New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

George E. Pataki
Governor

Howard Mills
Superintendent

The Office of General Counsel issued the following opinion on November 17, 2006, representing the position of the New York State Insurance Department.

RE: Insurance Broker Licensing and Extended Reporting Period Coverage

Questions Presented:

1) May an out-of-state company that is not licensed as an insurance broker in New York obtain insurance coverage for a New York domiciled entity as part of its agreement to manage the operations of the New York entity?

2) Must an insurer offer an extended reporting period upon cancellation of a claims-made liability insurance policy that was written with a large deductible or self-insured retention?

3) Is a claims-made liability insurance policy that is issued by an unauthorized insurer on a New York risk exempt from the N.Y. Comp. Codes R. & Regs. tit. 11, Part 73 (Regulation 121) extended reporting period requirements?

Conclusions:

1) If the out-of-state company engaged in any of the activities in New York, it would be acting as an insurance broker without a license in violation of N.Y. Ins. Law § 2102(a) (McKinney 2006).

2) An insurer that is subject to N.Y. Comp. Codes R. & Regs. tit. 11, Part 73 (Regulation 121) must offer a one-year extended reporting period upon cancellation of a claims-made liability insurance policy that was written with a large deductible or self-insured retention pursuant to N.Y. Comp. Codes R. & Regs. tit. 11, § 73.3(g)(8). However, the insurer is exempt from the notice requirement of N.Y. Comp. Codes R. & Regs. tit. 11, § 73.3(e)(1) pursuant to N.Y. Comp. Codes R. & Regs. tit. 11, § 73.2(d)(2)(i). The insured must submit written acceptance of the extended reporting period within 60 days from the date of termination pursuant to N.Y. Comp. Codes R. & Regs. tit. 11, § 73.3(e)(3)(i).

3) Where a claims-made liability insurance policy issued by an unauthorized insurer on a New York risk has been properly placed through an excess line broker pursuant to N.Y. Ins. Law § 2118 and N.Y. Comp. Codes R. & Regs. tit. 11, Part 27 (Regulation 41), the policy is exempt from the N.Y. Comp. Codes R. & Regs. tit. 11, Part 73 (Regulation 121) extended reporting period requirements.

Facts:

An attorney that is representing an insured requested an opinion based on matters pending before a court. While the Department will not opine on specific facts in litigation, we will respond to inquiries of a general nature. We thus rephrased his inquiries as set forth herein.

Analysis:

Placement of Insurance

N.Y. Ins. Law § 2101(c) (McKinney 2006) states in relevant part:

(c) In this article, "insurance broker" means any person, firm, association or corporation who or which for any compensation, commission or other thing of value acts or aids in any manner in soliciting, negotiating or selling, any insurance or annuity contract or in placing risks or taking out insurance, on behalf of an insured other than himself, herself or itself or on behalf of any licensed insurance broker[.]

N.Y. Ins. Law § 2102(a)(1) (McKinney 2006) states:

No person, firm, association or corporation shall act as an insurance producer1 or insurance adjuster in this state without having authority to do so by virtue of a license issued and in force pursuant to the provisions of this chapter.

Thus, an out-of-state company that is not licensed as an insurance producer may not obtain insurance coverage on behalf of a New York domiciled entity, regardless whether the company is under contract to manage all of the operations of the New York entity. The Insurance Law does not permit the delegation of insurance placement to a company that is not appropriately licensed. Hence, if the out-of-state company engaged in any of the insurance related activities in New York (including also the negotiation and/or execution of the management agreement authorizing the company to obtain insurance for the New York entity), it would be acting as an insurance broker without a license in violation of N.Y. Ins. Law §2102(a) (McKinney 2006).

Extended Reporting Period

N.Y. Comp. Codes R. & Regs. tit. 11, Part 73 (Regulation 121) establishes minimum standards for claims-made liability insurance policies issued in New York. N.Y. Comp. Codes R. & Regs. tit. 11, § 73.3(d) requires a 60-day automatic extended reporting period upon termination of coverage. N.Y. Comp. Codes R. & Regs. tit. 11, § 73.3(g) requires an insurer to offer a one-year extended reporting period upon termination of a claims-made liability insurance policy that was written with a large deductible or self-insured retention (over $100,000 per occurrence) pursuant to N.Y. Comp. Codes R. & Regs. tit. 11, § 73.2(d). However, with respect to such risks, the insurer is exempt from the notice requirement of N.Y. Comp. Codes R. & Regs. tit. 11, § 73.3(e)(1) pursuant to N.Y. Comp. Codes R. & Regs. tit. 11, § 73.2(d)(2)(i). The insured must submit written acceptance of the extended reporting period within 60 days from the date of termination pursuant to N.Y. Comp. Codes R. & Regs. tit. 11, § 73.3(e)(3)(i).

Excess Line Broker Placement

N.Y. Comp. Codes R. & Regs. tit. 11, Part 27 (Regulation 41) sets out the governing standards for excess line placements. A liability insurance policy covering risks located in New York, written by an insurer not authorized to do an insurance business in New York, may not be issued or issued for delivery in New York except through a licensed excess line broker. Otherwise, the insurer will have violated N.Y. Ins. Law § 1102 (McKinney 2006) and any person aiding in the transaction will have violated N.Y. Ins. Law § 2117(a) (McKinney 2006).

N.Y. Comp. Codes R. & Regs. tit. 11, § 27.10(a) (Regulation 41) states:

Policies issued by unauthorized insurers pursuant to this Part are exempt from the provisions of Part 71 (Regulation 107) and Part 73 (Regulation 121) of this title.

Hence, where a claims-made liability insurance policy issued by an unauthorized insurer on a New York risk has been properly placed through an excess line broker pursuant to N.Y. Ins. Law § 2118 and N.Y. Comp. Codes R. & Regs. tit. 11, Part 27 (Regulation 41), the policy is exempt from the N.Y. Comp. Codes R. & Regs. tit. 11, Part 73 (Regulation 121) extended reporting period requirements. However, if the policy had been improperly placed by an unauthorized insurer, the excess line exception to Regulation 121 would not apply.

For further information you may contact Associate Attorney Sally Geisel at the New York City Office.


1  An insurance producer is defined to include an insurance broker under N.Y. Ins. Law § 2101(k) (McKinney 2006).