The Office of General Counsel issued the following informal opinion on April 23, 2002, representing the position of the New York State Insurance Department.
RE: Sale of Etching Program With Insurance
When an automobile dealer sells a consumer a window etching product that includes insurance as part of the program, does the dealer have to become licensed as an insurance agent or broker?
No, so long as the program including insurance is provided in accordance with N.Y. Ins. Law § 3446 (McKinney 2000) and N.Y. Comp. Codes R. & Regs. tit. 11, Part 310 (2000) (Regulation 167).
ABC Corporation ("ABC") administers and markets an etching program that is sold through automobile dealers. When an automobile is sold, the automobile dealer etches the windows of the vehicle with a unique identification code and provides anti-theft warning decals that are applied in four places on the vehicle. ABC established the program parameters that the dealers must abide by and provides the decals to them. As part of the program, a certificate of insurance is provided to the purchaser under a group insurance policy that has been issued to ABC by XYZ Insurance Company ("XYZ"). The policy provides coverage to the purchaser if the etched vehicle is stolen and not recovered, or declared a constructive total loss from a collision as a result of the theft.
Section 3446 of the New York Insurance Law was enacted in 1999 to authorize the issuance of a group policy to a company that manufactures, distributes or installs a product or system, such as ABCs etch program. The group policy, which must be obtained from an authorized insurer, insures purchasers or owners of the product or system, where the manufacturer, distributor, or installer has represented that the product or system is designed to prevent loss or damage to property from a specific cause (other than loss or damage resulting from defect in materials or workmanship, or wear and tear). Under the policy, coverage is provided directly from the insurer to the purchaser or owner of the product or system. The coverage is non-optional; that is, it comes with the product or system for no separate charge. N.Y. Comp. Codes R. & Regs. tit. 11, Part 310 (2000) (Regulation 167) implements N.Y. Ins. Law § 3446 (McKinney 2000) and contains a discussion that explains why § 3446 was enacted. The regulation is available on the Insurance Departments website, http://www.ins.state.ny.us.
Absent the enactment of § 3446, a number of sections of the Insurance Law would have otherwise precluded the insurance from being provided in the manner contemplated. ABCs question relates specifically to one aspect of the law that had to be addressed, namely the activities of unlicensed persons in providing the insurance.
N.Y. Ins. Law § 2101(a) (McKinney Interim Pocket Part 2001-2002) defines "insurance agent" to mean:
any authorized or acknowledged agent of an insurer, fraternal benefit society or health maintenance organization issued a certificate of authority pursuant to article forty-four of the public health law, and any sub-agent or other representative of such an agent, who acts as such in the solicitation of, negotiation for, or procurement or making of, an insurance, health maintenance organization or annuity contract, other than as a licensed insurance broker
N.Y. Ins. Law § 2101(c) (McKinney Interim Pocket Part 2001-2002) defines "insurance broker" to mean:
any person, firm, association or corporation who or which for any compensation, commission or other thing of value acts or aids in any manner in soliciting, negotiating or procuring the making of any insurance or annuity contract or in placing risks or taking out insurance, on behalf of an insured other than himself or itself or on behalf of any licensed insurance broker
The exclusions from both provisions are omitted here because they are not relevant to this inquiry.
Because § 3446 specifically authorizes insurance coverage to be provided on a group basis in conjunction with the sale of the product or system and requires that the premium for the group policy, including certificates thereunder, shall be paid by the group policyholder from funds contributed wholly by the group policyholder, the law implicitly exempted the group policyholder or the seller of the product or system from having to be licensed as an insurance agent or broker under such circumstances. The insurance, however, may not be offered separately from the product or system and the purchaser or owner may not be offered different insurance options.
As is the case with other kinds of group insurance, the law envisioned that the group policyholder, its employee, or some other person acting on behalf of the group policyholder, would engage in the ministerial task of supplying a certificate on behalf of the insurer to the group member.
Section 310.6 of Regulation 167 provides:
(a) If so authorized by the insurer, the group policyholder may perform ministerial services on behalf of the insurer, including supplying or delivering the certificate to the group member and administration of claims. However, no person shall act as an insurance agent, broker, or adjuster in connection with a product or system group policy unless that person is duly licensed under Insurance Law Article 21 or exempt from licensing therefrom.
(b) An insurer may reimburse a group policyholder for expenses incurred in administration of the product or system group policy if the payment is equivalent to the costs of rendering such services and such services would normally have been performed by the insurer, an agent or broker.
Accordingly, the sale of the etching program, which includes group insurance coverage as discussed herein, including the mere delivery of a certificate by a the group policyholder, its employee, or any other person acting on behalf of the group policyholder (including, in this case, the selling dealer) to a group member under the circumstances described would not constitute acting as an insurance agent or broker within the meaning of Section 2101, and no such license is required.
For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.