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 April 4, 2006 representing the position of the New York State Insurance Department.

RE: Circular Letter No. 6 (2005) and Policy Issued to a Broker/Dealer and its Registered Representatives

Question Presented

Would a liability policy that was issued to a broker/dealer as first named insured and to one or more registered representatives of the broker/dealer, as additional insureds, be a group policy as defined in Regulation 135 (11 NYCRR Part 153)?

Conclusion

If an insurer issued a liability policy that was issued to a broker/dealer as first named insured and to one or more registered representatives of the broker/dealer, as additional insureds, the policy would be a group policy as defined in Regulation 135, unless the registered representatives are employees of the broker/dealer, or the policy otherwise fits within the exceptions specified in Section 153.1(g)(2) of Regulation 135. If the registered representatives 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

The inquirer is the General Counsel for a Massachusetts based broker-dealer that has three or four NASD registered offices with approximately 10-12 registered representatives in the State of New York. The registered representatives are independent contractors.

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), as is the case with the policy the inquirer has described, is a group policy 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 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.

Although, the inquirer has stated that a broker/dealer is responsible for supervising its registered representatives pursuant to SEC regulations and the rules of the NASD, this alone is insufficient to satisfy the shared interests exception. Pursuant to regulation, there must be a shared interest among all the additional insureds. See Opinion of General Counsel No. 95-12 (February 16, 1995).

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).

Since the shared interests exception is not applicable to the policy the inquirer has described and none of the other exceptions appear to apply, the policy is a group policy that 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.

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