OGC Opinion No. 09-11-04

The Office of General Counsel issued the following opinion on November 23, 2009, representing the position of the New York State Insurance Department.

Re: Unauthorized insurer maintaining an office in New York.

Question Presented:

Based on the facts presented, may XYZ maintain an office in New York, although it is not authorized to do business in this state?

Conclusion:

Yes. The general functions ascribed to the various XYZ executives may come within activities in New York that constitute “back office” functions. Thus, provided that there is no contact with the public, and so long as such functions are primarily ministerial in nature, and do not involve solicitation or sale of insurance or any other activity proscribed by N.Y. Ins. Law § 1102 (McKinney 2006), they are permissible.

Facts:

XYZ is a Delaware-domiciled insurer, and a wholly-owned subsidiary of ABC Insurance Company (“ABC”). On July 15, ABC announced a plan to hold a public offering of XYZ shares, which will be listed on the New York Stock Exchange (“NYSE”). XYZ writes business outside of the United States exclusively, and is not licensed to do an insurance business in New York or any United States jurisdiction other than Delaware.

XYZ presently maintains executive offices in the ABC building in New York, New York. XYZ does not solicit business in New York, nor does its name appear anywhere on the building or in any building directory available to the public. XYZ is not listed in any New York telephone directory.

XYZ is going to become an independent company. In preparation for its public listing and divestiture from ABC, XYZ will move out of the ABC building and enter into its own lease for office space in Manhattan. XYZ anticipates creating an additional 100 to 150 jobs in New York for skilled and professional workers.

In a July 21, 2009 letter to the New York State Insurance Department’s Office of General Counsel (“OGC”), XYZ notes that five executives will manage XYZ’s New York office, and retain a support staff of approximately 40 members. It states that the executives will perform the following activities in New York: 1) The Chairman & Chief Executive Officer will be engaged in “strategic planning, leadership and oversight of all operations as an independently publicly traded company”; 2) The Vice Chairman and Chief Financial Officer will be engaged in “strategic planning and oversight of finance operations,” and also add staff to address “enterprise risk management, investor and rating agency relations, shareholder relations and media relations”; 3) The Vice President and General Counsel will be engaged in “strategic planning,” and provide “corporate legal advice and compliance oversight,” as well as “add to legal staff SEC and labor lawyers”; 4) The Vice President and Chief Human Resources Officer will be engaged in “strategic planning and oversight of all human resources and employment matters,” as well as training human resources staff; and 5) The Vice President and Chief Transition Officer will be engaged in “strategic planning and oversight of transition issues relating to XYZ becoming an independent company.”

In response to an OGC request for further details about the executives’ functions, XYZ states in a September 4, 2009 letter to OGC that “it would be an ultimately futile attempt to try and detail the myriad activities involved in ‘human resources,’ ‘strategic planning,’ ‘finance operations,’ ‘shareholder relations,’ or ‘corporate legal advice.’” XYZ further states that these categories do not reasonably include those types of activities proscribed by Insurance Law § 1102(a) and enumerated in Insurance Law § 1101(b)(1).

Analysis:

Insurance Law § 1102(a) is relevant to the inquiry. That statute prohibits any person, firm, association, corporation, or joint-stock company from doing an insurance business in this state unless authorized by a license in force pursuant to the provisions of the Insurance Law, or explicitly exempted by the Insurance Law.

In turn, Insurance Law § 1101 defines the acts that constitute doing an insurance business in this state. Insurance Law § 1101(b) provides:

Thus, “doing an insurance business” includes 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 constitutes the doing of an insurance business. Furthermore, Insurance Law § 1101(b)(1)(C) states that collecting any premium, membership fee, or assessment or other consideration for any policy of contract or insurance constitutes an insurance business. Moreover, Insurance Law § 1101(b)(1)(E) provides that doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of the Insurance Law falls within the definition of “doing an insurance business.”

Finally, Insurance Law § 2117 prohibits any person, firm, association or corporation from acting for or aiding unlicensed or unauthorized insurers or health maintenance organizations.

An unauthorized insurer may conduct certain activities that constitute “back office” functions (i.e., no core insurance functions) 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, e.g., OGC Opinions dated June 6, 1972, and November 29, 2007. For example, an unauthorized insurer may establish a liaison office to collect information about the insurance industry. See OGC Opinions dated January 29, 1985, and November 14, 2002. In addition, an unauthorized insurer may make student loans in this state, since that is not an insurance activity. See OGC Opinion dated August 13, 1986. An unauthorized insurer may perform strict bookkeeping and accounting functions in this state, as well as recruit agents in other states. See OGC Opinion dated December 28, 2000.

The general functions set forth in XYZ’s July 21, 2009 letter, and ascribed to the various XYZ executives seem to fall within activities in New York that constitute “back office” functions, provided that there is no contact with the public, and so long as they are primarily ministerial in nature, and do not involve solicitation or sale of insurance, or any other activity proscribed by Insurance Law § 1102. However, given the general nature of XYZ’s inquiry, OGC is unable at this time to opine definitively about whether any specific activity that any of the executives may perform in New York on behalf of XYZ constitutes the doing of an insurance business.

Furthermore, please be advised that even if an unauthorized insurer does not violate Insurance Law § 1102 by doing an unauthorized insurance business in this state, an unauthorized insurer that calls attention to itself by, for example, listing its company name on a public building directory, or any other public directory, runs afoul of Insurance Law § 2122(a)(2), which prohibits any person from calling attention to any unauthorized insurer. See OGC Opinions dated March 12, 1973, and November 14, 2002.

In addition, please be aware that any corporation that registers with the New York State Department of State is subject to the New York Business Corporation Law (“BCL”). BCL § 301(a)(5) (McKinney 2003 and Supp. 2009) prohibits the name of a domestic or foreign corporation from containing the word “insurance,” or any abbreviation or derivation thereof, in its name, unless the approval of the Superintendent is attached to the certificate of incorporation, or application for authority. But because an unauthorized insurer may not conduct an insurance business in this state, the unauthorized insurer may not publicly list its name containing the word “insurance.” Nevertheless, BCL § 1301(d) permits a foreign corporation whose corporate name is not acceptable for authorization pursuant to BCL § 301 to submit in its application for authority under BCL § 1304, a fictitious name under which it will do business in this state. BCL § 1301(d) states:

Thus, XYZ may not list “XYZ Life Insurance Company” on a public building directory, or in any other public directory. However, XYZ may apply to do business in this state under a fictitious name and publicly list that name in conformance with the BCL. The inquirer may wish to seek further clarification from the New York State Department of State.

For further information, you may contact Senior Attorney Sapna S. Maloor at the New York City office.