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 July 25, 2006, representing the position of the New York State Insurance Department.

Re: Federal purchasing groups and compulsory insurance requirements

Question Presented:

May a broker/dealer require its registered representatives to purchase errors and omissions insurance under a group policy issued to a purchasing group comprised of the broker/dealer and its registered representatives?

Conclusion:

No. N.Y. Comp. Codes R. & Regs. title 11, § 153.8 (Regulation 135), which specifies standards for property/casualty groups and quasi-groups, prohibits an insurer from providing coverage to a group in which the members are required to purchase insurance as a condition of membership or participation.

Facts:

The inquirer is a registered representative of ABC Corporation (hereinafter "ABC"). The inquirer states that ABC is requiring each of its registered representatives to purchase errors & omissions insurance from a group policy with XYZ Insurance Company. The producer on the policy, the policy covers ABC and its registered representatives. A federal purchasing group has been formed for this group.

Analysis:

N.Y. Comp. Codes R. & Regs. title 11, § 153.8 (Regulation 135), which specifies standards for property/casualty groups and quasi-groups, prohibits an insurer from providing coverage to a group in which the members are required to purchase insurance as a condition of membership or participation. Section 153.8 of Regulation 135 provides as follows:

No insurer shall provide coverage in regard to a group or quasi-group program that:

(a) requires the purchase of insurance as a condition of group membership or quasi-group participation; or

(b) imposes any penalty upon a group member or quasi-group participant if insurance is not purchased.

Based upon the inquirer’s allegation that his broker/dealer is requiring its registered representatives to buy errors and omissions coverage from a group policy with XYZ Insurance Company, this matter is being referred to the Consumer Services Bureau for investigation.

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