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 5, 2006, representing the position of the New York State Insurance Department.

RE: Circular Letter No. 6 (2005) and Nonresidents

Questions Presented:

1) Would a liability policy that covers a broker/dealer or insurer as first-named insured and its registered representatives or insurance agents, respectively, as additional insureds be considered a group policy as defined by Regulation 135 if the broker/dealer or insurer pays the entire premium cost without contribution from the registered representatives or insurance agents, respectively?

2) Do the terms "New York members" and "New York agents or representatives" as used in Circular Letter No. 6 (2005) include the following with respect to a liability policy issued to a federal purchasing group?

a. Non-resident registered representatives and insurance agents who have licenses in New York some of whom have New York clients and others that do not.

b. A non-resident representative with no clients in New York but who purchases and sells stocks on the New York Stock Exchange for clients.

Conclusions:

1) Regardless of how the premiums are paid, a liability policy that covers a broker/dealer or an insurer as named insured, and the named insured's registered representatives or insurance agents, respectively, as additional insureds, would be a group policy as defined in Regulation 135, unless the registered representatives or insurance agents are employees of the broker/dealer or insurance company, respectively or the policy otherwise fits within the exceptions specified in Section 153.1(g)(2) of Regulation 135. 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.

2) The phrases "New York members" and "New York agents or representatives" were used in Circular Letter No. 6 in reference to the requirements contained in 11 NYCRR §§ 153.4(c) and 153.8 (Regulation 135) and include nonresidents that have operations or risks in New York to be insured under the group policy issued to the purchasing group.

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, regardless of how the premiums are paid, a liability policy that covers a broker/dealer or an insurer as named insured, and the named insured's registered representatives or insurance agents, respectively, as additional insureds, would be a group policy as defined in Regulation 135, unless the registered representatives or insurance agents are employees of the broker/dealer or insurance company, respectively or the policy otherwise fits within the exceptions specified in Section 153.1(g)(2) of Regulation 135. 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 has also asked if the phrases "New York members" and "New York agents or representatives" as used in Circular Letter No. 6 (2005) apply to nonresident registered representatives and insurance agents. At the outset, please note that Circular Letter No. 6 (2005) is itself not a rule or regulation but merely constitutes the Department’s interpretation of the existing law and regulations. The phrases "New York members" and "New York agents or representatives" were used in Circular Letter No. 6 in reference to the requirements contained in Sections 153.4(c) and 153.8 of Regulation 135.

The Department has consistently interpreted the provisions of the Insurance Law to apply to each certificate issued under a group property/casualty insurance policy as if the certificate was a separate policy of insurance, except where the law expressly provides otherwise. Opinion of General Counsel No. 03-08-15 (August 12, 2003). Thus, each policy issued to a group member of a group policy would be subject to the requirements of the Insurance Law and Regulation 135; and evaluated separately thereunder. For the purpose of analysis to follow, it is assumed that the group policy will be issued by an authorized insurer and that certificates thereunder will be issued to group members.

N.Y. Ins. Law Article 23 (McKinney 2000 and Supp. 2006) applies to property/casualty insurance written on risks or operations in this State whether a policy or certificate is delivered or issued for delivery within or outside New York. See N.Y. Ins. Law § 2302 (McKinney 2000); Opinion of General Counsel No. 05-09-14 (September 16, 2005).

N.Y. Ins. Law § 2307(b) (McKinney Supp. 2006) states, in relevant part, as follows:

Except as otherwise provided herein, no policy form shall be delivered or issued for delivery unless it has been filed with the superintendent and either he has approved it, or thirty days have elapsed and he has not disapproved it as misleading or violative of public policy . . .

Section § 153.4 of Regulation 135 provides, in relevant part, as follows:

Every group policy issued or renewed in this State on risks or operations in this State, under section 3435 or in connection with a federal purchasing group, shall comply with the following minimum policy standards.

* * *

(c) No group policy, master policy or certificate shall be subject to a group or sub-group aggregate liability limit of any kind at any time, and any liability limit applicable to a group member shall:

(1) be separate and apart from any liability limit to which any other group member insured under the group policy may be subject; and

(2) operate unaffected by the experience of any other group member or the overall experience of the group itself. (emphasis added)

* * *

Thus, where a certificate is evidence of coverage for risks or operations in New York and it is issued or issued for delivery in New York, the prohibition against an aggregate liability limit specified in Section 153.4 of Regulation 135 will be applicable to the certificate. However, pursuant to N.Y. Ins. Law § 2307(b), a certificate that evidences insurance on risks or operations in New York, issued by an authorized insurer even if issued outside of New York, is subject to Article 23, including the policy form approval requirements thereof. See Opinion of General Counsel No. 05-09-14 (September 16, 2005). Hence, even if issued or issued for delivery outside New York, it would nevertheless be subject to the prohibition against an aggregate liability limit specified in Section 153.4 of Regulation 135 since the Superintendent would not approve a policy containing an aggregate liability limit that applies to New York risks or operations. A similar result is reached with respect to Section 153.8 of Regulation 135 which prohibits the issuing of a group policy where participation in the policy is required or nonparticipation is penalized.

Turning to the examples posed, with respect to the nonresidents who hold New York licenses, it may be presumed, absent an exclusion to the contrary, that the certificate issued under the master policy to such persons would cover New York risks or operations.

With respect to the nonregistered representatives who purchase stock on the New York Stock Exchange with no clients in New York and whom the inquirer states would not be licensed or registered; or require such a license or registration in this State, it appears that such persons would not have risk or operations in New York. However, were the policy to specifically exclude coverage for New York risks or operations of nonresidents, the certificate would not be subject to the requirements of N.Y. Ins. Law Art. 23 and Regulation 135.

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