The Office of General Counsel issued the following opinion on July 7, 2003, representing the position of the New York State Insurance Department.
Re: Group Annuity Contract Coverage under Article 77 Life Insurance Company Guaranty Corporation ("LICGC")
To what extent does N.Y. Ins. Law Art. 77 (McKinney 2002 & Supp. 2003) protect participants in the ABC Annuity Fund?
See Analysis for discussion.
The XYZ Insurance Company has issued a group annuity contract.
The purpose of the LICGC is described in pertinent part in N.Y. Ins. Law § 7702 (McKinney 2002) as:
The purpose of this article is to provide funds to protect resident policyowners, insureds, beneficiaries, annuitants, payees and assignees of life insurance policies, health insurance policies, annuity contracts, funding agreements and supplemental 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 policies or contracts. . . .
The scope of N.Y. Ins. Law Art. 77 is described in N.Y. Ins. Law § 7703(a) (McKinney 2002) as:
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.
N.Y. Ins. Law § 7705(k) (McKinney 2002) defines a "resident" as:
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) defines a "Covered policy" as meaning:
any of the kinds of insurance specified in paragraph one, two or three of subsection (a) of section one thousand one hundred thirteen of this chapter, or any funding agreement referred to in section three thousand two hundred twenty-two of this chapter, or any portion or part thereof, within the scope of this article under section seven thousand seven hundred three of this article, except that 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 that "Contractual obligations" means any obligation under covered policies, but shall not include any obligation with respect to policyholder dividends unpaid or unapplied, retrospective rate credits or similar benefits or provisions.
With respect to the liability of the LICGC in the case of the impairment or insolvency of a foreign or alien insurer, New York Insurance Law § 7708(b)(3) (McKinney 2002) provides:
If a foreign or alien 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 be the excess over any amount that the superintendent determines to be the statutory obligation of the guaranty corporation or association of the foreign or alien insurers state of domicile or state of entry, but in no event shall the corporations liability, when added to the amount so determined to be available from such other guaranty corporation or association, 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 five hundred thousand dollar limitation shall not apply to any group or blanket accident or health insurance or accident and health insurance policy; and (ii) that the liability of all such guaranty corporations or associations may in the aggregate equal, but shall not 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.
The extent of LICGC protection for an individual participant under a group annuity depends upon the insurers obligation as set forth under the contract. If the contract does not guarantee annuity benefits with respect to any one specific individual identified in the contract, the LICGC will provide coverage for the total invested with the insurer, up to $1 million. However, if the contract does guarantee annuity benefits with respect to specific individuals identified in the contract, then the LICGC will provide up to $500,000 of coverage to such individuals who are New York residents. If a certificate evidencing coverage is issued to each participant, such certificate will be treated as a separate contract, pursuant to the N.Y. Ins. Law § 7705(d) definition of a "covered contract." Other factors such as the manner in which statements report on the status of the fund, whether with respect to the status of each participants individual interest or the with respect to the status of the funds entirety, have been considered by this Office in arriving at its opinion. See Office of General Counsel Opinions dated August 26, 1993 and April 30, 1992.
One may research additional opinions issued by this Office on this subject through the web site, www.ins.state.ny.us. Office of General Counsel Opinions are also available through the National Insurance Law Service and WestLaw. However, in reviewing these opinions, please note that the LICGC is a separate not-for-profit corporation that is not bound by the opinions of this Department.
For further information you may contact Associate Attorney Joan A. Siegel at the New York City Office.