The Office of General Counsel issued the following informal opinion on May 16, 2003, representing the position of the New York State Insurance Department.
Re: Coverage by the Life Insurance Company Guaranty Corporation of New York
To what extent does New York Insurance Law, Article 77 (McKinney 2002) protect participants in a group annuity contract that is issued by a domestic life insurance company to a multi-employer-employee participant directed investment plan, where participants are not specifically identified in the contract, but the insurance company, pursuant to an administrative services contract, provides individual accounts and recordkeeping services on behalf of the participants?
There is no specific language in the statute which governs this issue. Accordingly, the Department defers to the Life Insurance Company Guaranty Corporation of New York (hereinafter Corporation) and a court of competent jurisdiction.
The inquirer represents a multi-employer/employee participant directed investment plan that has purchased a group annuity from a domestic life insurance company. The insurance company issued two contracts to the plan: an investment agreement and an administrative services agreement, requiring the insurer to establish individual accounts and maintain recordkeeping services on behalf of the participants. The investment contract does not specifically name the participants of the plan who have not been issued certificates from the insurer, but who will have individual accounts maintained and serviced by the insurance company. The holder of the annuity contract does not maintain individual accounts for each participant.
According to the inquirers letter, "[t]he insurance company claims that it believes that protection up to $500,000.00 applies to each participant invested in the fund offering because the [insurance] company is the recordkeeper and maintains individual participant accounts for the annuity plan." The inquirer further stated that ". . . they claim that the New York State Insurance Department classifies its group annuity contracts where the company provides recordkeeping services in addition to investment offerings as "allocated" group annuity contracts."
The inquirer wanted to know if each account for those participants residing in the State of New York is protected up to $500,000.00 as provided for under Article 77.
N.Y. Ins. Law § 7702 (McKinney 2002) states in the relevant part that "[t]he purpose of this article is to provide funds to protect resident . . . beneficiaries, annuitants, payees and assignees of . . . annuity contracts, . . . issued by life insurance companies, subject to certain limitations, against failure in the performance of contractual obligations due to the impairment or insolvency of the insurer issuing such . . . contracts." N.Y. Ins. Law § 7703 (McKinney 2002) states in the relevant part that "[t]his article shall apply to . . . annuity contracts, . . . 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 . . . ." N.Y. Ins. Law § 7705(k) (McKinney 2002) states in the relevant part that "[r]esident 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." N.Y. Ins. Law § 7705(d) (McKinney 2002) states in the relevant part that a "[c]overed policy means . . . any certificate issued to an individual under any group policy or contract shall be considered to be a separate covered policy for purposes of section seven thousand seven hundred eight of this article." N.Y. Ins. Law § 7705(b) (McKinney 2002) states in the relevant part that "[c]ontractual obligations means any obligation under covered policies, . . . ".
New York Insurance Law § 7708(a) (McKinney 2002) states in the relevant part:
If a domestic insurer is an impaired or insolvent insurer, the corporation shall with the approval of the superintendent:
. . . .
(3) provide such moneys, pledges, notes, guarantees or other means as are reasonably necessary to discharge such duties.
The aggregate liability of the corporation under this subsection shall not exceed five hundred thousand dollars for all benefits, including cash values, 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; provided, however, (i) that the foregoing limitation shall not apply to any group or blanket accident or health insurance or accident and health insurance policy and (ii) that the corporation shall be liable under this subsection in an amount not to exceed one million dollars for all benefits, including cash values, with respect to any group annuity contract (or portion of any such contract) that does not guarantee annuity benefits with respect to any specific individual identified in the contract and with respect to any funding agreement issued to fund benefits under any employee benefit plan."
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In this case, the plain language of the statute does not address the inquirers question. Accordingly, the Department defers to the Corporation and a court of competent jurisdiction for their interpretation.
For further information one may contact Senior Attorney Susan A. Dess at the New York City Office.