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 opinion on January 9, 2001 reflecting the position of the Department.

RE: Property Casualty Security Fund

Question

Is a non-profit organization’s liability policy, which includes directors and officers liability, limited professional liability, and employment practices liability coverage, covered by the New York State Property/Casualty Security Fund (the "Security Fund")?

Conclusion

The liability policy will be covered by the Security Fund.

Facts

A nonprofit organization is currently covered by a non-profit organization liability policy issued by an authorized insurer. The policy is a "claims made" policy. The policy includes coverage for directors and officers liability, limited professional liability, and employment practices liability. Due to concerns about the financial state of the current carrier the organization seeks to obtain new coverage with a different insurer. This new coverage will also be a "claims made" policy, and both the inception date and the retroactive date for the new coverage will be the same, thus limiting coverage under the new policy to claims made subsequent to the effective date of the new policy. Therefore, the organization will be forced to purchase tail coverage from the current insurer. Should any claim arise with respect to the tail coverage the organization wishes to know whether the protection of the Security Fund will be available.

Analysis

The Security Fund provides a means by which insureds can be assured of coverage for their claims in the event that their carrier becomes insolvent. N.Y. Ins. Law § 7603(a) (McKinney 2000) sets forth the requirements for coverage by the Security Fund, and provides, in pertinent part, as follows:

(a)(1) The property/casualty insurance security fund shall be used in the payment of allowed claims remaining unpaid, in whole or in part, by reason of the inability due to insolvency of an authorized insurer to meet its insurance obligations under policies:

(B) for all of the kinds of insurance specified in paragraphs four through fourteen, sixteen, nineteen through twenty-one, twenty-four and subparagraphs (A) and (B) of paragraph twenty-six of subsection (a) of section one thousand one hundred thirteen of this chapter with respect to coverage of property of risks located or resident in this state, or outside this state but within the United States, its possessions and territories and Canada.

Under the above-quoted provision, an insured’s policy will be covered by the Security Fund if it was issued by an authorized insurer, covers a risk located in the United States or Canada, and constitutes coverage of one of the types enumerated. The coverage described in your inquiry would be included in the types described in N.Y. Ins. Law § 1113(a)(13) (McKinney 2000). That section provides as follows:

(13) "Personal injury liability insurance, "means insurance against legal liability of the insured, and against loss, damage or expense incident to a claim of such liability (including the insurer’s obligation to pay medical, hospital, surgical and disability benifits to injured persons, and funeral and death benefits to dependents, beneficiaries or personal representatives of persons who are killed, irrespective of legal liability of the insured), arising out of death or injury of any person, or arising out of injury to the economic interests of any person, as the result of negligence in rendering expert, fiduciary or professional service, but excluding any kind of insurance specified in paragraph fifteen except insurance to protect an insured against liability for indemnification or contribution to a third party held responsible for injury to the insured’s employee arising out of and in the course of employment when such insurance is written pursuant to this paragraph and not written pursuant to paragraph fifteen of this subsection.

Although the above-quoted provision does not specifically enumerate the types of coverage at issue herein, those types of coverage (professional liability, directors and officers, and employment practices liability) are considered by the Department to fall within this definition.

Accordingly the liability policy will be covered by the Security Fund. Please refer to the text of Article 76 of the Insurance Law for discussion of the other important provisions of the law governing the Security Fund.

For further information please contact Supervising Attorney Michael Campanelli of the Department’s New York City Office.