The Office of General Counsel issued the following informal opinion on February 23, 2005, representing the position of the New York State Insurance Department.
Re: Coverage by the Life Insurance Company Guaranty Corporation of New York
Question Presented:
If multiple insurance policies are issued to one person on the lives of multiple insureds by the same insurer, to what extent does Article 77 (McKinney 2000) protect the parties to each policy?
Conclusion:
Based upon the language of Article 77 (McKinney 2000), the parties to each policy would be covered for the maximum amount permitted by Article 77 (McKinney 2000). However, for a definitive interpretation of Article 77 (McKinney 2000), the Department defers to the Life Insurance Company Guaranty Corporation of New York (hereinafter Corporation) and a court of competent jurisdiction.
Facts:
For each of the inquirers nine grandchildren, the inquirer applied for, and obtained, a separate life insurance policy. Each policy lists the inquirer as the owner. The inquirer pays the premiums for each of the nine policies. Each policy names, as the insured, one grandchild. The beneficiary of each policy is either the childs mother or father. All of the nine insurance policies were issued by the same New York licensed non-domestic life insurance company. The total face value of all nine policies exceeds $500,000. All the policies were applied for, and issued in New York State, and the inquirer was a New York State resident at the time of issuance of the nine policies.
The inquirer wants to know the amount of protection to which the parties to each policy would be entitled from the Corporation if the insurance company became insolvent before claims on the policies were made and paid.
Analysis:
N.Y. Ins. Law § 7702 (McKinney 2000) states in the relevant part that "[t]he purpose of this article is to provide funds to protect resident policyowners, insureds, beneficiaries, annuitants, payees and assignees of life insurance policies . . . issued by life insurance companies, subject to certain limitations, against failure in the performance of contractual obligations due to the impairment or insolvency of the insurer issuing such policies or contracts." N.Y. Ins. Law § 7703 (McKinney 2000) states in the relevant part that "[t]his article shall apply to direct life insurance policies, . . . issued to a resident by a life insurance company licensed to transact life or health insurance or annuities in this state at the time the policy, contract or agreement was issued . . . ." N.Y. Ins. Law § 7705(k) (McKinney 2000) states in the relevant part that "[r]esident means any person to whom contractual obligations are owed and who either (1) resides in this state at the time a member insurer is determined to be an impaired or insolvent insurer, or (2) resided in this state at the time a member insurer issued a covered policy to such person." N.Y. Ins. Law § 7705(d) (McKinney 2000) states in the relevant part that a "[c]overed policy means any of the kinds of insurance specified in paragraph one, . . . of subsection (a) of section one thousand one hundred thirteen of this chapter . . . ." N.Y. Ins. Law § 1113(a)(1) (McKinney Supp. 2005) states that "[l]ife insurance, means every insurance upon the lives of human beings, . . ." N.Y. Ins. Law § 7705(b) (McKinney 2000) states in the relevant part that "[c]ontractual obligations means any obligation under covered policies, . . . "
New York Insurance Law § 7708(b) (McKinney 2000) states in the relevant part:
If a foreign or alien insurer is an impaired or insolvent insurer, the corporation shall with the approval of the superintendent:
. . . .
(3) provide such moneys, pledges, notes, guarantees or other means as are reasonably necessary to discharge such duties.
The aggregate liability of the corporation under this subsection shall be the excess over any amount that the superintendent determines to be the statutory obligation of the guaranty corporation or association of the foreign or alien insurers state of domicile or state of entry, but in no event shall the corporations liability, when added to the amount so determined to be available from such other guaranty corporation or association, exceed five hundred thousand dollars for all benefits, including cash values, with respect to any one life, or, to the extent benefits are not allocated pursuant to a covered policy to any one life, to any one covered policy; provided, however, (i) that the foregoing five hundred thousand dollar limitation shall not apply to any group or blanket accident or health insurance or accident and health insurance policy; and (ii) that the liability of all such guaranty corporations or associations may in the aggregate equal, but shall not exceed one million dollars for all benefits, one million dollars for all benefits, including cash values, with respect to any group annuity contract (or portion of any such contract) that does not guarantee annuity benefits with respect to any specific individual identified in the contract and with respect to any funding agreement issued to fund benefits under any employee benefit plan.
. . . .
Many previous OGC opinions regarding the extent of protection granted to an individual pursuant to Article 77 (McKinney 2000) involved situations where there was a group insurance policy issued to a single owner. The Department analyzed the extent to which coverage for each individual of the group policy could be construed as a discrete policy for each covered individual. The Department considered factors such as whether the policy specifically identified each covered individual, and/or whether each person had a certificate evidencing coverage. If there was sufficient evidence, the Department opined that each individual should receive coverage up to $500,000 because each was considered as ". . . one life . . . " as opposed to a policy where " . . . . benefits are not allocated pursuant to a covered policy to any one life, . . . " in which case all beneficiaries to the policy would share the coverage of one payment of one million dollars. See, OGC opinion July 7, 2003.
Here, there is one owner of nine policies but each policy has a different insured and therefore each is on a separate life. Therefore, based upon past OGC opinions and the plain language of the statute, the parties to each of the nine insurance policies should be covered to the maximum amount allowed by the statute. This is based upon the assumption that parties to each of the policies, and the policies themselves, each otherwise meet all of the statutory requirements of Article 77 (McKinney 2000); and that the requirements are met for N.Y. Ins. Law §§ 3205 and 3207 (McKinneys Supp. 2005) regarding purchasing life insurance policies on the lives of minors.
However, for a definitive interpretation of Article 77 (McKinney 2000), the Department defers to the Corporation and a court of competent jurisdiction.
For further information one may contact, Susan Dess, Senior Attorney at the New York City Office.