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 January 14, 2002, representing the position of the New York State Insurance Department.

RE: Fidelity and Surety Insurance

Questions Presented:

1) May the real estate management agreement, a summary of which has been provided to the Department, be insured under a fidelity and surety insurance contract?

2) May an authorized property/casualty insurance company write fidelity and surety insurance in New York?

Conclusions:

1) The real estate management agreement, based on the summary provided, may be properly insured under a fidelity and surety insurance contract pursuant to N.Y. Ins. Law § 1113(a)(16)(C) (McKinney 2000).

2) Yes, an authorized property/casualty insurance company may write fidelity and surety insurance in New York pursuant to N.Y. Ins. Law § 4102 (McKinney 2000).

Facts:

The chairman of a private equity investment firm stated that the firm owns approximately $100,000,000 of real estate assets, which are located throughout the United States, and that it intends to hire an outside contractor to manage these properties. The chairman stated that the firm will require the contractor/manager to post a performance bond to insure fulfillment of the contract. The chairman also stated that: "In the event that the contractor/manager fails to perform the obligations under the contract, the surety/insurance company would be obligated to do the following: (1) assume the contractor/manager’s role and perform/complete the balance of the contractor/manager’s obligations under the contract; or (2) pay the full sum of the penal bond amount." A summary of the management agreement that sets out the responsibilities and duties of the contractor/manager (which is referred to in the summary as "manager/developer") was enclosed with the inquiry.

Analysis:

Fidelity and surety insurance is defined by N.Y. Ins. Law § 1113(a)(16) (McKinney 2000), which states in relevant part:

(16) "Fidelity and surety insurance," means:

(C) Any contract bond; including a bid, payment or maintenance bond or a performance bond where the bond is guaranteeing the execution of any contract other than a contract of indebtedness or other monetary obligation;

(E) Becoming surety on, or guaranteeing the performance of, any lawful contract, not specifically provided for in this paragraph, except (i) mortgage guaranty insurance, which may only be written by an insurer authorized to write such insurance pursuant to article sixty-five of this chapter, (ii) a contract that falls within the definition of financial guaranty insurance as set forth in paragraph one of subsection (a) of section six thousand nine hundred one of this chapter, (iii) any insurance contract unless such guaranty is authorized pursuant to subsection (c) of section one thousand one hundred fourteen of this article; or (iv) service contract reimbursement insurance as specified in paragraph twenty-eight of this subsection[.] (emphasis added)

Thus, the real estate management agreement, based on the summary provided to the Department, may be properly insured under a fidelity and surety insurance contract.

With respect to whether an authorized property/casualty insurance company may write fidelity and surety insurance in New York, such an insurer may do so pursuant to N.Y. Ins. Law § 4102(a) (McKinney 2000), which states: "A property/casualty insurance company may be organized and licensed to write any one or more basic kinds of insurance." Fidelity and surety insurance is defined in N.Y. Ins. Law § 4101(a) (McKinney 2000) as a basic kind of insurance.

The above opinion is informal and not binding on any court. For further information you may contact Senior Attorney Sally Geisel at the New York City Office.