|George E. Pataki
Gregory V. Serio
The Office of General Counsel issued the following opinion on February 20, 2003, representing the position of the New York State Insurance Department.
Re: Debt cancellation lender insurance issued by unauthorized insurer outside of New York
1. Where an unauthorized insurer issues and delivers a policy of debt cancellation lender insurance outside of New York to a national bank covering debt cancellation agreements in New York, would the insurer be doing an insurance business in New York?
2. Under such circumstances, must the insurer file the insurance policy with the Insurance Department?
1. Where an unauthorized insurer issues and delivers a policy of debt cancellation lender insurance outside of New York to a national bank covering the banks risk in regard to debt cancellation agreements issued in New York by the bank, the insurer would not be doing an insurance business in New York.
2. The unauthorized insurer does not have to file the insurance policy with the Insurance Department.
A nationally chartered bank, domiciled outside of New York, plans on offering its store-specific credit card holders a debt cancellation program in compliance with all applicable federal regulations. It is expected that some of the participants in the debt cancellation program would be in New York. The bank intends to obtain an insurance policy from an insurer that is not authorized to do an insurance business in New York. The policy would be issued and delivered outside of New York to the bank and all insurance transactions between the bank and the insurer would occur outside of New York. The policy will cover the bank for the amount of any debt that is cancelled where the credit card holder had purchased a debt cancellation agreement. The policy will be filed and approved in the state where the bank is domiciled and resident.
Although the making of debt cancellation agreements constitutes the doing of an insurance business under New York law, unless a specific exemption applies (as is the case for gap waivers), in an opinion dated April 2, 2002, this office stated that State regulation of the underwriting of debt cancellation contracts or debt suspension contracts issued by a national bank in connection with credit card loans made by the bank to its cardholders is preempted by the provisions of § 104(d)(1) and (e)(3) of the Gramm-Leach-Bliley Act (15 U.S.C. § 6701(d)(1) and (e)(3)(2000)) and that application of New York State insurance law would prevent or restrict a national bank from carrying out the underwriting activity associated with such insurance contracts. For a more extensive discussion see the opinions entitled "Debt Cancellation Lender/Creditor Insurance" and "Bank Issuance of Debt Suspension and Debt Cancellation Contracts in connection with its Customers Credit Card Account at the Bank", which are located on the Departments website at http:/www.ins.state.ny.us.
The questions that you pose relate to the insurance policy that the bank would obtain. The unauthorized insurer would issue and deliver the policy to the bank outside of New York, and all transactions regarding the policy would also take place outside of New York. Although some of the debt cancellation agreements would be entered into in New York, the policy does not provide coverage to the New York credit card holders. Rather, it provides coverage to the bank to cover the risk that it incurs when the debt is cancelled pursuant to one of the debt cancellation agreements. Given the above, the unauthorized insurer would not be doing an insurance business in New York, within the meaning of N.Y. Ins. Law § 1101 (McKinney 2000 & Supp. 2003).
Nor is there any obligation under New York law for the insurer to file the policy with the Insurance Department just because some of the banks exposure may arise in New York. However, please be advised that the insured may be subject to taxation in regard to its New York exposure. You are referred to N.Y. Tax Law Article 33-A (McKinney 2000), regarding independently procured insurance.
For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.