The Office of General Counsel issued the following opinion on February 1, 2002, representing the position of the New York State Insurance Department.
RE: Insurance law Article 77 and Life Insurance Company Guaranty Corporation of New York ("LICGC").
May an Oregon resident who purchases a policy of individual life insurance in Oregon from an Oregon life insurance agent be covered by the LICGC?
Based upon the factual scenario presented, the Oregon resident would not, in the event of the impairment or insolvency of the issuing insurer, be covered by the LICGC.
An Oregon resident has been informed by an insurance agent licensed in that state, that it "needs" to purchase life insurance from a company licensed in New York so that it will have the benefit of the protection provided by the LICGC, in the event the issuing insurer becomes insolvent.
The Life Insurance Company Guaranty Corporation Of New York was established as a not-for-profit membership corporation by Chapter 802 of the Laws of 1985 and is governed by Article 77 of the N.Y. Ins. Law (McKinney 2000), known as "The Life Insurance Company Guaranty Corporation of New York Act." The Act applies to covered policies that were issued on or after August 2, 1985.
N.Y. Ins. Law § 7702 (McKinney 2000) states, in relevant part, that "The purpose of this article is to provide funds to protect resident policyholders, insureds, beneficiaries, annuitants, payees and assignees of life insurance policies. . . against failure in the performance of contractual obligations due to the impairment or insolvency of the insurer issuing such policies or contracts."
The scope of Article 77 is set forth in N.Y. Ins. Law § 7703(a) (McKinney 2000) which provides as follows:
This article shall apply to direct life insurance policies, health insurance policies, annuity contracts, funding agreements and contracts supplemental to life and health insurance policies, annuity contracts or funding agreements issued to a resident by a life insurance company licensed to transact life or health insurance or annuities in this state at the time the policy, contract or agreement was issued or at the time it became an impaired or insolvent insurer, as the case may be. [Emphasis added]
All life insurance companies licensed to transact life insurance in the State of New York are members of LICGC. The LICGC is funded by assessments made against its members after a member insurer is declared impaired or insolvent by a court of law. Covered policies do not have to be issued in New York in order to be protected by the LICGC. Covered policies are those which are issued by an insurance company licensed in New York to a resident of the state, no matter where the policy is issued. "Resident" is defined for purposes of N.Y. Ins. Law Article 77, in § 7705(k) (McKinney 2000), to mean:
...any person to whom contractual obligations are owed and who either (1) resides in this state at the time a member insurer is determined to be an impaired or insolvent insurer, or (2) resided in this state at the time a member insurer issued a covered policy to such person.
If the insured is a resident, as defined in the foregoing statute, and purchased the individual life insurance policy on or after August 2, 1985, the protection of the LICGC would apply to the policy should the issuing insurer be declared impaired or insolvent by a court. Then, if the insurer were to fail to meet its contractual obligations to the insured (or any other person to whom contractual obligations are owed), the LICGC would be available to pay the claim(s) as limited in Article 77 of the N.Y. Ins. Law (McKinney 2000).
N.Y. Ins. Law § 7708 (McKinney 2000) sets forth additional powers and duties of the LICGC including a discussion of the aggregate (limits of) liability of the corporation arising from the impairment or insolvency of a domestic, foreign or alien insurer. It should also be noted that N.Y. Ins. Law § 7718 (McKinney 2000) deals with "Prohibited advertisement of the corporation in sale of insurance."
Assuming that the Oregon resident continues to be a non-resident of New York, it would not be eligible to obtain benefits from the LICGC.
For further information, you may contact Associate Attorney Sam Wachtel at the New York City office.