The Office of General Counsel issued the following opinion on December 1, 2005, representing the position of the New York State Insurance Department.
Re: Permissibility of Real Estate Brokerages "Free" Closing Gift of a Home Protection Plan to its Clients
May a real estate broker purchase a home protection plan issued by a registered service contract provider for its clients?
A real estate broker may purchase a home protection plan issued by a registered service contract provider for its clients.
The inquirers real estate brokerage would like to send to local residents a marketing flyer that, in essence, explains that the inquirer will provide complimentary home warranty coverage to clients. The inquirer submitted for our review what is called a Home Protection Plan that would be issued by Aon Home Warranty Service, Inc. ("Aon Home Warranty"). The Home Protection Plan covers, among other things, roof leakage, septic system, dishwashers, garbage disposals, built-in microwave ovens, ranges, trash compactors, kitchen refrigerators and clothes washers and dryers. The inquirer states that this coverage will benefit the seller for a period before the closing and the buyer for one year after the closing.
The inquirer states that she was unable to provide us with a copy of the actual contract or agreement that is issued by Aon Home Warranty because such contracts or agreements are sent directly to clients who elect to purchase such protection.
The inquirer refers to the coverage that she intends to purchase for her clients as "home warranty" coverage. However, as discussed above, the coverage is a "Home Protection Plan" that will be issued by Aon Home Warranty. Aon Home Warranty is registered, pursuant to Article 79 of the Insurance Law, as a service contract provider and is authorized to enter into contracts or agreements, for a separate or additional consideration, for a specific duration to, among other things, "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 or tear, with or without additional provision for indemnity payments for incidental damages, provided such indemnity payment per incident shall not exceed the purchase price of the property serviced." See N.Y. Ins. Law § 7902(k) (McKinney 2000).
Section 7902(k) also permits a service contract provider to provide for the repair, replacement or maintenance of property for damage resulting from power surges and accidental damage from handling. Service contracts may also include contracts to repair, replace or maintain residential appliances and systems, among other things. Provided the actual contracts/agreements that are provided by Aon Home Warranty comports with the requirements and limitations in Article 79 of the Insurance Law and other applicable sections of the Insurance Law, Aon Home Warranty may sell its Home Protection Plan.
There is nothing in the Insurance Law that would prohibit the inquirers brokerage from purchasing such plan from Aon Home Warranty for real estate clients at no additional cost.
This opinion is limited to an interpretation of the Insurance Law and the regulations promulgated thereunder. No opinion is herein rendered regarding possible violations of other laws such real estate law.
For further information please contact Associate Attorney D. Monica Marsh at the New York City Office.