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 informal opinion on October 31, 2002 representing the position of the New York State Insurance Department.

Re: Risk Retention Group & Commercial Automobile Liability Insurance

Question Presented:

May a foreign risk retention group (the "Risk Retention Group"), which is registered to do business in New York, write commercial automobile liability insurance for its members in New York?

Conclusion:

Yes, the Risk Retention Group may write commercial automobile liability insurance for all of its members in New York. However, such insurance would not satisfy the financial responsibility requirements contained in the N.Y. Veh. & Traffic Law as to those Risk Retention Group members who are determined by the Department of Motor Vehicles not to be political subdivisions of a state within the meaning of N.Y. Veh. & Traffic Law § 321(1); and who are, therefore, not exempt from those requirements.

Facts:

The Risk Retention Group is a foreign domiciled captive insurer and a risk retention group that is registered to do business as a risk retention group in New York under Article 59 of the N.Y. Ins. Law. The Business Plan filed by the Risk Retention Group with the Superintendent in New York indicates that the owners and members of the Risk Retention Group are public housing and redevelopment authorities or groups of such public entities that the Risk Retention Group provides liability coverages to that are essential to the operations of public housing and redevelopment authorities.

Analysis:

Under the federal Liability Risk Retention Act ,15 U.S.C. § 3901, et seq. ("LRRA"), a risk retention group may write liability insurance for its members, exempt from most laws of states other than its state of domicile. A risk retention group does not have to obtain an insurance license in states other than its state of domicile before it can do an insurance business in that state. However, a risk retention group must first register as a risk retention group in the state in which it wishes to do business. The Risk Retention Group is so registered in New York State and it may do an insurance business in New York providing liability insurance, as defined in the LRRA, to its members.

"Liability" is defined in § 3901(a)(2) of the LRRA, as follows:

(2) ‘liability’-

(A) means legal liability for damages (including costs of defense, legal costs and fees, and other claims expenses) because of injuries to other persons, damage to their property, or other damage or loss to such other persons resulting from or arising out of –

(i) any business (whether profit or nonprofit), trade product, services (including professional services), premises, or operations, or

(ii) any activity of any State or local government, or any agency or political subdivision thereof; and

(B) does not include personal risk liability and an employer’s liability with respect to its employees other than legal liability under the Federal Employers’ Liability Act (45 U.S.C. 51 et seq.).

The LRRA has been implemented in New York by the enactment of N.Y. Ins. Law Article 59 (McKinney 2000): the provisions of which parallel the provisions of the federal LRRA. Commercial automobile liability insurance comes within both the federal and state statutory definitions of liability insurance. Accordingly, a risk retention group may write commercial automobile liability insurance for its members under the LRRA and under Article 59.

It is asserted that "commercial automobile liability coverage issued by a RRG will satisfy the requirements of New York’s financial responsibility law" because the financial responsibility laws of New York do not apply to motor vehicles owned by political subdivisions of a state, citing to N.Y. Veh. & Traffic Law § 360 (McKinney 1996), which is contained in Article 7 of the N.Y. Veh. & Traffic Law, the Motor Vehicle Safety Responsibility Act. However, Article 7 is no longer applicable as to financial responsibility. In this regard, it has been superseded by the financial responsibility provisions of Article 6 of the N.Y. Veh. & Traffic Law (McKinney 1996).

N.Y. Veh. & Traffic Law §312 (McKinney 1996) is contained in Article 6, the Motor Vehicle Financial Security Act. It imposes a financial responsibility requirement upon the owners of motor vehicles driven upon the public roads of New York in order to register a vehicle. The requirement is to be evidenced by a certificate of insurance (or other proof not relevant to the instant inquiry), which term is defined in § 311(5), in pertinent part, as "any evidence issued by or on behalf of an insurance company duly authorized to transact business in this state, stating in such form as the commissioner may prescribe or approve that such company has issued an owner’s policy of liability insurance on the motor vehicle or vehicles designated therein." In Article 6, the similar exception in § 321(1) provides:

(1) This article [Article 6] shall not apply to any motor vehicle for the operation of which security is required to be furnished . . . nor to any motor vehicle owned by the United States, any state or any political subdivisions of any state.

Whether all of the members of the Risk Retention Group constitute political subdivisions of the state within the meaning of the foregoing exception to the motor vehicle financial responsibility requirements is a question that should be addressed to the Department of Motor Vehicles. It is possible that some members of Risk Retention Group might not be considered to be a political subdivision of a state. In that regard, please note the court’s holding In the Matter of the Arbitration between New York City Transit Authority and Louis Thom, 52 N.Y.2d 1032 (1981), where the Court of Appeals affirmed an order of the Appellate Division denying the New York City Transit Authority’s application for a stay or arbitration, concluding that for purposes of the N.Y. Veh. & Traffic Law Article 8 regarding vehicles for hire the Transit Authority was not a political subdivision of the state or a "municipality" so as to be excluded from the coverage required by N.Y. Veh. & Traffic Law § 370

As to any Risk Retention Group member who is determined by the Department of Motor Vehicles not to be a political subdivision of a state and therefore not excepted from the financial responsibility requirement for motor vehicles, a policy of commercial automobile insurance issued by the Risk Retention Group to such a member would not satisfy the financial responsibility requirement of the N.Y. Veh. & Traffic Law.

Section 5913 provides as follows:

5913 Financial responsibility

Wherever pursuant to the laws of this state or any political subdivision of this state a demonstration of financial responsibility is required as a condition for obtaining a license or permit to undertake specified activities, if any such requirement may not be satisfied by obtaining insurance coverage from an insurer not authorized to do business in this state, such requirement may not be satisfied by purchasing insurance from a risk retention group not chartered in this state.

Thus, under § 5913, New York State would not recognize as proof of financial responsibility, insurance written by a risk retention group that is not authorized to do an insurance business in the State unless it fell within the exception discussed above.

For further information you may contact Associate Attorney Barbara Kluger at the New York City Office.