Co-operatives and Group Property/Casualty Insurance
Can an authorized property and casualty insurer issue a group insurance policy insuring a group of unrelated cooperatives and the for-profit management company that manages the cooperatives?
Such an arrangement would not be permissible under the New York Insurance Law. A group of unrelated cooperatives and a for-profit management company that manages them may not lawfully be insured under a single group property/casualty insurance policy. N.Y. Ins. Law § 3435 (McKinney 1999). Nor may such a combination of entities be insured under a single policy pursuant to the exceptions to the group insurance rules. 11 N.Y. Comp. Codes R. & Regs.
§ 153.1(g) (1989).
A number of "unrelated" residential cooperatives, are managed by a property management corporation. The property management corporation is a "for-profit" entity.
It has been proposed that all of the cooperatives, as well as the property management company, may be able to obtain "group" property/casualty insurance coverage to protect against liability and property/casualty losses. The policy would provide coverage to both the individual cooperative organizations and the property management company.
Insurance Department Regulation No. 135, 11 N.Y. Comp. Codes R. & Regs.
§ 153 (1989) which implements N.Y. Ins. Law § 3435 (McKinney 1999), establishes standards and procedures for all property/casualty insurance (including liability insurance) policies issued on a group or quasi-group basis in New York.
The statute permits group policies to be written for homogeneous groups of (1) public entities or (2) not-for profit organizations, when such groups have been formed for purposes other than obtaining insurance. N.Y. Ins. Law § 3435 (McKinney 1999). With respect to the instant situation, each member organization would have to be a qualified not-for-profit organization. The inclusion of a single for-profit entity disqualifies the group from eligibility for group coverage.
The situation contemplated herein envisions the for-profit management company as an insured. Under that circumstance, the policy could not be written on a group basis. However, if the management company were not an insured, a "group" of qualifying not-for-profit cooperative organizations could obtain coverage on a group basis for any of the kinds of insurance specified in N.Y. Ins. Law § 3435(c) (McKinney 1999).
The regulation also establishes certain other circumstances where an insurer may issue a single policy with a first-named insured and additional insureds, and the policy is not considered a "group policy". 11 N.Y. Comp. Codes R. & Regs. § 153.1(g)(2) (1989), reads as follow:
(2) Where an insurer elects to issue a single policy with a first-named insured and additional insureds, such policy shall not be considered a "group policy" in regard to the following:
(i) corporations or other entities under common control as defined in section 107(a)(16) of the Insurance Law, with regard to their related interests;
(ii) franchisors and their franchisees, with regard to their related interests;
(iii) members of a partnership or joint venture, with regard to their related interests;
(iv) family members, but only for purposes of policies subject to section 3425 of the Insurance Law; or
(v) shared interests, provided that such shared interests exist among all additional insureds, and only to the extent of such shared interests. One such exception is a policy covering "shared interests" of all the insured entities.
The regulation defines "shared interests" separately with regard to property insurance and liability insurance. 11 N.Y. Comp. Codes R. & Regs. § 153.1(s) (1989), reads as follows:
(s) "Shared interests" means:
(1) for property insurance, insurable interest in the additional insured's property, including legal interest in or control of such property, so that physical loss or damage to such property may result in pecuniary loss to the first-named insured; or
(2) for liability insurance, ownership or control of an additional insured's operations and activities such that, if damages arise from such operations or activities, the first named insured and all insureds may be jointly liable.
If such shared interests do in fact exist among all entities to be insured under the policy then the group policy provisions of N.Y. Ins. Law § 3435 (McKinney 1999) do not apply. It is unlikely that the exception applies to the situation described herein, in that the cooperatives are unrelated, and hence would not have the requisite "shared interests".
For further information you may contact Associate Attorney Sam Wachtel at the Departments New York office.