The Office of General Counsel issued the following opinion on December 4, 2006, representing the position of the New York State Insurance Department.
Re: Identity Theft Recovery Program
1. Would the service as described below constitute doing an insurance business?
2. May an insurance agent enter into a subscription agreement with ID Company to promote and market its program in exchange for commissions?
1. Yes, this program would constitute doing an insurance business. The subscription agreement with ID Company provides a benefit of pecuniary value from one party (ID Company) to another party (the covered members), dependent upon the happening of a fortuitous event (identity theft and/or fraud).
2. An insurance agent may not solicit or sell insurance policies on behalf of an unauthorized insurer.
A licensed insurance agent is considering entering into an arrangement with ID Company, as a subscriber to sell identity recovery program services to the agents customers. ID Company will pay the agent a commission for each service sold. ID Company is not licensed as an insurer in this state nor is it licensed as an insurer in Georgia, where it is incorporated.
The service will be marketed primarily to employers, and will provide "blanket coverage" to the employers population of end-user clients (employees). Yearly costs, or "dues," are assessed based upon the size of the covered population. The subscription agreement furnished by the agent reads in relevant part: "Upon duly [sic] notification of an identity theft of a Covered Member, [ID Company] will perform for the Covered Member any and all of the Services of the program for which he or she is enrolled under, which are described in Exhibit A attached hereto."
Exhibit A contains an overview of the service, which includes two components. The first involves credit monitoring assistance. ID Company will assist members in obtaining federally mandated free credit reports, deliver these credit reports, and provide assistance in reading and understanding credit reports. The second aspect involves identity theft and fraud, and consists of two phases. Preliminary to the first phase, a customer that believes he or she is an identity theft victim will initiate contact with ID Company, which will then initiate a pre-screening process. Next, ID Company will begin the initial phase of the fraud investigation by attempting to ascertain the circumstances and nature of the fraud, and by providing the customer with support and advisory information. Phase two relates to the more advanced investigative and preventive stages of the service.
N.Y. Ins. Law § 1101 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;
(B) making, or proposing to make, as warrantor, guarantor or surety, any contract of warranty, guaranty or suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the warrantor, guarantor or surety;
(C) collecting any premium, membership fee, assessment or other consideration for any policy or contract of insurance;
(D) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this chapter;
(E) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this chapter.
The "identity recovery program" under proposal here constitutes doing an insurance business. Each member will pay a yearly "due" in return for ID Companys promise to provide its services to members employees in a blanket coverage manner. The fortuity element is present in the fact that the service is only rendered upon the occurrence of an actual theft or fraud. Such a triggering requirement is evidenced by the fact that upon notification by a member, ID Company will commence a pre-screening process in order to determine whether to proceed with an investigation. The services depend entirely upon the occurrence of an identity theft.
N.Y. Ins. Law § 1102 prohibits an unauthorized insurer from doing an insurance business in this state. N.Y. Ins. Law § 2117 prohibits a person, firm, association or corporation from acting in this state as an agent or broker for, or otherwise aiding, an unauthorized insurer. Because ID Company is not authorized as an insurer in this state, it may not sell this program in this state. Similarly, any agent or broker that acts for or aids ID Company in unlawfully soliciting or selling insurance in this state would violate the Insurance Law.
As a final note, while the crux of the agreement appears to run to the identity recovery portion, the credit monitoring assistance portion may be a permissible arrangement if severed from the agreement and contracted for separately. The rendering of this service does not appear to depend upon the occurrence of any fortuitous event. To the extent that this is correct, this particular service is not insurance, and the insurance agent may market this product.
For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.