The office of General Counsel issued the following informal opinion on January 24, 2002, representing the position of the New York State Insurance Department.Re: Out of State Exposures
Is an umbrella liability insurance policy sold in New York by an insurance agent representing an authorized insurer valid to cover those exposures located in other states where the insurer is not licensed?
Generally yes. Most local coverages are recognizable and enforceable in all states giving full faith and credit and due process to the insurance contract but there are exceptions.
The Inquirers client is located in New York but has nationwide exposures. It purchased an umbrella liability insurance policy through a licensed insurance agency from an authorized insurer. Some of the covered exposures exist in states where the insurer is not licensed.
In general, an insurance policy legally sold in this state by a licensee is enforceable to cover out of state exposures of the insured, if the policy so provides.
"Insurance companies, like other contractors, do not confine their contractual activities and obligations within state boundaries. They sell to customers who are promised protection in States far away from the place where the contract is made." Clay v. Sun Insurance Office Limited, 363 U. S. 207, at 221, 80 S. Ct. 1222 (1960). The type of policy in question covers the multi-state liability risk of a New York insured including liability incurred by activities outside of New York. However, just as New York does not recognize or enforce every type of coverage, other states may not enforce every term of a New York insurance policy. For example, punitive damage coverage is not enforceable in New York as the courts have held that New York public policy precludes insurance indemnification for punitive damage awards. Therefore, New York courts would not require an insurer to reimburse an insured for punitive damages awarded against the insured on an out-of-state judgment. Home Insurance Co. v. American Home Products Corp., 75 N.Y. 2d 196, 551 N.Y.S. 2d 481 (Ct. App., 1990).
If there are any questions about whether the coverage meets the requirements of other states, they should be addressed to the Insurance Department of those states.
For further information you may contact Associate Attorney Jeffrey Stonehill at the New York City Office.