OGC Opinion No. 07-09-26
The Office of General Counsel issued the following opinion on September 25, 2007, representing the position of the New York State Insurance Department.
RE: New York agent for an unauthorized insurer
May a New York-licensed agent help a New York resident obtain insurance on an excess line basis from an insurer that is not authorized to sell insurance in New York?
No. A New York licensed agent may not help a New York resident procure insurance, on an excess line basis or otherwise, from an insurer that is not authorized to sell insurance in New York.
The inquirer reports that a New York-licensed insurance agent, not possessing an excess line broker license, intends to contract with a Virginia insurance agency and brokerage1 that has a non-resident license from New York, but not an excess line broker license. The New York-licensed insurance agent intends to procure temporary excess line insurance by adding the prospective insured to an already existing general liability policy issued by an insurer not authorized in New York for an event that will occur in New York. The Virginia agency and brokerage is to contract with another agency, which is licensed in Oregon and has a non-resident agent license from New York but not an excess line broker license, to purchase an endorsement for a single event on a policy for entertainers that was issued to the Oregon agency from an insurer - XYZ Insurance Company - that is not authorized in New York but is eligible to provide excess line insurance in New York. The prospective insured would be the customer that hired the entertainer for an event such as a wedding and would pay a premium, fee and Oregon tax to the Oregon agency for inclusion on the endorsement as a named insured for the duration of the event. The Virginia agency and brokerage is to be paid for the marketing of the policy by the Oregon agency, and the New York agent is to be a sub-producer in the transaction.
New York Insurance Law § 2117 (McKinney 2006) is relevant to the inquiry. It sets forth restrictions between agents or brokers and unlicensed or unauthorized insurers. In relevant part, the statute reads as follows:
(a) No person, firm, association or corporation shall in this state act as agent for any insurer or health maintenance organization which is not licensed or authorized to do an insurance or health maintenance organization business in this state, in the doing of any insurance or health maintenance organization business in this state or in soliciting, negotiating or effectuating any insurance, health maintenance organization business in this state or in soliciting, negotiating or effectuating any insurance, health maintenance organization or annuity contract or shall in this state act as insurance broker in soliciting, negotiating or in any way effectuating any insurance, health maintenance organization or annuity contract of, or in placing risks with, any such insurer or health maintenance organization, or shall in this state in any way or manner aid any such insurer or health maintenance organization in effecting any insurance, health maintenance organization or annuity contract.
Insurance Law § 2117(b) and (c) provide exceptions to the above prohibition, which allow licensed insurance brokers (but not agents) to procure insurance from insurers not authorized to do business in New York under certain circumstances. However, none of those exceptions are relevant here. Further, Insurance Law § 2117(h) specifically sets forth an exception for the procurement of excess line insurance.
Insurance Law § 107(10) defines the term “authorized insurer.” An authorized insurer acts pursuant to a charter or the issuance of a license authorizing it to do business in New York. See Office of General Counsel (“O.G.C.”) Opinion No. 04-04-03 (April 2, 2004). Insurance Law § 1102 requires a person, firm, association, corporation or joint-stock company that conducts insurance business in New York to be licensed.
An agent licensed in New York may operate only on behalf of an insurer that appointed the agent, and may not operate on behalf of an insurer unauthorized to do business in New York. See O.G.C. Opinion No. 99-38 (April 26, 1999). Similarly, a broker may not do business with an unauthorized insurer except under the circumstances provided in Insurance Law § 2117(b) or (c), neither of which is relevant here.
XYZ Insurance Company is not an authorized insurer in New York as per Insurance Law § 107. Therefore, an agent licensed in New York may not lawfully do business with XYZ Insurance Company. However, an unauthorized insurer may provide insurance in New York pursuant to Insurance Law § 1101(b)(2)(F) so long as it is procured through a licensed excess line broker.
