OGC Op. No. 05-09-28

The Office of General Counsel issued the following opinion on September 26, 2005, representing the position of the New York Insurance Department.

Re: Revised Discount “Total Loss Protection” Program

Question Presented:

Is the revised discount program in violation of the Insurance Law?


The revised program as described would not violate the Insurance Law.


The inquirer's client, ABC, under the name DEF, previously submitted its discount program for review by this Department to determine whether the program would be in accordance with the New York Insurance Law. By letter dated August 10, 1999, the Department concluded that the discount program that would be offered by DEF did not appear to violate the Insurance Law, based upon the assumption that the discount would not eliminate the dealer’s profit margin on each vehicle. The Department reviewed the revised version of the program and in a letter dated September 21, 2004, the Department advised the inquirer that the revised program would be in accordance with the Insurance Law.

However, the inquirer advised the Department that the name and some of the provisions are similar to a program that the Department addressed in a December 1, 2004 letter. That letter addressed a program called “Total loss guarantee.” The inquirer states that some automobile dealers are concerned that the program is now in violation of the law. The inquirer requests that the Department review the current program to eliminate any confusion between the programs.

Although the contract itself has been rewritten and looks different from the agreement that the Department last reviewed in 2001, it appears that all of the salient provisions remain materially unchanged, at least with respect to the Insurance Law.

Under the program, a dealer that sells or leases a motor vehicle with a properly installed "Theft Deterrent System", including but not limited to vehicle etching or decals, guarantees that, in the event of a total loss to the vehicle due to accidental occurrence or theft, the dealer will provide a credit toward the purchase of a replacement vehicle. For a new vehicle, the value of the credit would be in an amount up to 10% of the original manufacturer's suggested retail price (MSRP), not to exceed $5,000. If the vehicle was a used vehicle, then the amount would be up to $3,000, but not to exceed 50% of the NADA Retail Official Used Car Guide value of the vehicle as of the date of the purchase or lease.

The contract provides that no discount allowance will be available in the event that it would totally eliminate any dealer profit on the replacement vehicle. In the original version that the inquirer submitted to the Department, the contract provided that: “In such event, a reduced amount will be paid.” After discussing it with the Department, the inquirer submitted a revised contract that now reads: In such event, a reduced amount will be paid to ensure that the Dealer profit will not be totally eliminated.” The replacement vehicle must be of equal or greater value than the original vehicle. All claims are to be reported to ABC as administrator.

The Dealer Agreement between the dealer and ABC remains unchanged. It provides that ABC, as administrator, will hold a portion of the fees submitted on behalf of the dealer solely for the purposes of paying claims and claims adjustments. It further provides that the Administrator shall have no obligation to make payments to the dealer in addition to or in excess of funds contained in the trust.


N.Y. Ins. Law § 1101 (McKinney 200) & Supp. 2005), provides, in pertinent part:

(a)(1) "Insurance contract" means any agreement or other transaction whereby one party, the "insurer", is obligated to confer benefit of pecuniary value upon another party, the "insured" or "beneficiary", dependent upon the happening of a fortuitous event in which the insured or beneficiary has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of such event.

(2) "Fortuitous event" means any occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party.

* * *

(b)(1) Except as provided in paragraph two, three or three-a of this subsection, any of the following acts in this state, effected by mail from outside this state or otherwise, by any person, firm, association, corporation or joint-stock company shall constitute doing an insurance business in this state and shall constitute doing business in the state within the meaning of section three hundred two of the civil practice law and rules.

(A) making, or proposing to make, as insurer, any insurance contract, including either issuance or delivery of a policy or contract of insurance to a resident of this state or to any firm, association, or corporation authorized to do business herein, or solicitation of applications for any such policies or contracts.

N.Y. Ins. Law § 1102 (McKinney 2000 & Supp. 2005) provides that no person shall do an insurance business without a license.

The providing of a monetary or other benefit dependent upon the theft or destruction of property, such as a motor vehicle, would constitute the doing of an insurance business, for which a license as an insurer would be required. However, as the Department advised the inquirer in prior letters, this Department has held that if a seller provides a discount on a replacement purchase dependent upon the destruction or loss of a prior purchase, that seller would not be doing an insurance business so long as the discount price of the new purchase covers the cost of the purchase to the seller, plus any labor or material cost borne by the seller and reasonable overhead expenses. In other words, the seller may agree in the discount to reduce its profit margin on the new item, but may not agree to sell the item at a break even or lower point.

Based upon the language of the dealer agreement and previous conversations with the inquirer, it does not appear that ABC would be undertaking any obligation to the dealer or to the consumer to pay any amount in regard to the above. If ABC's duties involved such undertakings, the Department's response would be different.

The discount in the proposal does not appear to violate the Insurance Law based upon the assumption that the discount would not eliminate the dealer’s profit margin on each vehicle. It must be stressed that the dealer may not accept a loss on one vehicle in the expectation that it would make a profit through the volume of sales.

The Department again reminds the inquirer that there is no kind of insurance that may be sold in New York that would indemnify the dealer for the amount of any discount.

This opinion is limited to the discount and dealer agreement attached hereto, the circumstances described in this letter and interpretation of the Insurance Law. No opinion is rendered regarding any other law or arrangement.

For further information, you may contact Assistant Deputy Superintendent & Counsel Paul A. Zuckerman at the New York City office.