The Office of General Counsel issued the following informal opinion on July 13, 2004, representing the position of the New York State Insurance Department.
Re: Municipality hiring an unauthorized insurer
Does any New York insurance law prohibit a municipality from purchasing insurance from an unauthorized insurer?
There is no New York insurance law that prohibits a municipality from purchasing insurance from an unauthorized insurer. However, statutes other than the New York Insurance Law may require insurance that is purchased only from New York authorized insurers, and the municipality for which you are purchasing insurance may have laws or regulations with requirements for purchasing insurance.
No facts were provided.
As no specific facts were provided, the Department can only respond to the inquirer with general information. Although the inquirer asked about "non-admitted" insurers, New York Insurance Law does not define "non-admitted", which is used interchangeably with, and generally intended to mean the same thing as the term "unauthorized", which is defined by New York Insurance Law1. There is no New York insurance law that prohibits a municipality from purchasing insurance from an unauthorized insurer. However, statutes other than the New York Insurance Law may require insurance that is purchased only from New York authorized insurers2, and the municipality for which the inquirer is purchasing insurance may have laws or regulations with requirements for purchasing insurance.
Although an unauthorized insurer may not engage in the business of insurance in this state, N.Y. Ins. Law § 2118 (McKinney Supp. 2004 as amended by Ch. 687 of the Laws of 2003) permits, in certain prescribed situations, an excess line broker to procure insurance from an unauthorized insurer. The excess line market is intended to provide coverage when no coverage is available from an authorized insurer. When an excess line broker desires to place business with an unauthorized insurer, the broker must comply with the provisions of N.Y. Ins. Law § 2118(b) (Ch. 687 of the Laws of 2003) and N.Y. Comp. R. & Regs. tit. 11 Part 27 (2003) (Regulation 41), which require that a diligent effort be made to procure insurance from an authorized insurer and permit placement with an unauthorized insurer only when coverage can not be procured from the authorized-insurer market. These provisions require that the broker first obtain three declinations from authorized insurers prior to placing the coverage with an unauthorized insurer.
For further information one may contact Senior Attorney Susan A. Dess at the New York City Office.
1 Pursuant to N.Y. Ins. Law § 107(a)(10) (McKinneys Supp. 2004), "[a]uthorized insurer" means an insurer authorized as such to do an insurance business in this state in compliance with this chapter, by reason of a license so to do issued and in force pursuant to the laws of this state or of a corporate charter granted and in force pursuant to the laws of this state, but not including any insurer herein exempted from compliance with the requirement that it obtain a license to do business.
2 For example, Section 311 of the Motor Vehicle Law requires liability insurance to be purchased only from New York authorized insurers.