The Office of General Counsel issued the following informal opinion on June 22, 2001, representing the position of the New York State Insurance Department.
Re: Open Cargo Insurance Policy
This opinion is revised by an opinion dated March 7, 2002, in regards to one paragraph beginning with the word "Moreover."
1. May a shippers agent make available insurance to its shipping customers without having to be licensed as an insurance agent or broker?
2. May an open cargo policy be purchased by a shippers agent that provides coverage to all of its shipping customers whom elect to buy the coverage?
1. No. A shippers agent would have to be licensed as an agent or broker in order to make available insurance policies to its customers.
2. No. Such a policy would constitute an impermissible group policy in violation of N.Y. Ins. Law § 3435 (McKinney 2000) and N.Y. Comp. Codes R. & Regs. tit. 11, Part 153 (1995) (Regulation 135).
A law firm represents a shippers agent who arranges for transportation of shipments between points in the United States on behalf of its shipper-customers with rail and motor carriers. The shippers agent is not licensed as an insurance agent or broker in this state. The shippers agent is not a foreign freight forwarder, owns no equipment, and does not consolidate or handle the freight.
The shippers agent would like to make available low-cost cargo insurance to its shipper customers. The shippers agents insurer has suggested an open cargo policy that would cover all shipping customers of the insured that elect to buy the coverage under the policy.
Under the proposals being considered, the customer would have the option to obtain all-risk inland marine coverage in an amount ranging from $100,000 to $250,000 per trailer or container for a modest premium in the area of $10 to $15 per load. This would cover the customers goods while in transit by rail or truck.
The shippers agent would collect the per-shipment charge from its customer and remit it to the insurance company. It would not receive any compensation, commission or other form of remuneration. If there are claims under the policy, the shippers agent would merely assist its customer in processing the claims and transmitting them to the insurer without compensation.
By providing an insurance policy as stated above, the shippers agent would have to be licensed as an agent or broker.
"Insurance agent" is defined in N.Y. Ins. Law § 2101(a) (McKinney 2000) as: "any authorized or acknowledged agent of any insurer . . . who acts as such in the solicitation of, negotiation for, or procurement or making of, an insurance, health maintenance organization or annuity contract. . . ." "Insurance broker" is defined in N.Y. Ins. Law § 2101(c) (McKinney 2000) as: "any person, firm, association or corporation who or which for any compensation, commission or other thing of value acts or aids in any manner in soliciting, negotiating or procuring the making of any insurance or annuity contract or in placing risks or raking out insurance, on behalf of an insured other than himself or itself. . . ."
The solicitation by an unlicensed entity is a violation of N.Y. Ins. Law § 2102(a)(1) (McKinney 2000), which states in part: "No person, firm, association or corporation shall act as an insurance agent, insurance broker, reinsurance intermediary or insurance adjuster in this state without having authority to do so by virtue of a license issued and in force. . . ."
The shippers agent, by providing cargo insurance to its customers, would be acting as an agent or broker without a license in violation of N.Y. Ins. Law § 2102(a)(1) (McKinney 2000).
N.Y. Ins. Law § 2101(c)(3) (McKinney 2000) exempts the following from the requirement of a brokers license:
[A]ny foreign freight forwarder registered with the federal maritime commission or any custom house broker licensed by the United States treasury department, when such forwarder or broker negotiates, procures, issues, or delivers a certificate or other evidence of a contract of insurance under an open marine policy naming the forwarder or broker as the insured and covering exports or imports serviced by such forwarder or broker on behalf of others, provided that such forwarder or broker takes or receives no money or other thing of value when acting as hereinafter specified, from any insurer or representative thereof, unless the receipt of money or thing of value is authorized under this chapter; . . .
The shippers agents service does not fulfill the statutory definition of foreign freight forwarder or customhouse broker as stated in the above section 2101(c)(3).
Moreover, even if the shippers agent was exempt from licensing, the service that it would like to provide (to purchase an open cargo insurance policy that would cover all shipping customers and make available this cargo insurance to its individual customers that elect to buy the coverage) is an impermissible group policy in violation of N.Y. Ins. Law § 3435 (McKinney 2000) and N.Y. Comp. Codes R. & Regs. tit. 11, Part 153 (1995) (Regulation 135).
Group insurance may not be written in New York unless specifically permitted. N.Y. Comp. Codes R. & Regs. tit. 11, § 153.3 (c) (1995) states that no group policy shall be issued or renewed in this State, unless:
the group is homogenous in nature, based upon standards acceptable to the superintendent;
the group is formed for purposes other than obtaining insurance;
the group consists of at least ten group members engaged in similar activities giving rise to similar risks, based upon standards acceptable to the superintendent, except that a smaller number of members, but not less than five, may be covered on a group basis where each such member generates at least $5 million in annual revenues or annual premiums for such group total at least $500,000;
group members are either public entities or nonprofit organizations; and
coverage includes any kind of property/casualty insurance, but not a kind of specified by section 1113(a)(16), (17), (21), (22), (23) or (25) of the Insurance Law. (emphasis added).
The shippers agent and its customers do not fall within either public entities or nonprofit organizations, and therefore it is not permitted to purchase an open cargo insurance policy that would cover all shipping customers and make available this cargo insurance to its individual customers that elect to buy the coverage. Nor would the group fall within one of the other kinds of property/casualty group insurance permitted in New York.
For further information, you may contact Senior Attorney Meredith S. Kaufer at the New York City Office.