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 October 10, 2002, representing the position of the New York State Insurance Department.

RE: Surety Bonds as Insurance Contracts.

Question Presented:

Does the making of a surety contract constitute an insurance contract under N.Y. Ins. Law § 1101 (McKinney 2000 & Supp. 2002)?

Conclusion:

Pursuant to N.Y. Ins. Law §§ 1101(a)(3) and 1101(b)(1)(B) (McKinney 2000 & Supp. 2002), the making of a surety contract constitutes an insurance contract if it is issued as a vocation and not as merely incidental to any other legitimate business or activity of the surety.

Facts:

Mr. A seeks a clarification of an opinion issued on June 18, 2002 regarding surety bonds. Specifically, he would like to know whether the making of a surety contract constitutes an insurance contract under N.Y. Ins. Law § 1101 (McKinney 2000 & Supp. 2002).

Analysis:

N.Y. Ins. Law § 1102(a) (McKinney 2000) prohibits any person, firm, association, corporation or joint-stock company from doing an insurance business in this state, unless licensed as an insurer or exempted from licensing.

N.Y. Ins. Law § 1101(a)(3) (McKinney 2000 & Supp. 2002) provides as follows:

(a)(3) "Contract of warranty, guaranty or suretyship" means an insurance contract only if made by a warrantor, guarantor or surety who or which, as such, is doing an insurance business. (emphasis supplied)

N.Y. Ins. Law § 1101(b) (McKinney 2000 & Supp. 2002) provides as follows:

(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:

* * * *

(B) making, or proposing to make, as warrantor, guarantor or surety, any contract of warranty, guaranty or suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the warrantor, guarantor or surety. (emphasis supplied)

* * * *

Thus, pursuant to the express language of N.Y. Ins. Law § 1101(a)(3) and 1101(b)(1)(B) (McKinney 2000 & 2002), the making of a surety contract constitutes an insurance contract and the doing of an insurance business if it is issued as a vocation and not as merely incidental to any other legitimate business or activity of the surety. For example, as we stated in the June 18, 2002 opinion letter, the inquirer’s corporation was guaranteeing loans made by financial institutions under surety bonds as its vocation. Therefore, we opined that these were insurance contracts and that the inquirer was doing an insurance business for which licensing was required. We further opined that this activity constituted financial guaranty insurance, as opposed to fidelity and surety insurance, since the primary obligation that was being guaranteed was a financial debt rather than some other type of performance.

Conversely, in a situation where a parent corporation is acting as a surety for the obligations of its subsidiary, the corporation would not be making contracts of surety as a vocation. These contracts would be made as merely incidental to any other legitimate business or activities that the corporation would be engaging in.

For further information, you may contact Attorney Pascale Joasil at the New York City office.


See N.Y. Ins. Law §§ 6901(a)(1) (McKinney 2000) and 1113(a)(16) (McKinney 2000 & Supp. 2002) (regarding the definitions of "financial guaranty insurance" and "fidelity and surety insurance" respectively).