OGC Op. No. 07-11-09
The Office of General Counsel issued the following opinion on November 29, 2007, representing the position of the New York State Insurance Department.
RE: Office in New York for Unauthorized Insurer
May an unauthorized insurer have an office in New York?
An unauthorized insurer that is affiliated with an authorized insurer may conduct its New York excess line insurance business out of a New York location, in accordance with N.Y. Ins. Law §§ 1101(b)(5) and 2117(i) (McKinney 2006). With regard to non-New York risks, the same insurer may also engage in back office functions and communications with its agency force, but may not engage in communications directly with insureds in connection with the placement of insurance or collection of premiums or other fees.
Your inquiry is of a general nature, without reference to particular facts. This opinion assumes that your reference to an “authorized, non-admitted insurer” is an inquiry about an unauthorized insurer that is eligible for placements through New York licensed excess line brokers in accordance with the requirements set forth in Insurance Law §§ 2105 and 2118 and 11 NYCRR 27 (Reg. 41).
N.Y. Ins. Law § 107(a)(10) is relevant to your query. It defines “authorized insurer” as:
an insurer authorized as such to do an insurance business in this state in compliance with this chapter, by reason of a license so to do issued and in force pursuant to the laws of this state or of a corporate charter granted and in force pursuant to the laws of this state, but not including any insurer herein exempted from compliance with the requirement that it obtain a license to do business.
An “unauthorized insurer” is an insurer that does not meet the above definition. Although the laws of other states often speak in terms of “admitted” or “unadmitted” or “non-admitted” carriers, there is no definition of these terms in the New York Insurance Law. Nevertheless, in the vernacular of the industry, “admitted” means “authorized,” and “unadmitted” means “unauthorized.” A non-admitted insurer, therefore, cannot be an authorized insurer.
Insurance Law § 1102 generally prohibits an unauthorized insurer from doing an insurance business in this state. That statute reads in part as follows: “(a) No … corporation… shall do an insurance business in this state unless authorized by a license in force pursuant to the provisions of this chapter, or exempted by the provisions of this chapter from such requirement.”
The Department’s Office of General Counsel has previously concluded that unauthorized insurers may, in accordance with Insurance Law § 2117(a), conduct back office work in New York where there is no contact with the public, provided that such services are primarily ministerial in nature and do not involve solicitation or sale of insurance. See Office of General Counsel opinion dated March 27, 1992.
To allow unauthorized insurers under certain circumstances to provide support services from within the state where the unauthorized insurer is affiliated with a “licensed” insurer, the Legislature added sections 1101(b)(5) and 2117(i) to the Insurance Law as part of Chapter 597 of the Laws of 1999. Insurance Law § 1101(b)(5) states in relevant part:
. . . an unauthorized insurer, which (A) is affiliated with an insurer licensed in this state, and (B) has satisfied all applicable requirements for placements by excess line brokers as set forth in section  of this chapter, may provide from an office within the state, services to support its insurance business. Such services shall not be deemed under this chapter as doing an insurance business in this state. For the purposes of this section these services include, but are not limited to, computer operations, clerical and staffing support, underwriting, negotiating contract terms, quoting premiums, binding coverage, drafting and issuing policies and claims handling, investigation and payment, among other incidental services. Such services shall not include the marketing, soliciting or advertising by the unauthorized insurer directly to policyholders. Notwithstanding paragraph two of subsection (a) of section  of this chapter, such unauthorized insurers shall be permitted to advertise to, and market and solicit through, excess line-brokers licensed pursuant to section  of this chapter. All obligations of such a licensee under article twenty-one of this chapter shall remain in full force and effect. Any document issued by the unauthorized insurer that indicates any location within this state in which it conducts its operations shall include a prominent notice that the insurer is not licensed by the state of New York, in no smaller than 10 point type, in accordance with regulations as may be promulgated by the superintendent.
