The Office of General Counsel issued the following opinion on February 3, 2005, representing the position of the New York State Insurance Department.

Re: Tire Road Hazard Program

Question Presented:

May a marketer/administrator of aftermarket automobile products market a road hazard program in New York that provides coverage for damage to tires that is caused by road hazards such as nails, glass and potholes?

Conclusion:

No. A marketer/administrator of aftermarket automobile products may not market a road hazard program in New York that provides coverage for damage to tires that is caused by road hazards such as nails, glass and potholes.

Facts:

The inquirer’s client, a marketer/administrator of aftermarket automobile products would like to market a road hazard program in New York. The inquirer states that the program would be sold by automobile dealers in conjunction with the sale of a vehicle and would provide coverage for the usable tread life of a tire against damage caused by road hazards such as nails, glass and potholes. Specifically, the inquirer would like to know if such road hazard program constitutes insurance, thus, requiring licensing by the Department.

In addition to asking whether the client may market such program, the inquirer also submitted seven previously issued Office of General Counsel opinions that concluded, among other things, that the sale of a road hazard program in New York would be considered the doing of an insurance business pursuant to N.Y. Ins. Law § 1101(McKinney Supp. 2005). Those opinions also concluded that to sell such a product in New York without a license would constitute a violation of Section 1102 of the Insurance Law. The inquirer also submitted copies of two road hazard programs that you claim are currently being offered in New York. One program is called ABC Vehicle Service and the other is called DEF Tire Warranty. The ABC Vehicle Service program provides in relevant part, as follows:

TIRE AND WHEEL…: WE will reimburse YOU for the cost to replace YOUR tires (original tires as supplied by the manufacturer and replacement tires of like kind and quality), for the length of the CONTRACT, if damaged from glass, metal punctures or other road hazard on a public roadway. YOU will be reimbursed for the replacement of wheels (original wheels as supplied by the manufacturer and replacement wheels of like kind and quality) rendered unserviceable due to the road hazard damage of a tire covered under the CONTRACT. Unserviceable means that the wheel is unable to seal with the tire, resulting in air loss. YOU must provide receipts. YOUR tire(s) must have at least 3/32" of tread depth at time of blow out or flat for this coverage to apply. (emphasis in original).

The DEF Tire Warranty program provides in pertinent part, as follows:

Congratulations, your DEF Tire Warranty covers your new tire for a specific amount of Time and/or Mileage for Treadwear and Road Hazard Damage. Road Hazard damage is damage to your tire resulting from normal driving conditions which renders the tire unserviceable. (emphasis in original).

Analysis:/h4>

The inquirer asked whether, in light of the conclusions reached in prior opinions, the Department has exempted the two road hazard programs, mentioned above, from our licensing requirement. The opinions conclude that road hazard programs that offers coverage on damage to tires that is caused by road conditions such as nails and potholes, constitute the doing of an insurance business under Section 1101 of the Insurance Law. 1

Please note that we have reviewed the two programs called the ABC Vehicle Service and the DEF Tire Warranty. The coverage offered under both road hazard programs constitutes the doing of an insurance business pursuant to N.Y. Ins. Law § 1101 (McKinney Supp. 2005) and is therefore a violation of N.Y. Ins. Law § 1102 (McKinney Supp. 2005). The Department has not made any exemptions that would allow either program to provide such coverage in New York without a license. As a result, both programs will be referred to our Consumer Services Bureau for a thorough investigation.

Similarly, the inquirer’s client would like to market, in New York, a comparable road hazard program that provides coverage on damaged tires that is caused by nails, potholes and glass. Consequently, the client, like ABC Vehicle Service and DEF Tire Warranty above, may not offer its road hazard program in New York without being duly licensed.

The inquiry also mentioned, without additional detail, that the client plans on offering mechanical breakdown and/or transportation coverage along with the road hazard program in question. Without additional information on the type of coverage that will be offered under such programs, the Department is unable to opine further. The inquirer may, however, consult with our prior opinions for additional guidance on these issues or submit a more detailed description of such programs.

For further information please contact Associate Attorney D. Monica Marsh at the New York City Office.

1  [1] The opinions also found that generally these programs do not constitute warranties or service contracts.