The Office of General Counsel issued the following informal opinion on October 12, 2001, representing the position of the New York State Insurance Department.
Re: Enrollment of New York Employees by Unauthorized Insurer and/or Representative of Such Insurer
May a Texas-licensed insurer or its representative which sold a corporate 401(k) plan, funded with a group variable annuity contract that has both employer matching and profit sharing contributions to a Texas-based employer, physically engage in any of the following activities in or outside of New York in an effort to enroll approximately twenty New York employees, when such insurer is not licensed in New York?
group enrollment meetings
mailing enrollment kits
face to face enrollment
Yes, only from outside of New York.
The Inquirer sold a 401(k) plan which is funded with a Group Variable Annuity Contract (separate accounts) that has both employer matching and profit sharing contributions to an employer located in Texas. The plan will be administered in Texas and all corporate decisions are made there. While most of the employees are in Texas, there are approximately twenty employees in New York. The employer has asked that the inquirer enroll all employees face to face and show them the various investment choices. While both the inquirer and the insurer that sold the plan are licensed in Texas, neither of them is licensed in New York. Among other things, the inquirer would like to know if it is legal to conduct face to face enrollment or group enrollment meetings in New York. She would also like to know if she may mail enrollment material and make telephone or internet conference calls to New York.
N.Y. Ins. Law § 1102(a) (McKinney 2000) prohibits a person, firm, association, corporation or joint-stock company from doing an insurance business in New York state without a proper license. That section states:
(a) No person, firm, association, corporation or joint-stock company shall do an insurance business in this state unless authorized by a license in force pursuant to the provisions of this chapter, or exempted by the provisions of this chapter from such requirement. Any person, firm, association, corporation or joint-stock company which transacts any insurance business in this state while not authorized to do so by a license issued and in force pursuant to this chapter, or exempted by this chapter from the requirement of having such license, shall, in addition to any other penalty provided by law, forfeit to the people of this state the sume of one thousand dollars for the first violation and two thousand five hundred dollars for each subsequent violation.
N.Y. Ins. Law § 1101(b)(1) (McKinney 2000) provides examples of what activities constitute the doing of an insurance business and states in pertinent part:
(b)(1) Except as provided in paragraph two, three or three-a of this subsection, any of the following acts in this state, effected by mail from outside this state or otherwise, by any person, firm, association, corporation or joint-stock company shall constitute doing an insurance business in this state and shall constitute doing business in the state within the meaning of section three hundred two of the civil practice law and rules:
making, or proposing to make, as insurer, any insurance contract, including either issuance or delivery of a policy or contract of insurance to a resident of this state or to any firm, association, or corporation authorized to do business herein, or solicitation of applications for any such policies or contracts;
collecting any premium, membership fee, assessment or other consideration for any policy or contract of insurance;
(E) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this chapter.
Notwithstanding the above provisions, N.Y. Ins. Law § 1101(b)(2) (McKinney 2000) establishes certain "mail order" exceptions allowing an unauthorized insurer to engage in certain activities from without the state, so long as those activities are done by mail. That section states in relevant part:
(b)(2) Notwithstanding the foregoing, the following acts or transactions, if effected by mail from outside this state by an unauthorized foreign or alien insurer duly licensed to transact the business of insurance in and by the laws of its domicile, shall not constitute doing an insurance business in this state, but section one thousand two hundred thirteen of this chapter shall nevertheless be applicable to such insurers:
(B) transactions with respect to group life, group annuity, group accident and health or blanket accident and health insurance (other than any transaction with respect to a group annuity contract funding individual retirement accounts or individual retirement annuities, as defined in section four hundred eight of the Internal Revenue Code, funding annuities in accordance with subdivision (b) of section four hundred three of such code or providing a plan of retirement annuities under which the payments are derived wholly from funds contributed by the persons covered):
(i) where such groups conform to the definitions of eligibility contained in;
(III) section four thousand two hundred thirty-eight (except paragraphs six and seven of subsection (b) thereof) of this chapter; and
(ii) where the master policies or contracts were lawfully issued without this state in a jurisdiction where the insurer was authorized to do an insurance business.
N. Y. Ins. Law § 4238(b) (McKinney 2000) states in pertinent part:
(b) No authorized insurer shall deliver or issue for delivery in this state any group annuity contract except the following:
(1) A contract issued to an employer, which permits all of the employees of such employer or of any specified class or classes thereof to become annuitants.
Based on the information supplied, the employer in question appears to fit into N. Y. Ins. Law § 4238(b) (McKinney 2000) definition of permissible groups, in that all employees are permitted to enroll in the plan. In addition, the insurer is authorized to do an insurance business in the jurisdiction where the master policy was or will be issued, i.e., Texas. Further, the 401(k) plan will be funded by both employer matching and profit sharing contributions, not solely by the persons covered. Based on such facts, the mail order exception contained in N.Y. Ins. Law § 1101(b)(2) (McKinney 2000), appears to apply to the plan in question. As a result, the plan may be offered to the corporations New York employees via mailing of enrollment kits only from outside of New York. Please note, however, that the mail order exception only applies to contacts done by mail from outside of New York.
The Department has interpreted the mail order exception to also include electronic mail. That exception, however, has not been extended to include internet conference calls. In addition, an unauthorized/unlicensed insurer may not enroll the New York employees in question via face to face contacts or telephone conference calls from outside of the state, because such acts are clearly excluded by N.Y. Ins. Law § 1101(b)(2) (McKinney 2000) mail order exception.
In addition, N.Y. Ins. Law § 2117(a) (McKinney 2000) provides:
(a) No person, firm, association or corporation shall in this state act as an agent for any insurer or health maintenance organization which is not licensed or authorized to do an insurance or health maintenance organization business in this state or in soliciting, negotiating or effectuating any insurance, health maintenance organization or annuity contract or shall in this state act as an insurance broker in soliciting, negotiating or in any way effectuating any insurance, health maintenance organization or annuity contract of, or in placing risks with, any such insurer or health maintenance organization, or shall in this state in any way or manner aid any such insurer or health maintenance organization in effecting any insurance, health maintenance organization or annuity contract..
Note that the Department has consistently construed the prohibition against aiding an unauthorized insurer to be consonant with the mail order exception found in N.Y. Ins. Law § 1101(b)(2) (McKinney 2000) because only activities of the insurer that are permitted by mail under that section may be conducted in the same manner by persons acting on behalf of the insurer without violating N.Y. Ins. Law § 2117(a) (McKinney 2000). Thus, unless specific acts fall within the mail order exception, an agent or broker, whether licensed or not, may not engage in such acts in New York on behalf of an unauthorized insurer, if such acts constitute the doing of an insurance business.
For further information you may contact Attorney D. Monica Marsh at the New York City Office.