Similarly, Insurance Law § 2117(i) provides a corresponding exception to the general prohibition against aiding an unauthorized insurer. That statute states that:
… a licensed insurer may provide, from its office in the state, services to support the insurance business of an unauthorized insurer with which it is affiliated, provided that the unauthorized insurer has satisfied all applicable requirements for placements by excess line brokers as set forth in section two thousand one hundred eighteen of this article. Such services may include, but shall not be limited to, computer operations, clerical and staffing support, underwriting, negotiating contract terms, quoting premiums, binding coverage, drafting and issuing policies and claims handling, investigation and payment, among other incidental services. Services expressly prohibited under this section include the marketing, soliciting or advertising by the unauthorized insurer directly to policyholders.… [S]uch unauthorized insurers shall be permitted to advertise to, and market and solicit through, excess line brokers licensed pursuant to section two thousand one hundred five of this article, from an office within the state…. Any document issued by an unauthorized insurer that indicates any location within this state in which it conducts its
operations shall include a prominent notice that the insurer is not licensed by the state of New York, in no smaller than 10 point type, in accordance with regulations as may be promulgated by the superintendent.
According to the Senate Memorandum in support of the 1999 legislation, the prohibition against an unauthorized insurer conducting any of its activities from within the state
…often leads to the duplication of support services among sister companies, where one or more are authorized insurers located in the state and others are unauthorized insurers forced to set up offices outside the state. By forcing these companies beyond the state’s borders, the current law drives jobs and tax revenue out of the state.
This legislation would allow these unauthorized insurers, along with the employees that support them, to come into the state and set up office facilities. Thus, these insurers could undertake those support functions necessary to operate their business from within the state while continuing to make sure that policy holders in the state are protected.
These insurers will continue to operate as they do now, through excess line brokers who will continue to seek all appropriate declinations and provide all policy holder notices regarding the company’s unauthorized status. Policy holders will continue to be protected, insurers will benefit by being able to consolidate their operations, and the state will benefit through the creation of new jobs and an increase in tax revenue.
The Senate memorandum demonstrates that the law would be applicable in the context of excess line placements only. The Assembly memorandum in support of legislation, although worded slightly differently, likewise conveys the same message. Thus, there is little question that the purpose of the legislation is to enable excess line business to be conducted from within the state, where the unauthorized insurer has an affiliate that is an authorized insurer, in order to prevent unnecessary duplication of staff and jobs, and to generate tax revenue in New York.
This conclusion is buttressed by the repeated references to excess line insurance throughout both Insurance Law §§ 1101(b)(5) and 2117(i). Both sections require the unauthorized insurer to have satisfied all applicable requirements for placements by excess line insurers. This requirement would be nonsensical if the unauthorized insurer were allowed to place non-excess line business, particularly such lines as life insurance, health insurance, service contract reimbursement insurance, and title insurance, none of which is eligible for excess line placement pursuant to Insurance Law §§ 2105(a) and 2117(a).
Other references to excess line brokers are set forth in the limited exceptions to Insurance Law § 2122(a)(2), which otherwise prohibits any insurance agent, insurance broker or other person, in any advertisement or public announcement in this state, from calling attention to any unauthorized insurer. As provided in both Insurance Law §§ 1101(b)(5) and 2117(i), however, an unauthorized insurer may “advertise to, and market and solicit through, [New York licensed] excess line brokers” only.1 Apart from this statutory exception, an unauthorized insurer may not advertise, market, or solicit any kind of insurance business from the New York office other than New York excess line business.
Consequently, it is the Department’s view that an unauthorized insurer may conduct business from a New York office only on an excess line basis. Any other reading of the statutory framework would enable unauthorized insurers generally to evade New York licensing laws.
This conclusion, however, does not mean that an unauthorized insurer is precluded from all activities with regard to non-New York risks. The Department acknowledges that in many instances, an excess line policy may insure both New York and non-New York exposures. We do not construe the law to require that a policy cover only New York exposures, so long as the policy is issued on an excess line basis. However, the Department has long recognized that certain back office functions may be conducted in New York by an unauthorized insurer with regard to policies issued outside New York. See Office of General Counsel opinion dated December 28, 2000.
Accordingly, an unauthorized insurer that is affiliated with an authorized insurer and has satisfied all applicable requirements for placements by excess line brokers may operate from an office in this state, subject to the limitations set forth in Insurance Law §§ 1101 and 2117.
For further information you may contact Associate Attorney Jeffrey A. Stonehill at the New York City Office.
1 Generally speaking, pursuant to Insurance Law §§2105(a) and 2117(h)(1), an excess line broker may only procure insurance from an unauthorized insurer. An excess line broker may not solicit insureds for such business.