OGC Opinion No. 06-08-13

The Office of General Counsel issued the following opinion on August 17, 2006, representing the position of the New York State Insurance Department.

Service contract road hazard coverage

Question Presented:

May a registered service contract provider that is not a manufacturer or seller of a motor vehicle tire be the obligor under a service contract sold through an automobile dealership, which contract provides coverage for repair or replacement of the tire or wheel as the result of damage arising from a road hazard?

Conclusion:

A registered service contract provider that is not a manufacturer or seller of a motor vehicle tire may be the obligor under a service contract sold through an automobile dealership, which contract provides coverage for repair or replacement of the tire or wheel as the result of damage arising from a road hazard.

Facts:

The Department was asked whether a company that is neither a manufacturer nor seller of tires may be the obligor under a service contract, which provides coverage for repair or replacement of a tire or wheel as the result of damage arising from a road hazard, sold through an automobile dealership, pursuant to a recent amendment to N.Y. Ins. Law Art. 79.

Analysis:

Chapter 264 of the Laws of 2006 amended N.Y. Ins. Law § 7902(k) to provide that a "service contract":

Prior to the enactment of Chapter 264, it was the position of this Department that the making of an agreement that provided such road hazard coverage constituted the doing of an insurance business and may not be provided under a warranty. Unless authorized as an insurer in New York to write such coverage¹, the maker of such an agreement would violate N.Y. Ins. Law § 1102 (McKinney 2006). Since N.Y. Ins. Law § 1101(b)(3-a) (McKinney 2006) provides that the making or selling of a service contract pursuant to N.Y. Ins. Law Art. 79 does not constitute the doing of an insurance business, the making of such a road hazard service contract would no longer constitute the doing of an insurance business, so long as it was made pursuant to Art. 79 by a registered service contract provider and provided further that the contract was made by or for the manufacturer or seller of the motor vehicle tire. The road hazard coverage may be sold either in conjunction with other coverage under a service contract or on a stand-alone basis. However, if the maker of the contract is not registered as a service contract provider, the making of such an agreement continues to constitute the doing of an insurance business and a manufacturer, seller or other person may not provide road hazard coverage, whether characterized as a warranty or otherwise, unless becoming authorized as an insurer.

The language "or for" was intended to allow a manufacturer or seller of a motor vehicle tire that did not itself wish to become a registered service contract provider to contract with another company to make road hazard service contracts in conjunction with tires manufactured or sold by the manufacturer or seller. A registered service contract provider that is not the manufacturer or seller of the tire may therefore, "for" an automobile dealership, become the obligor under a road hazard service contract sold by the dealership if the dealership has manufactured or sold the tire. For purposes of this provision, the sale of a motor vehicle includes the sale of the tires that come with the vehicle.

For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.

¹ Specifically, such coverage would constitute motor vehicle physical damage insurance as defined in N.Y. Ins. Law § 1113(a)(19) (McKinney 2006).