The Office of General Counsel issued the following opinion on July 25, 2006, representing the position of the New York State Insurance Department.

Re: Federal purchasing groups and compulsory insurance requirements

Question Presented:

May a broker/dealer require its registered representatives to purchase errors and omissions insurance under a group policy issued to a purchasing group comprised of the broker/dealer and its registered representatives?

Conclusion:

No. N.Y. Comp. Codes R. & Regs. title 11, § 153.8 (Regulation 135), which specifies standards for property/casualty groups and quasi-groups, prohibits an insurer from providing coverage to a group in which the members are required to purchase insurance as a condition of membership or participation.

Facts:

The inquirer is a registered representative of ABC Corporation (hereinafter "ABC"). The inquirer states that ABC is requiring each of its registered representatives to purchase errors & omissions insurance from a group policy with XYZ Insurance Company. The producer on the policy, the policy covers ABC and its registered representatives. A federal purchasing group has been formed for this group.

Analysis:

N.Y. Comp. Codes R. & Regs. title 11, § 153.8 (Regulation 135), which specifies standards for property/casualty groups and quasi-groups, prohibits an insurer from providing coverage to a group in which the members are required to purchase insurance as a condition of membership or participation. Section 153.8 of Regulation 135 provides as follows:

No insurer shall provide coverage in regard to a group or quasi-group program that:

(a) requires the purchase of insurance as a condition of group membership or quasi-group participation; or

(b) imposes any penalty upon a group member or quasi-group participant if insurance is not purchased.

Based upon the inquirer’s allegation that his broker/dealer is requiring its registered representatives to buy errors and omissions coverage from a group policy with XYZ Insurance Company, this matter is being referred to the Consumer Services Bureau for investigation.

For further information you may contact Assistant Counsel Brenda Gibbs Albany Office.