The Office of General Counsel issued the following opinion on November 7, 2005, representing the position of the New York State Insurance Department.
RE: Fuel oil dealer business interruption program covering property damage of client's residential oil tank
Question Presented
Would the proposed fuel oil dealer business interruption program as described below be permissible in New York?
Conclusion
The proposed fuel oil dealer business interruption program would not be permissible in New York.
Facts
The inquirer has proposed an insurance program that would cover residential oil tanks and cleanup costs. The policy would be sold to a fuel oil dealer as business interruption coverage. In the event that the dealer's customer sustained damage to the fuel oil tank, the policy would provide coverage for the tank as well as all clean-up costs. The coverage would be written on an all-risk basis. The inquirer states that the dealer has a financial interest in maintaining fuel oil dealers to the residential customers. The premium would be paid for by the dealer. Although the inquirer said that the inquirer did not contemplate the issuance of certificates to the customers, the dealer, in marketing its fuel oil services to customers and prospective customers, would advise them of the availability of the coverage. The coverage would apply to all of the dealer's customers and the customer would not be able to reject it.
Analysis
There are a number of reasons why the inquirer's proposal would not be permissible in New York. N.Y. Ins. Law § 3401 (McKinney 2000) provides:
No contract or policy of insurance on property made or issued in this state, or made or issued upon any property in this state, shall be enforceable except for the benefit of some person having an insurable interest in the property insured. In this article, "insurable interest" shall include any lawful and substantial economic interest in the safety or preservation of property from loss, destruction or pecuniary damage.
In addition N.Y. Ins. Law § 1113(a) (McKinney 2000 & Supp. 2005) provides:
The power to do any kind of insurance against loss of or damage to property shall include the power to insure all lawful interests in such property and to insure against loss of use and occupancy, rents and profits resulting therefrom.
The property in question -- the tanks and the surrounding property upon which the oil may spill -- is neither owned nor leased by the dealer. It appears to us that the dealer would not have a lawful and substantial economic interest in the property.
In addition, the Department has other substantial concerns with the proposal. N.Y. Comp. Codes R. & Regs. tit. 11, Part 153 (1995) (Regulation 135) establishes minimum requirements for group policies and quasi-group programs. Section 153.1(g) defines group policy to mean, in pertinent part:
1). A policy underwritten on a collective basis of:
(i) property/casualty insurance insuring the interests of two or more persons or entities;
Although the customers may not be named as insureds, it is clear that they would be the real parties in interest under the policy. The insurance coverage would be marketed as being provided in conjunction with the fuel oil services and customers will obviously be considering the availability of insurance in their decisions. Moreover, it is doubtful that the customers would not receive some sort of evidence of insurance. Further, as noted above, the dealer has no lawful interest in the property. Accordingly, the policy actually would be providing coverage to the customers and hence would be a group insurance policy. Although New York law recognizes certain types of group insurance policies, the proposed program would not come within those types of permissible groups and therefore would be an impermissible group insurance policy.
Inasmuch as the program would not be permissible in New York for the above reasons, we need not address other concerns with the program that the Department may have.
For further information one may contact Principal Attorney Paul A. Zuckerman at the New York City Office.