Insurance Law § 2105 governs the licensing of excess line brokers. An excess line broker that procures such insurance must comply with the requirements set forth in Insurance Law §§ 2105 and 2118 and NYCRR, tit. 11, Pt. 27 (Regulation 41). It is the responsibility of the excess line broker to ensure that the unauthorized insurer satisfies the financial and other regulatory requirements that would permit the broker to place insurance with the unauthorized insurer. See O.G.C. Opinion No. 06-01-19 (January 13, 2006).
Based on the representations of the inquirer and the website of the Excess Line Association of New York2, XYZ Insurance Company is eligible to provide excess line insurance in New York through a licensed excess line broker. Under the fact pattern presented, a New York licensed agent intends to participate in the procurement of the insurance as a sub-producer. Pursuant to Insurance Law § 2105, only a broker may be additionally licensed to procure excess line insurance. The Virginia agency, licensed in New York as both an insurance agent and broker, but not licensed as an excess line broker, could procure the insurance if it obtains an excess line broker license. The Oregon agency, licensed only as a non-resident agent, but not licensed as either a broker or excess line broker, may not procure the insurance for a New York insured.
Thus, if a New York licensed agent were to procure any kind of insurance from an unauthorized insurer for a prospective insured, the agent would run afoul of Insurance Law § 2117. The agent also would stand in violation of Insurance Law § 2102 by acting as an insurance producer3 in New York without a license because the agent is acting on behalf of an insurer for which the agent is not appointed. See O.G.C. Opinion No. 06-01-19 (January 13, 2006). And, the out-of-state agents in the present inquiry would be in violation of the Insurance Law on the same basis. Moreover, XYZ would contravene Insurance Law § 1102 because it is unauthorized in New York.
In addition, the Oregon agency proposes to sell what appears to be an impermissible group insurance policy. Insurance Law § 3435 and § 153.3 of NYCRR, tit. 11, Pt. 153 (Regulation 135) limit group insurance in New York to a public or not-for-profit entity, and require that a legitimate homogenous group be formed for purposes other than obtaining insurance on a group insurance basis. A policy issued to a purchasing group pursuant to the Federal Liability Risk Retention Act and Article 59 of the Insurance Law would constitute an acceptable form of group insurance, but those statutes are not applicable to the insurance here because, based on the facts presented, the insurance at issue is not commercial liability since the prospective insured to be added to the policy does not appear to be an entity “whose businesses and activities are similar or related with respect to the liability which members are exposed by virtue of any related, similar, or common business, trade, product, services, premises, or operations.” See Insurance Law § 5902(m)(2). Also, purchasing group requirements - such as providing notice of intent to do business in New York to the Superintendent of Insurance - do not appear to have been satisfied here. Nor does the insurance at issue here fall under the group policy exceptions detailed in 11 NYCRR § 153.3(g)(2) or in other sections of the Insurance Law that permit group insurance in certain other circumstances, such as Insurance Law §§ 3442 (credit debit or checking account), 3445 (employer sponsored excess liability) or 3446 (manufacturers, distributors or installers of a product or system). See O.G.C. Opinion No. 06-05-03 (May 9, 2006).
For further information you may contact Associate Counsel Alexander Tisch at the New York City Office.
1 The inquirer refers to agencies with the descriptive term “managing general agency.” That term is defined specifically in § 33.3(a) of NYCRR, tit. 11, Pt. 33 (Regulation 120), but the inquirer’s use of the term does not accurately reflect Regulation 120’s definition of “managing general agency.”
2 The Excess Line Association of New York provides administrative services with respect to licensure of excess line brokers, the approval of unauthorized insurers, and the monitoring and review of documentation submitted by excess line brokers on risks placed with unauthorized insurers pursuant to Insurance Law § 2130(a)(1)-(6).
3 Pursuant to Insurance Law § 2101(k), the term “insurance producer” is defined as “an insurance agent, insurance broker, reinsurance intermediary, excess lines broker or any other person required to be licensed under the laws of this state to sell, solicit or negotiate insurance.” Although Insurance Law § 2101 sets forth certain exceptions, they are not relevant here.