et seq. (1995) (Regulation No. 135) does not apply to § 3445.
This opinion is limited to addressing the questions posed by XYZ and by the agent; specifically, whether the policy may be issued on a group excess or other group basis; whether the group policyholder or the insurer may require the agents and representatives to be covered under the policy; and whether there may be a group aggregate.
Regulation No. 135 was promulgated in 1989 to clearly establish rules defining when a property/casualty policy would be considered to be a group policy and to establish rules in regard to all permissible types of property/casualty group insurance that were permitted in New York at that time. Specifically, in 1989, group property/casualty insurance was authorized in New York only in regard to not-for-profit/tax-exempt entities and public entities pursuant to N.Y. Ins. Law § 3435 (McKinney 2000) and purchasing groups pursuant to N.Y. Ins. Law Article 59 (McKinney 2000) and the Federal Liability Risk Retention Act 15 U.S.C. §§ 3901, et seq. ("LRRA"). Under the LRRA and Article 59, a purchasing group may obtain only liability insurance for business-related liability on a group basis 1. See N.Y. Ins. Law § 5902 (McKinney 2000). Section 153.1(g) of Regulation No. 135 contains the following definition of group policy:
(g) Group policy means:
(1) a policy underwritten and issued on a collective basis of:
(i) property/casualty insurance insuring the interests of two or more persons or entities; or
(ii) liability insurance insuring a Federal purchasing group or its members;
(2) Where an insurer elects to issue a single policy with a first-named insured and additional insureds, such policy shall not be considered a "group policy" in regard to the following:
(i) corporations or other entities under common control as Section 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 but only for policies subject to Section 3425 of the Insurance Law; 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.
Under the foregoing definition, a single policy could have been issued covering only the life insurance company and its securities affiliate, because they come within the § 153.1(g)(2)(i) exception for corporations under common control. However, the policy issued by XYZ to the live insurance company and its agents and the securities affiliates representatives, constitutes a group insurance policy in New York because the policy is underwritten and issued on a collective basis insuring the interests of two or more persons or entities and none of the exceptions quoted above apply.
However, the policy could not have been issued on a group basis. The group does not qualify as a group under § 3435, since the life insurance company and the members of the group are not government entities or not-for-profit entities. Nor could the purchasing group provisions be relied upon because a purchasing group had not been formed and registered with the Department for this group in accordance with the requirements of the LRRA and Article 59.
Since the enactment of Regulation No. 135, New York law has been amended several times to permit additional forms of group property/casualty insurance. Two of those provisions clearly have no applicability here: N.Y. Ins. Law § 3442 (McKinney 2000), regarding credit card, debit card, or checking account group policies; and N.Y. Ins. Law § 3446 (McKinney 2000), regarding product or system group insurance policies.
It is in regard to the remaining group provision, N.Y. Ins. Law § 3445 (McKinney 2000), which was added by Chapter 528 of the Laws of 1998, 2 that XYZ suggested would be applicable to the ABC policy. Section 3445 authorizes "employer sponsored group personal excess insurance." Subsection (a) thereof contains the following relevant definitions:
(3) "Employee" means an individual or partner who receives or has received income, wages or salaries from the employer.
(4) "Employer" means a person, partnership, corporation or other entity which pays or has paid income, wages or salaries to a person or persons.
(5) Employer sponsored group personal excess insurance" means a group policy of insurance providing the kind of insurance defined in paragraph thirteen or fourteen of subsection (a) of section one thousand one hundred thirteen of this chapter, written as an excess policy with premiums remitted by the employer, insuring groups of active and/or retired employees designated by the employer.
(6) "Group member" means a designated employee insured under this section.
(7) "Group policy" means employer sponsored group personal excess insurance written for the designated employees of an employer.
According to the sponsors memorandum in support of A-10716A, which was enacted as § 3445, "[e]mployer sponsored personal excess insurance is property casualty [sic] insurance written as an excess policy for groups of employees. This type of insurance is typically offered by employers and partnerships as an incentive for employees and partners to participate in community activities such as serving on volunteer not-for-profit boards, engaging in youth activities and fulfilling various other civic duties." The memorandum further states that "[t]he proposed law will create a narrow exception to the prohibition on group property casualty [sic] insurance on behalf of [an employers] employees and past employees. Enactment of this legislation would also help New York employers to remain competitive relative to businesses that offer this coverage as a benefit, and encourage valued employees to participate in community activities."
The policy does not provide excess coverage for employees as contemplated by § 3445. The coverage is not excess but primary coverage. Nor does the policy meet the express purpose behind the bill, that is, to provide an incentive for employees and partners to participate in community affairs since the policy provides errors and omissions insurance. Accordingly, it is our opinion that § 3445 does not authorize the writing of the group policy in question.
We advised XYZ that, if a purchasing group were utilized in accordance with the LRRA and Article 59, at least two aspects of the prior policy would have to be modified.3 First, a group aggregate for New York members is not permissible under § 153.4(c), 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 previous policy would not be acceptable in that it was a group policy that is subject to an aggregate liability limit. XYZ states that the 2003-2004 policy has eliminated the group aggregate in regard to the New York members.
The other concern is the requirement by the life insurance company/securities affiliate that all of the agents and representatives must purchase the insurance. This is contrary to § 153.8, which provides:
No insurer shall provide coverage in regard to a group or quasi-group program that:
(a) requires the purchase of insurance as a condition of group membership or quasi-group participation; or
(b) imposes any penalty upon a group member or quasi-group participant if insurance is not purchased.
Accordingly, the life insurance company/securities affiliate may not require its agents to participate in the group program.4
It may be noted in passing that, even if § 3445 applied to the policy, neither the compulsory coverage nor group aggregate would be permitted, because the statute provides:
(d) An employee shall have the right to refuse coverage offered by an employer under this section.
(e) Each policy written pursuant to this section shall provide separate limits of coverage for each group member.
In addition to Regulation No. 135, XYZ should be aware of N. Y. Comp. Codes R. & Regs., tit. 11, § 301.0 et seq. (1995) (Regulation No. 134), which applies to purchasing groups.
This response is limited to the specific issues raised by the agent and that XYZ requested that we address. Since the policy has not been filed yet, we will not address any other issues that may arise in connection with that filing.
For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.
1 Specifically, § 5902(h) provides:
(h) "Liability" means legal liability for damages (including costs of defense, legal costs and fees, and other claims expenses) because of injuries to other persons, damage to their property, or other damage or loss to such other persons resulting from or arising out of:
(1)(A) any business (whether profit or nonprofit), trade, product, services (including professional services), premises, or operations; or
(B) any activity of any state or local government, or any agency or political subdivision thereof; and
(2) does not include personal risk liability and an employer's liability with respect to its employees other than legal liability under the Federal Employers' Liability Act (45 U.S.C. s 51 et seq.).
2 There is another § 3445, which was added by Chapter 44 of the Laws of 1998, regarding windstorm insurance notice.
3 The inquirer advised us that a purchasing group has been formed and registered in Illinois and is in the process of registering with New York, for the purpose of providing the insurance to this group.
4 However, nothing in the Insurance Law or regulations thereunder precludes ABC and PQR from requiring their New York agents or representatives to obtain insurance coverage that equals or exceeds the purchasing group coverage, and which provides vicarious liability coverage for ABC or PQR, as appropriate, or from requiring that the agent or representative provide the company with notice if coverage is terminated, for any reason. It is our understanding that ABC and PQR intend to implement such requirements in lieu of mandatory CNA coverage.