New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

George E. Pataki
Governor

Gregory V. Serio
Superintendent

The Office of General Counsel issued the following opinion on June 12, 2003, representing the position of the New York State Insurance Department.

RE: Risk Retention Groups and Motor Vehicle Financial Responsibility Insurance.

Question Presented:

Is a risk retention group (RRG), which is registered in New York but is not chartered or licensed in New York, considered to be "an insurer duly authorized to transact business in this state," for purposes of satisfying the financial responsibility requirements of the New York Vehicle and Traffic Law?

Conclusion:

A risk retention group, which is registered in New York but is not chartered or licensed in New York, is not "an insurer duly authorized to transact business in this state," and therefore an insurance policy issued by the RRG would not satisfy the financial responsibility requirements of the New York Vehicle and Traffic Law (VTL).

Facts:

Mr. A states that Insurance Company, Inc., RRG (ABC, Inc.), has requested that the Department of Motor Vehicles (DMV) issue an Insurance Company Code (ICC) to it, so that it may provide insurance in this state to its New York members for New York registered motor vehicles. ABC, Inc. is neither chartered nor licensed in New York as an insurer but has registered with the Insurance Department as a risk retention group. It is DMV’s belief that it may not assign an ICC number to ABC, Inc. because it is not an insurance company licensed by the Insurance Department. In a letter dated April 25, 2003, to DMV from ABC, Inc.’s attorney, Mr. B, Mr. B states that the Insurance Department, in an April 24, 2002 letter, acknowledged that ABC, Inc. may provide liability insurance for its members in New York as a risk retention group, and therefore the New York members should be able to register their vehicles in New York with the DMV.

In his inquiry, Mr. A states that, when an ABC,Inc. member registers a vehicle, DMV has instructed its issuing offices to accept a permit that is issued by either the United States or New York State Department of Transportation as proof of insurance.

Analysis:

The Department’s April 24, 2002 letter should not be construed as authorizing ABC,Inc. to provide liability insurance for the purposes of satisfying New York’s financial responsibility requirements contained in the VTL. The letter, written by Associate Insurance Examiner Mr. C, acknowledged ABC,Inc.’s registration with the Insurance Department, as required by the federal Liability Risk Retention Act 15 U.S.C. §§ 3901, et seq. ("LRRA"), and N.Y. Ins. Law § 5904 (McKinney 2000). Mr. C’s letter stated that "Provided that [ABC,Inc.] is not in violation of any provisions of the LRRA or any applicable New York statute, the group is permitted to provide liability insurance for its members in New York State as a risk retention group not chartered in this State."

As expressed in Mr. C’s letter, ABC, Inc. may provide liability insurance to its members, in accordance with applicable federal or New York law. However, this does not mean that such insurance will satisfy the financial responsibility requirements of the VTL.

Article VI of the New York Vehicle & Traffic Law is the "Motor Vehicle Financial Security Act". N.Y. Veh. & Traf. § 312(a) states that no motor vehicle may be registered in New York unless application for such registration is accompanied by proof of financial security, which shall be evidenced by proof of insurance, or other acceptable proof not relevant to this inquiry. Insurance shall be in the form of an "owner’s policy of liability insurance", which is defined in N.Y. Veh. & Traf. § 311(4)(b) to mean, "…in the case of a vehicle registered in this state, a policy issued by an insurer duly authorized to transact business in this state…"

N.Y. Veh. & Traf. § 321(1) excepts certain vehicles from compliance with the provisions of Article VI, including the proof of insurance requirement in § 311. These vehicles must nonetheless be registered in accordance with the provisions of the VTL. Among those vehicles exempted are those operated under a permit or a certificate of convenience and necessity issued pursuant to the New York Transportation Law, and those for which a permit or certificate is in force pursuant to the Interstate Commerce Act and any motor vehicle owned by the United States. This means that the owner of a vehicle that has a permit from either the United States or New York State Department of Transportation will be able to register the vehicle in New York.

