OGC Op. No. 04-10-09
The Office of General Counsel issued the following opinion on October 13, 2004, representing the position of the New York State Insurance Department.
Re: Procurement of Product or System Group Insurance by Excess Line Broker
May a product or system group insurance policy, such as an automobile anti-theft reimbursement policy, be procured by an excess line broker?
A product or system group insurance policy, such as an automobile anti-theft reimbursement policy, may not be procured by an excess line broker.
The inquirer represents a client ("the client") who "markets and distributes an automobile anti-theft device with a guarantee limited to reimbursement of their auto insurance policy deductible" in the event that an automobile is stolen and not recovered. (emphasis added). Please note that such a guarantee by the client would constitute the doing of an insurance business in New York because the intervening fortuitous event that causes the loss prevents these agreements from being true guarantees. However, the client may purchase a product or system group insurance policy which would provide such coverage directly from an authorized insurer to the customer. Pursuant to such insurance contract, the client would be the policyholder and the persons who purchase or own the product or system would be the certificateholders. Thus, where, for example, the client has represented that the anti-theft device in question is designed to prevent loss or damage from a specific cause, the policy covers certain loss or damage incurred by the certificateholder.
In regard to obtaining such insurance coverage, the inquirer states that she has spoken with several people in the Department and received a list of authorized insurers in New York that sell such insurance in question. However, the inquirer has been unsuccessful in finding an authorized insurer willing to issue such a policy to the client. In fact, the inquirer states that she has received three written declinations from authorized insurers who do not want to write such a small-sized risk, or who do not issue such policies in New York. The inquirer believes that she could find such insurance coverage in the excess line market, thus, she asks whether an excess line broker may procure such coverage.
By way of background, N. Y. Ins. Law § 3446 (McKinney 2000) was enacted in 1999 to authorize the issuance of a group policy to a company that manufactures, distributes or installs a product or system, such as your clients automobile anti-theft device. N.Y. Comp. Codes R. & Regs. tit. 11, Part 310 (2000) (Regulation 167) was promulgated in accordance with Section 3446(g). Specifically, N.Y. Comp. Codes R. & Regs. tit. 11, § 310.1(g) defines a product or system group policy as:
(g) [A] policy issued on a group basis to a group policyholder that provides coverage to group members when the manufacturer, distributor, or installer of a product or system has represented that the product or system is designed to prevent loss or damage to property from a specific cause (other than loss or damage resulting from defect in materials or workmanship, or wear and tear), and the coverage provided to the group members is for loss or damage to such property from such cause. For purposes of this Part, loss or damage to the property (valued as actual cash value, stated value, replacement cost, or other method of valuation acceptable to the superintendent) may also include unreimbursed incidental expenses that may be incurred as a result of the loss or damage to the property, such as rental or registration costs for replacement property.
N.Y. Comp. Codes R. & Regs. tit. 11, § 310.2(a) provides as follows:
(a) A product or system group policy issued to a group policyholder or certificate issued to a group member thereunder may be issued or delivered in this State only in compliance with the provisions of Insurance Law, section 3446 and this Part.
As explained in the facts above, a product or system group policy, which must be obtained from an authorized insurer, insures purchasers or owners of the product or system, where the manufacturer, distributor, or installer has represented that the product or system is designed to prevent loss or damage to property from a specific cause (other than loss or damage resulting from defect in materials or workmanship, or wear and tear). Under Section 3446, the coverage may not be provided directly by the manufacturer, seller, or distributor of the product or system, or other person, such as the program administrator. Instead, such insurance is included, along with the sale of the product or system, under a group insurance policy that is purchased by the manufacturer, seller, or distributor of a product or system. The premium for such coverage is paid directly by the group policyholder, not by the purchaser or owner of the product or system. In addition, group insurance policies and certificates issued thereunder, are subject to approval by the Insurance Department.
With respect to the inquirers inability to obtain this coverage, she states that she has received three declinations from authorized insurers who are unwilling to write coverage for the clients automobile anti-theft device. The inquirer believes the client may be able to obtain such coverage on an excess line basis. Thus, the inquirer would like to know if such coverage may be procured by an excess line broker. N.Y. Ins. Law § 3446(c) (McKinney 2000) addresses that issue and provides, in pertinent part, as follows:
(c) The policy, and certificates issued thereunder, may provide coverage for a kind of insurance authorized by paragraphs four through twelve, nineteen and twenty of subsection (a) of section one thousand one hundred thirteen of this chapter, and may be issued or delivered in this state only by an insurer authorized in this state to write the coverage. (emphasis added).
Further, N.Y. Comp. Codes R. & Regs. tit. 11, § 310.2(c) provides as follows:
(c) No product or system group policy or certificate may be issued or delivered in this State except by an authorized insurer. No such policy or certificate shall be eligible for placement by an excess line broker licensed pursuant to Insurance Law, article 21. (emphasis added).
Both Section 3446 and Regulation 167 require that any such coverage be issued or delivered by a New York authorized insurer only, thus, prohibiting the procurement of such coverage by an excess line broker.
For further information you may contact Associate Attorney D. Monica Marsh at the New York City Office.