OGC Opinion No. 06-07-14
The Office of General Counsel issued the following opinion on July 24, 2006, representing the position of the New York State Insurance Department.
Re: Theft protection program
Question Presented:
Would automobile dealers that sold an "automotive theft protection program" be acting as insurance agents or brokers and thus need to be licensed as such?
Conclusion:
The dealers would not be acting as insurance agents or brokers if the program is offered as discussed herein.
Facts:
The Department was asked whether automobile dealers may sell the captioned program.
The program, entitled "Automotive Theft Protection Program" is administered by XYZ, Inc. The exact nature of the anti-theft protection that is to be applied by XYZ is not specified in the agreement. However, in previous reviews of the program, the anti-theft protection consisted of etching the vehicle identification number (VIN) in various locations on a motor vehicle.
In conjunction with the sale of the program, the consumer is provided with a certificate of coverage from an insurer authorized to do business in New York. There are various options contained in a box marked "For Insurance Company Use Only". The first option consists of the check-off of either the Preferred Protection Plan or the Basic Protection Plan. If the Preferred option is checked, there is a further check-off of four different dollar levels.
In the event that the vehicle is stolen and not recovered or declared a total loss due to theft, the insurer will pay the difference between the replacement vehicle cost (as defined in the agreement) and the amount the insured receives from his or her "primary automobile insurance carrier", with which the insured maintains a physical damage insurance policy on the vehicle. However, any amount so paid shall not exceed the amount specified under the selected check-off option.
The concern was raised as to whether the dealers may be acting as insurance agents or brokers in selling and marketing the program.
Analysis:
N.Y. Ins. Law § 3446 (McKinney 2006) 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 XYZs etch program. The 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 the policy, coverage is provided directly from the insurer to the purchaser or owner of the product or system. The coverage is non-optional; that is, it comes with the product or system for no separate charge. N.Y. Comp. Codes R. & Regs. tit. 11, Part 310 (2000) (Regulation 167) implements § 3446. The regulation is available on the Insurance Department's website, http://www.ins.state.ny.us.
Absent the enactment of § 3446, a number of sections of the Insurance Law would have otherwise precluded the insurance from being provided in the manner contemplated. Of relevance to this inquiry are the agent/broker licensing requirements.
N.Y. Ins. Law § 2101(a) (McKinney 2006) defines "insurance agent" to mean:
any authorized or acknowledged agent of an insurer, fraternal benefit society or health maintenance organization issued a certificate of authority pursuant to article forty-four of the public health law, and any sub-agent or other representative of such an agent, who acts as such in the solicitation of, negotiation for, or sale of, an insurance, health maintenance organization or annuity contract, other than as a licensed insurance broker...
N.Y. Ins. Law § 2101(c) (McKinney 2006) defines "insurance broker" to mean:
...any person, firm, association or corporation who or which for any compensation, commission or other thing of value acts or aids in any manner in soliciting, negotiating or selling any insurance or annuity contract or in placing risks or taking out insurance, on behalf of an insured other than himself, herself or itself or on behalf of any licensed insurance broker...
Sections 2101(a)(6) and 2101(c)(5) contain the same exclusion from the above definitions as follows:
a person who secures and furnishes information for the purpose of group life insurance, group property/casualty insurance, group annuities, group or blanket accident and health insurance; or for the purpose of enrolling individuals under plans, issuing certificates under plans or otherwise assisting in administering plans; or performs administrative services related to mass marketed property/casualty insurance, where no commission is paid to the person for the service.
N.Y. Ins. Law § 2102(a) (McKinney 2006) provides:
No person, firm, association or corporation shall act as an insurance producer or insurance adjuster in this state without having authority to do so by virtue of a license issued and in force pursuant to the provisions of this chapter.
As defined in N.Y. Ins. Law § 2101(k) (McKinney 2006), "insurance producer" includes an insurance agent or insurance broker.
Section 3446 specifically authorizes insurance coverage to be provided on a group basis in conjunction with the sale of the product or system and requires, in subsection (f), that the premium for the group policy, including certificates thereunder, shall be paid by the group policyholder from funds contributed wholly by the group policyholder. Thus, the intent of the law was that the group policyholder or the seller of the product or system would not have to be licensed as an insurance agent or broker when it sells the product or system and the insurance is automatically included.
The law does not authorize the separate sale of such insurance. Accordingly, if the insurance were to be offered or sold by the dealer or group policyholder, apart from the product or system, and not be included automatically with the sale of the product or system, the dealer or policyholder would be acting as an insurance producer and require licensing as an insurance agent or broker.
In addition, the purchaser of the program may not be given a choice of insurance options but may be offered different programs that may provide different levels of insurance coverage. The dealer providing a choice of insurance options would be acting as an insurance agent or broker. For example, the dealer may not give the purchaser the option of buying an etch program with $5,000 or $7,500 in insurance coverage. The program must come pre-packaged with one level of insurance coverage or the other. However, should two different programs be offered, each program may provide for different levels of insurance coverage provided that the differences in the non-insurance benefits of the programs are substantial enough to warrant the differences in the amounts of the insurance coverage for the different programs, and are not being made available to circumvent the provisions of the Insurance Law. With respect to the check-off boxes, we have been advised by the insurer that each dealer must select only one of the options and that option must be offered to all of the purchasers of the system.
As is the case with other kinds of group insurance, the law envisioned that the group policyholder, its employee, or some other person acting on behalf of the group policyholder, would engage in the ministerial task of supplying a certificate on behalf of the insurer to the group member.
Section 310.6 of Regulation 167 provides:
(a) If so authorized by the insurer, the group policyholder may perform ministerial services on behalf of the insurer, including supplying or delivering the certificate to the group member and administration of claims. However, no person shall act as an insurance agent, broker, or adjuster in connection with a product or system group policy unless that person is duly licensed under Insurance Law Article 21 or exempt from licensing therefrom.
(b) An insurer may reimburse a group policyholder for expenses incurred in administration of the product or system group policy if the payment is equivalent to the costs of rendering such services and such services would normally have been performed by the insurer, an agent or broker.
Although the premium for the insurance charged by the insurer to the group policyholder is regulated by the Insurance Department, the price of the theft protection program itself is not regulated by this Department.
In summary, the sale of the etching program, which includes group insurance coverage as discussed herein, including the mere delivery of a certificate by the group policyholder, its employee, or any other person acting on behalf of the group policyholder (including, in this case, the selling dealer) to a group member under the circumstances described would not constitute acting as an insurance agent or broker within the meaning of Section 2101, and no such license is required.
For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.