OGC Op. No. 10-11-09
The Office of General Counsel issued the following opinion on November 23, 2010 representing the position of the New York State Insurance Department.
RE: Doing an Insurance Business
Does the “Guarantee” described in the facts below constitute an insurance contract?
Yes. The Guarantee described below is an insurance contract, the making of which constitutes the doing of an insurance business under New York Insurance Law § 1101. As such, ABC Guarantee, Inc. would need to be licensed by the Department as an insurer.
The inquirer proposes to offer the Guarantee in New York State to property inspectors, under which ABC Guarantee, Inc. promises the property inspector to compensate an occupant (referred to in the Guarantee as the “Covered Occupant”) of a property inspected by the property inspector an amount of money up to a maximum aggregate limit of $10,000 for the cost of replacement of personal property stolen by the property inspector during the property inspection and for which theft the property inspector is criminally convicted. An inspector who purchases the Guarantee may use a “Guarantee Logo, Certificate or Seal” in the marketing of its inspection services to potential customers. In order to qualify to receive payment under the Guarantee a Covered Occupant must read and agree to be bound by the terms of the Guarantee “prior to deciding to rely on a SSL Certificate or Site Seal issued by ABC Guarantee, Inc.”; have occupied the property at the time of the inspection; used a credit card to pay for the inspection; submit claims via e-mail with detailed information, including the date of the inspector’s conviction; and have a homeowners or renters insurance polity in effect at the time of the inspection. The Covered Occupant’s insurance claim payments reduce the amount of money payable by ABC Guarantee, Inc. under the Guarantee.
Insurance Law § 1102(a) (McKinney 2006) is germane to the query. The statute prohibits any person, firm, association, corporation or joint-stock company from doing an insurance business in this state, unless licensed as an insurer or exempted from licensing. Insurance Law § 1108 provides exemptions from the licensing requirement for certain entities, but none of them applies to the situation presented here.
Insurance Law § 1101(b)(1), in turn, defines the term “doing an insurance business” in pertinent part as follows:
(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 . . . .
Insurance Law § 1101(a)(1)defines “insurance contract” as follows:
(a)(1) [A]ny 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.
Insurance Law § 1101(a)(2) defines “fortuitous event” as “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.”
The Guarantee as described above meets the definition of an insurance contract in that ABC Guarantee, Inc., the “insurer,” is obligated by its agreement with a property inspector to confer a “benefit of pecuniary value” (up to $10,000) upon a “beneficiary” (a “covered occupant”) upon the happening of a “fortuitous event,” which is the criminal conviction of the property inspector of theft for stealing items of personal property from the premises of the property owner during a property inspection by the property inspector. The criminal conviction is a fortuitous event that is beyond the control of the insurer (ABC Guarantee, Inc.) or the beneficiary (the Covered Occupant). Further, the Covered Occupant clearly has a material interest in the stolen items of personal property that would be adversely affected by the home inspector’s theft of the property. Thus, all of the elements of Insurance Law § 1101(a) are satisfied and the ABC Guarantee constitutes an insurance contract, and the offering and issuance of the Guarantee by ABC Guarantee, Inc. constitutes the doing of an insurance business. Therefore, ABC Guarantee must obtain an insurance license from the Department in order to offer the Guarantee in New York State.
For further information you may contact Senior Attorney Brenda M. Gibbs at the Albany Office.