Whether or not a ABC, Inc. insurance policy may be used to obtain either such permit has not been raised as an issue, and we offer no opinion. We address solely the issue posed by the inquirer, that is, the acceptability of a policy issued by a RRG that is not chartered and not licensed in New York, for the purposes of satisfying the financial responsibility requirements of Article VI of the VTL. However, the fact that some of the members may be able to register their vehicles because either the state and federal Departments of Transportation issued permits to vehicles covered by policies of insurance from ABC, Inc. does not require DMV to accept ABC,Inc. members that do not have such a permit because the Departments of Transportation are interpreting different laws. It is the Insurance Department’s position that determinations regarding financial responsibility—including the decision as to whether coverage by a non-New York chartered and licensed RRG qualifies as proof of such responsibility—are properly made by the agency enforcing the particular provision at issue.

The regulations of the Commissioner of Motor Vehicles provide in N.Y. Comp. Codes R. & Regs. tit. 15, § 34.2(k), in pertinent part, that an "insurance company" means "[a] company or risk retention group (RRG) licensed by the New York State Insurance Department to write motor vehicle liability insurance in New York State…" Subsection (l) of § 34.2 goes on to provide that DMV will assign an unique 3-digit code, the ICC, to an "insurance company", which DMV interprets to mean a New York licensed insurer and not to include a non-New York chartered risk retention group, such as ABC,Inc.

A RRG that is not chartered and not licensed as an insurer in New York does not constitute an "authorized insurer" under the Insurance Law. However, while a state is generally precluded under the LRRA from regulating a RRG that is not chartered and not licensed in that state, there are certain exceptions. Section 3905(d) of the LRRA, entitled "Clarification concerning permissible State authority" provides for a reservation of state authority with respect to financial responsibility. It states, in pertinent part: 

(d) State authority to specify acceptable means of demonstrating financial responsibility

Subject to the provisions of section 3902(a)(4) of this title relating to discrimination nothing in this chapter shall be construed to preempt the authority of a State to specify acceptable means of demonstrating financial responsibility as a condition for obtaining a license or permit to undertake specified activities. Such means may include or exclude insurance coverage obtained from an admitted insurance company, an excess lines company, a risk retention group, or any other source regardless of whether coverage is obtained directly from an insurance company or through a broker, agent, purchasing group, or any other person. [Emphasis added]

N.Y. Ins. Law § 5913 (McKinney 2000) provides as follows: 

Wherever pursuant to the laws of this state or any political subdivision of this state a demonstration of financial responsibility is required as a condition for obtaining a license or permit to undertake specified activities, if any such requirement may not be satisfied by obtaining insurance coverage from an insurer not authorized to do business in this state, such requirement may not be satisfied by insurance issued by a risk retention group not chartered in this state.

The Insurance Department interprets these provisions to exempt New York’s financial responsibility statutes that require the use of authorized insurers from federal preemption under the above-cited provisions of the LRRA. Therefore, a policy of motor vehicle liability insurance issued by a RRG that is chartered in another state and which is not licensed in New York as an insurer does not satisfy the financial responsibility requirements of the VTL since the VTL specifies that the policy must be issued by an authorized insurer. The Department has expressed this view on numerous occasions. See, for example, letter dated August 23, 1993, from Deputy Superintendent and General Counsel Donna Freireich; letter dated October 31, 2002, from Associate Attorney Barbara Kluger.

There has been a split of opinion among federal courts as to whether state financial responsibility laws are preempted by the LRRA. National Warranty Insurance Company, RRG v. Greenfield, 24 F. Supp. 2d 1096 (D. Or. 1998), aff’d 214 F.3d 1073 (9th Cir. 2000), concluded that Oregon’s service contract financial security law was preempted by the LRRA because it unfairly discriminated against RRGs. Two other circuits have concluded differently and upheld state financial responsibility laws that did not accept policies issued by a RRG. See Ophthalmic Mut. Ins. Co. v. Musser, 143 F.3d 1062 (7th Cir. 1998); Mears Trans. Group v. State of Fla. 34 F.3d 1013 (11th Cir. 1994). There has been no decision on point in the Second Circuit, which is where New York is located.

It is our opinion that Congress in LRRA § 3905(d) recognized the importance that states retain their authority to devise and implement, without preemption by federal law, financial responsibility laws in connection with the granting of licenses and registrations to engage in specified activities. New York has a legitimate interest in requiring financial responsibility to be demonstrated by an insurance policy issued by an insurer subject to all of its insurance laws and regulations and under its regulatory supervision.

Thus, under LRRA § 5913, it is our view that insurance written by a risk retention group that is not chartered or licensed as an insurer in New York is not proof of financial responsibility under Article VI of the VTL.

For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.