RE: Accidental Death & Dismemberment Insurance
May an insurer provide accidental death and dismemberment ("AD&D") insurance to travel agents who will then give the insurance to their customers as part of the purchase price of an airline ticket or travel package that involves air travel?
No; the above-described transaction would constitute a tie-in sale in violation of N.Y. Ins. Law § 4224 (d) (1) (McKinney 1985 & Supp. 2000).
An insurer provides AD&D insurance to travel agents who then give the insurance to their customers as part of the purchase price of an airline ticket or travel package that involves air travel. The insurer typically writes this kind of insurance on a group rather than on an individual basis. The insurer asked for "clarification regarding how this insurance can be provided when a person purchases an airline ticket."
The Office of General Counsel has previously addressed this type of insurance offering, concluding that when an authorized insurer, either directly or indirectly, provides a travel agent with travel insurance that the travel agent then provides to customers making travel arrangements, both the insurer and the travel agent are in violation of N.Y. Ins. Law § 4224 (d (1) (McKinney 1985 & Supp. 2000), unless the insurance was offered on an optional basis and for a separate charge. This position is based upon the statutory language, which provides that:
No insurer authorized to do one or more of the kinds of insurance business specified in paragraph one, two or three of subsection (a) of section one thousand one hundred thirteen of this chapter or authorized to do the kind of insurance business specified in section three thousand two hundred twenty-two of this chapter shall directly or indirectly, or by any of its agents, or representatives participate in any plan to offer or effect any kind or kinds of such insurance business in this state as an inducement to, or interdependent with the purchase by the public of any goods, securities, commodities, housing, services or subscriptions to periodicals, except as provided by subsection (e) of section three thousand four hundred thirty-six, paragraph three of subsection (b) of section four thousand two hundred sixteen of this article, by subparagraph (E) of paragraph one of subsection (c) of section four thousand two hundred thirty-five of this article or by article forty-six of the public health law.
The Department has also previously addressed whether the coverage could be offered as either a group or blanket accident and health insurance policy if the coverage was made optional and for a separate charge. The Department concluded that in order for a group accident and health policy to be delivered or issued for delivery in New York, the group would have to fall within one of the descriptions contained in N.Y. Ins. Law § 4235 (c) (McKinney 1985 & Supp. 2000). In order for a policy that insures against death or injury that results from an accident to be deemed a blanket accident policy or, in the alternative, a blanket health policy, it would have to conform to N.Y. Ins. Law § 4237 (a) (3) (McKinney 1985 & Supp. 2000) requirements. These remain the Departments interpretations of the statute with regard to AD&D insurance offered by travel agents.
The only exception to the requirement that the coverage be offered as optional and for a separate charge pertains to groups that conform to statutory provisions that provide otherwise, for example, a group described under N.Y. Ins. Law § 4235 (c) (1) (L) (McKinney Supp. 2000). The group described by the insurer does not conform to any of the groups described in either Section 4235 (c) or Section 4237 (a) (3). Thus, the proposed coverage could not be provided to travel agents who then give the insurance to their customers free of charge.
The insurer also questioned the need for such agents to be licensed. Travel agents must be licensed to provide this type of insurance, however, N.Y. Ins. Law § 2103 (g) (1) (McKinney 1985) waives the requirement for a written examination:
as a prerequisite to the issuance of a baggage or accident and health insurance agents license to any ticket selling agent or representative of a railroad company, steamship company, carrier by air, or public bus carrier, who shall act thereunder, as insurance agent only in reference to the issuance of baggage or accident insurance tickets primarily for the purpose of covering risk of travel
Furthermore, as stated above, to avoid a violation of N.Y. Ins. Law § 4224 (d) (1) (McKinney 1985 & Supp. 2000), this kind of insurance must be offered on an optional basis and for a separate charge. The only exception is coverage that is offered on a group basis through an association that meets the requirements contained in N.Y. Ins. Law §4237 (a) (3) (E) (McKinney 1985), in which case it can be offered on a non-optional basis if the premium is paid directly by the association and all members are covered, or, alternatively, on an optional basis if the member contributes toward the premium payment. See OGC Opinion No. 85-72 (NILS).
The insurer also asked whether there would be classification considerations because of a "travel insurance" policys multiple components. A policy with multiple components would be analyzed pursuant to N.Y. Ins. Law § 1113 (McKinney 1985 & Supp. 2000) to determine whether the coverages being offered fall within the kinds of insurance that are authorized in New York.
The insurer questioned whether filing and approval requirements pertain to group or blanket insurance delivered outside of New York. N.Y. Ins. Law § 3201 (b) (1), (2) (McKinney 1985 & Supp. 2000)) contain the requirements for policy form filing and approval. The fact that these policies "often involve minuscule amounts of premium per person" would not change the requirements.
The insurer then compared New Yorks procedures to those in other states, which, ostensibly, allow this coverage to be written through an out- of-state trust. As was discussed in OGC Opinion No. 86-75 (NILS), although a policy issued to a "non-true group" would violate N.Y. Ins. Law § 4224 (d) (1)(McKinney 1985 & Supp. 2000), an authorized insurer may issue such a policy outside the state. Solicitation could be made from outside the state by mail by the policyholder or administrator, but no licensee of the Department, including the issuing insurer, agents or brokers, could solicit or enroll persons in New York, even if done by mail from outside the state.
The insurer then raised several questions regarding "Free Trade Zone" policies issued pursuant to the special risk insurance provisions contained in N.Y. Ins. Law Art. 63 (McKinney 1985 & Supp. 2000) and N. Y. Comp. Codes R. & Regs. Title 11 § 16 (1993, 1998) (Regulation 86). This is no longer relevant to the issue because travel insurance is no longer included as a class 2 risk under the regulation.
Finally, the insurer referred to OGC Opinion No. 98-47, an opinion that addressed a proposal that would have allowed the policy to be issued to a group described by N.Y. Ins. Law §4235(c)(1)(L) (McKinney Supp. 2000), asking whether "seven cents worth of flight insurance included with the direct purchase of airline tickets by any means, with or without a credit card, can be viewed acceptably as part of the overall purchase." Again, as discussed previously, under the statutory structure the amount of the premium is not a factor in the determination of whether this type of coverage can be offered without violating N.Y. Ins. Law § 4224 (d) (1) (McKinney 1985 & Supp. 2000). This interpretation is reflected in the Departments conclusion, as expressed in that opinion. For further discussion of this and related issues, see OGC Opinion Nos. 85-72, 85-92, 86-20, 86-55, 86-75, 87-60 and 94-95 (NILS).
For further information you may contact Associate Attorney Joan Siegel at the New York City Office.