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 May 20, 2002, representing the position of the New York State Insurance Department.

RE: Life Insurance Company Guaranty Corporation of New York Act -- N.Y. Ins. Law Article 77 (McKinney 2000)

Question Presented:

Would there be statutory financial protection if one purchases a single premium immediate payment annuity contract from a domestic life insurer, if such insurer becomes impaired or insolvent?1

Conclusion:

It is not certain. N.Y. Ins. Law § 7703(a) (McKinney 2000) sets forth the scope of N.Y. Ins. Law Article 77 (McKinney 2000) (hereinafter "Article 77"). Article 77 is applicable to an annuity contract issued to a New York State resident by a domestic life insurer that becomes impaired or insolvent unless there is a pertinent exception to the applicability of Article 77 pursuant to N.Y. Ins. Law § 7703(b) (McKinney 2000). Based upon the facts provided by the inquirer, there is no such pertinent exception. If one qualifies as a New York State resident, as defined by N.Y. Ins. Law § 7705(k) (McKinney 2000) for use in Article 77, then the annuity contemplated for purchase by the inquirer from a domestic life insurer would be guaranteed up to $500,000 in benefits "with respect to any one life or, to the extent benefits are not allocated pursuant to a covered policy to any one life, to any one covered policy . . . ." N.Y. Ins. Law § 7708(a) (McKinney 2000).

Facts:

The inquirer is about to purchase a fixed rate Single Premium Annuity, with lifetime income, payable immediately with period certain. Payment of the annuity’s income to the inquirer over lifetime of the inquirer would be guaranteed for ten years after the date that payments from the annuity begin and the children of the inquirer would be beneficiaries of any payments due if the inquirer were to die within the ten year time period. Payments would end if the inquirer were to die after the ten year time period. The inquirer contemplates purchasing the annuity from a domestic life insurer. The inquirer intends to retire soon; therefore, it is not certain that the inquirer will be a New York State resident at a time the inquirer would purchase the annuity or at a time that the domestic life insurer could become impaired or insolvent.

Analysis:

The Life Insurance Company Guaranty Corporation (hereinafter "LICGC") was established as a Not-For-Profit Corporation by Chapter 802 of the Laws of 1985 and it is governed by Article 77, known as "The Life Insurance Company Guaranty Corporation of New York Act." Article 77 applies to covered policies that were issued on or after August 2, 1985. The scope of Article 77 is set forth in N.Y. Ins. Law § 7703(a) and it provides as follows:

(a) 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)

Based upon the facts provided by the inquirer, there is no pertinent exception to the applicability of Article 77 pursuant to N.Y. Ins. Law § 7703(b) (McKinney 2000).

N.Y. Ins. Law § 7705(k) (McKinney 2000) defines the term resident for use in Article 77:

(k) "Resident" means 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.

All life insurance companies licensed to transact life or health insurance or an annuity business in New York State are members of the LICGC. N.Y. Ins. Law § 7705(h) (McKinney 2000). The LICGC is funded by assessments made against its members after a member insurer is declared impaired or insolvent by a court of law. N.Y. Ins. Law § 7709 (McKinney 2000).

Accordingly, if the inquirer qualifies as a resident pursuant to N.Y. Ins. Law § 7705(k) (McKinney 2000) the annuity contract contemplated for purchase by the inquirer from a domestic life insurer would be guaranteed by the LICGC up to $500,000 in benefits "with respect to any one life or, to the extent benefits are not allocated pursuant to a covered policy to any one life, to any one covered policy . . . ." N.Y. Ins. Law § 7708(a) (McKinney 2000).

For further information you may contact Senior Attorney Robert Freedman at the New York City Office.


1 N.Y. Ins. Law § 7705(f) & (g) (McKinney 2000) defines an impaired or insolvent licensed life insurer for the purposes of N.Y. Ins. Law Article 77 (McKinney 2000).