The Office of General Counsel issued the following opinion on July 15, 2003, representing the position of the New York State Insurance Department.
RE: Tire and Rim Program
Would the "Tire and Rim Program" constitute a warranty, a service contract, or the doing of an insurance business if it were offered in New York?
The sale of the "Tire and Rim Program" would constitute the doing of an insurance business if it were offered in New York.
An inquiry was submitted to the Department regarding the "Tire and Rim Program" that is administered by XYZ, Inc. It was inquired as to whether such program would be acceptable for sale in New York.
Under the terms of the program, a vehicle owner or lessee is promised the repair or replacement of a flat tire or damaged rim, including the cost of all taxes, valve systems, mounting and balancing, as well as up to $100 for road services incurred, subject to certain exclusions. The registration form for the Tire and Rim Program names "ABC Inc." as the entity responsible for fulfilling the promise to repair or replace the tire or rim. No additional information about ABC Inc. was provided.
N.Y. Ins. Law § 1101 (McKinney Supp. 2003) states in relevant part:
(a)(1) "Insurance contract" means any agreement or other transaction whereby one party, the "insurer", is obligated to confer benefit of pecuniary value upon another party, the "insured" or "beneficiary", dependent upon the happening of a fortuitous event in which the insured or beneficiary has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of such event.
(2) "Fortuitous event" means any occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party.
(3) "Contract of warranty, guaranty or suretyship" means an insurance contract only if made by a warrantor, guarantor or surety who or which, as such, is doing an insurance business.
(b) (1) Except as provided in paragraph two, three or three-a of this subsection, any of the following acts in this state, effected by mail from outside this state or otherwise, by any person, firm, association, corporation or joint-stock company shall constitute doing an insurance business in this state and shall constitute doing business in the state within the meaning of section three hundred two of the civil practice law and rules:
(A) making, or proposing to make, as insurer, any insurance contract, including either issuance or delivery of a policy or contract of insurance to a resident of this state or to any firm, association, or corporation authorized to do business herein, or solicitation of applications for any such policies or contracts;
(B) making, or proposing to make, as warrantor, guarantor or surety, any contract of warranty, guaranty or suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the warrantor, guarantor or surety[.]
Although the term "warranty" is not defined in the Insurance Law, generally speaking, a contract or agreement to perform the repair, replacement or maintenance of property, or indemnification for repair, replacement or maintenance, due to a defect in materials or workmanship or wear and tear, when made by the seller or manufacturer of property, is considered to be a warranty under the New York Insurance Law, whether or not a separate fee is charged for the contract.1 Such warranties, when made by a manufacturer or seller, generally do not constitute the doing of an insurance business in New York under N.Y. Ins. Law §§ 1101 and 1102 (McKinney 2000 & Supp. 2001-2002).
A service contract is defined in N.Y. Ins. Law § 7902(k) (McKinney 2000), in relevant part, as:
"Service contract" means a contract or agreement, for a separate or additional consideration, for a specific duration to perform the repair, replacement or maintenance of property, or indemnification for repair, replacement or maintenance, due to a defect in materials or workmanship or wear and tear, with or without additional provision for indemnity payments for incidental damages, provided any such indemnity payment per incident shall not exceed the purchase price of the property serviced. Service contracts may include towing, rental and emergency road service[.]
N.Y. Ins. Law § 1101(b)(3-a) (McKinney Supp. 2003) states, in relevant part:
Notwithstanding the foregoing, the marketing, sale, offer for sale, issuance, making, proposing to make or administration of a service contract pursuant to article seventy-nine of this chapter . . . shall not constitute doing an insurance business.
No person or other entity that is obligated to provide service under a service contract may issue, sell, or offer for sale a service contract in New York unless it first registers with the Superintendent of Insurance as a service contract provider, pursuant to N.Y. Ins. Law § 7907 (McKinney 2000).
Where there is no relationship to the product or service, as noted above, the maker of the contract undertakes an obligation involving a fortuitous risk, and the contract is an insurance contract. Such undertaking constitutes doing an insurance business unless the contract is a service contract issued in accordance with Article 79 of the Insurance Law.
Based on the information provided, it is the Departments view that the "Tire and Rim Program" is neither a warranty nor a service contract. The obligations undertaken are not based on defects in material but upon the happening of a fortuitous event that is beyond the control of either the contract maker or the consumer. In the absence of a license to do an insurance business in New York, the contract maker would be acting in violation of N.Y. Ins. Law § 1102 (McKinney 2000), and the auto dealer would be aiding an unauthorized insurer in violation of N.Y. Ins. Law § 2117(a) (McKinney Supp. 2003).
For further information you may contact Associate Attorney Sally Geisel at the New York City Office.
1 See Ollendorf Watch Co., Inc. v. Pink, 279 N.Y. 32, 17 N.E.2d 675 (1938).