New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

The Office of General Counsel issued the following informal opinion on February 16, 2000, representing the position of the New York State Insurance Department.

Sale of Automobile Service Contracts via the Internet.

Questions Presented:

1. Are there any limitations under the New York Insurance Law that prevents or otherwise limits a company which sells automobile service contracts from having a web site on the Internet from which it could sell service contracts?

2. Are there any insurance license requirements applicable to sales of service contracts from an Internet web site?

Responses:

1. No, there are no limitations under the New York Insurance Law that prevents or otherwise limits a company which sells automobile service contracts from having a web site on the Internet from which it could sell service contracts.

2. No, an insurance license is not required. However, under Article 79 of the N.Y. Ins. Law (McKinney Supp. 1999-2000) governing service contracts, a service contract provider under a New York service contract, whether the sale takes place over the Internet or otherwise, must, pursuant to § 7907 of the N.Y. Ins. Law, be registered with the Superintendent of Insurance as a service contract provider.

Facts:

An inquiry was received concerning how New York State "deems insurance sales via the Internet. Specifically, Automobile Service Contracts." Many service contract companies are selling service contracts over the Internet and since Internet commerce is fairly new what are the limitations upon a company selling service contracts from having a presence on the Internet.

The inquirer also wanted to know if any insurance license requirements may apply. What is the effect of one's status as a service contract obligor upon the foregoing matters and, what must one do to begin selling service contracts in New York State over the Internet.

Analysis:

New York State has enacted the Electronic Signatures and Records Act (hereinafter referred to as "ESRA") as part of Chapter 4 of the Laws of 1999 that added the State Technology Law as new Chapter 57-A of the Consolidated Laws. ESRA establishes a legal framework in New York for the conduct of electronic commerce. ESRA grants the Office for Technology ("OFT") broad authority as the Electronic Facilitator to promulgate regulations to effectuate the law and to issue guidelines. The provisions of the State Technology Law become effective on March 26, 2000. The Department has issued Circular Letter No. 33 (1999) regarding the use of electronic commerce in the insurance business.

The provisions of N.Y. Ins. Law Art. 79 (McKinney Supp.1999-2000) govern the sale of New York service contracts, including those which may take place over the Internet. Section 7903 of the N.Y. Ins. Law (McKinney Supp. 1999-2000) provides that the marketing and selling of service does not to constitute the doing of an insurance business in New York:

§ 7903(a) Nothwithstanding [sic] any other provision of this chapter to the contrary, the marketing, sale, offering for sale, issuance, making, proposing to make and administration of service contracts by any provider, administrator or other person, shall be exempt from all other provisions of this chapter…

Therefore, those persons marketing and selling service contracts are not required to hold insurance licenses under the Insurance Law. However, under N.Y. Ins. Law § 7907 (McKinney Supp. 1999-2000) a "provider" must be registered with the Department, after obtaining approval of registration from the Superintendent of Insurance. The term "provider" is defined in N.Y. Ins. Law § 7902(h) (McKinney Supp. 1999-2000) to mean, "…a person who markets, sells, offers for sale, issues, makes or proposes to make or administers a service contract, and who is contractually obligated to provide service under a service contract."

There is no restriction in Article 79 of the New York Insurance Law upon the marketing or sale of New York service contracts on the Internet. However, when a service contract is marketed or sold on the Internet to a person in New York the transaction is subject to New York law, and the service contract provider must be registered as such, in accordance with Article 79 and Department Regulation No. 155 (N.Y. Comp. R. & Regs. tit. 11 § 390 (1997). All of the requirements regarding doing business, such as contents of the service contract itself, as well as prohibited acts (N.Y. Ins. Law § 7906 McKinney, Supp. 1999-2000), that are contained in the law as well as in Department Regulation No. 155 must be complied with. These requirements may be met by a service contract provider only if it the electronic document version of the contract complies with the statutory requirements, and can be printed off of the web site in compliance with the statutory requirements.

For further information you may contact Associate Attorney Barbara Kluger at the New York City Office.