New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
ONE COMMERCE PLAZA
ALBANY, NEW YORK 12257

George E. Pataki
Governor

Howard Mills
Superintendent

The Office of General Counsel issued the following opinion on March 15, 2006 representing the position of the New York State Insurance Department.

RE: Circular Letter No. 6 (2005) and Certificates of Insurance.

Question Presented:

If an insurer issued a liability policy to a broker/dealer or a life insurance company as named insured, and the named insured's registered representatives or individual life insurance agents, respectively, are also "insureds" within the meaning of the term "insured", as defined in the policy, would the policy be a group policy as defined in Regulation 135 (11 NYCRR Part 153) if the insurer did not issue, or cause to be issued, any individual certificates of insurance to the registered representatives or to the individual life insurance agents?

Conclusion:

Under the facts presented, it is not relevant whether the insurer issues individual certificates of insurance. If an insurer issued a liability policy to a broker/dealer or a life insurance company, as named insured, and the named insured's registered representatives or individual life insurance agents, respectively, are also "insureds" within the meaning of the term "insured", as defined in the policy, the policy would be a group policy as defined in Regulation 135, unless the registered representatives or individual life insurance agents are employees of the broker/dealer or life insurance company, respectively, or the policy otherwise fits within the exceptions specified in Section 153.1(g)(2) of Regulation 135. If the registered representatives or individual life insurance agents are independent contractors, such a policy may not be issued except to a purchasing group formed pursuant to the requirements of N.Y. Ins. Law Article 59 (McKinney 2000), the Federal Liability Risk Retention Act 15 U.S.C. §§ 3901, et seq. ("LRRA") and 11 NYCRR 310 (Regulation No. 134) and where the policy is in compliance with Regulation No. 135.

Facts:

No facts were provided. The inquiry is of a general nature.

Analysis:

The term "group policy" is defined by Section 153.1(g) of Regulation 135, in relevant part, as follows:

(a) Group policy means:

(1) a policy underwritten and issued on a collective basis of:

(i) property/casualty insurance insuring the interests of two or more persons or entities; or

(ii) liability insurance insuring a Federal purchasing group or its members;

(2) Where an insurer elects to issue a single policy with a first-named insured and additional insureds, such policy shall not be considered a "group policy" in regard to the following:

i) corporations or other entities under common control as defined in section 107(a)(16) of the Insurance Law, with regard to their related interests;

ii) franchisors and their franchisees, with regard to their related interests;

(iii) members of a partnership or joint venture, with regard to their related interests;

(iv) family members, but only for purposes of policies subject to section 3425 of the Insurance Law; or

(v) shared interests, provided that such shared interests exist among all additional insureds, and only to the extent of such shared interests.

Thus, a liability policy that meets the definition of a group policy pursuant to Section 153.1(g)(1) is a group policy, regardless of whether or not certificates of insurance are issued, unless the additional insureds are employees of the first named insured or an exception specified in Section 153.1(g)(2) is applicable. Such a group policy may not be issued except to a purchasing group formed pursuant to the requirements of N.Y. Ins. Law Article 59 (McKinney 2000), the Federal Liability Risk Retention Act 15 U.S.C. §§ 3901, et seq. ("LRRA") and 11 NYCRR 310 (Regulation No. 134) and where the policy is in compliance with Regulation No. 135.

The inquirer argued that under some circumstances a broker/dealer or insurer may be liable for the actions of a registered representative or insurance agent, respectively, acting as an independent contractor, and that as a result, the "shared interest" exception is applicable.

The term "shared interests" is defined by Section 153.1(s)(2) of Regulation 135 as:

ownership or control of an additional insured’s operations and activities such that, if damages arise from such operations or activities, the first named insured and all insureds may be jointly liable. (emphasis added)

The inquirer's argument is incorrect because potential liability alone is insufficient to satisfy the definition of shared interests. Pursuant to regulation, there must also be a shared interest among all the additional insureds. See Opinion of General Counsel No. 95-12 (February 16, 1995).

Furthermore, none of the other exceptions specified in Section 153.1(g)(2) of Regulation 135 appear to apply to independent contractors. Therefore, if the registered representatives or individual life insurance agents are additional insureds under a policy issued to a broker/dealer or insurer, respectively who are acting as independent contractors, the policy may not be issued except to a purchasing group formed pursuant to the requirements of N.Y. Ins. Law Article 59 (McKinney 2000), the Federal Liability Risk Retention Act, 15 U.S.C. §§ 3901, et seq. ("LRRA") and 11 NYCRR 310 (Regulation No. 134) and where the policy is in compliance with Regulation No. 135.

Finally, the inquirer appears to have incorrectly concluded, in his letter of November 19, 2005, that a liability policy issued to a broker/dealer or a life insurance company as named insured, for which insured's registered representatives or individual life insurance agents, respectively, are also "insureds" within the meaning of the term "insured", as defined in the policy could be issued as a Class 1 or Class 2 specific risk insurance in the Free Trade Zone. Please note that if the policy meets the definition of a group policy as defined by Section 153.1(g) of Regulation 135, it may not be issued in the Free Trade Zone. Section 16.8(b) of Regulation 86. Thus, any property/casualty policy which meets the definition of a group policy as defined by Regulation 135 may not be issued in the Free Trade Zone whether or not it is a group policy permitted by Regulation 135.

For further information you may contact Assistant Counsel Brenda M. Gibbs at the Albany Office.