The Office of General Counsel issued the following opinion on February 2, 2005, representing the position of the New York State Insurance Department.
Re: ABC Deductible Insurance Program
Under the facts provided below, may ABC Automotive Companies (ABC), an automobile dealership, sell ABC Deductible Insurance to its customers?
No. ABC may not sell its ABC Deductible Insurance to customers because to do so would constitute the doing of an insurance business without a license in violation of the N.Y. Ins. § 1102(a).
The ABC Automotive Companies (ABC), an automobile dealership that is not an authorized insurer, would like to offer ABC Deductible Insurance (Deductible Insurance) to its customers. ABC provided the following description of its ABC Deductible Insurance Program:
Mr. and Mrs. ABC Customer choose their wonderful new car with the help of their highly-trained and very friendly salesperson. Their salesperson helps Mr. and Mrs. Customer decide on a financing option with our efficient and very helpful F & I Manager. While going over various options available when buying the car, such as undercoating and our Extended Warranty, our F & I Manager also brings to Mr. and Mrs. Customers attention our NEW Deductible Insurance Program. On Mr. and Mrs. Customers insurance policy for their new car, they have a $1000.00 Collision deductible. If Mr. and Mrs. Customer choose to purchase the ABC Deductible Insurance by paying 10% of their Collision deductible ($100.00) when they finance the vehicle, ABC Collision (the state of the art auto body repair facility affiliated with ABC Automotive Companies) will not charge Mr. and Mrs. Customer for that $1000.00 deductible when they bring the vehicle to ABC Collision for repairs. At the time of their auto body repairs, ABC Deductible Insurance will pay the $1000.00 deductible to ABC Collision Centre. Mr. and Mrs. Customer can receive their repair without paying the deductible to ABC Collision since they have purchased the ABC Deductible Insurance.
N.Y. Ins. Law § 1102(a) (McKinney Supp. 2005) provides, in pertinent part, that "[n]o person, firm, association, corporation or joint-stock company shall do an insurance business in this state unless authorized by a license in force pursuant to the provisions of this chapter, or exempted by the provisions of this chapter from such requirement."
N.Y. Ins. Law § 1101(b)(1)(A)-(B) (McKinney Supp. 2005) defines "doing an insurance business" as follows:
(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. . . .
N.Y. Ins. Law § 1101(a)(1)-(2) (McKinney Supp. 2005) defines "insurance contract" and "fortuitous event," respectively, as follows:
(a) In this article: (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.
Under the facts presented, Deductible Insurance is an insurance contract because it is an agreement whereby ABC (the insurer) is obligated to confer benefit of pecuniary value (the $1000 deductible) upon the purchaser (the insured) of Deductible Insurance dependent upon the happening of a fortuitous event (a collision that damages the insureds car) in which the insured has, or is expected to have at the time of such happening, a material interest (the cars market value) that will be adversely affected by the happening of such event. Accordingly, ABC may not sell Deductible Insurance because it is an insurance contract, and the selling of such insurance contract while unlicensed would constitute the doing of an insurance business without a license in violation of the N.Y. Ins. § 1102(a).
For further information you may contact Senior Attorney Kristian Earl Lynch at the New York City Office.