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

Eliot Spitzer
Governor

Eric Dinallo
Superintendent

The Office of General Counsel issued the following opinion on June 7, 2007, representing the position of the New York State Insurance Department.

Re: Permissibility of Excess Line Association of New York (ELANY) Making De Minimis Charitable Contributions

Question Presented:

May ELANY, within certain narrow parameters set forth below, periodically make de minimis charitable contributions to organizations providing humanitarian aid in the wake of a natural disaster or terrorist act, or to organizations established by the insurance industry for charitable works?

Conclusion:

Yes. Within the narrow parameters set forth below, ELANY may periodically make de minimis charitable contributions to organizations providing humanitarian aid in the wake of a natural disaster or terrorist act, or to organizations established by the insurance industry for charitable works.

Facts:

ELANY stated in its letter of April 30, 2007 that ELANY understands that the Department is of the view that ELANY lacks the statutory authority to make political contributions. Although ELANY's Board of Directors (Board) does not agree with the Department's position, the Board has voluntarily determined that it will not make any such contributions in the future. ELANY represents that should ELANY change its position, it will notify the Department and seek its approval before undertaking to make any political contribution.

ELANY’s April 30, 2007 letter further notes that ELANY acknowledges that the Department generally objects as a matter of law to ELANY’s use of funds for charitable contributions. However, while recognizing its duties and obligations not to dissipate or waste corporate assets, the Board nevertheless believes that certain targeted yet de minimis charitable contributions to humanitarian causes that provide relief in the wake of a natural disaster or terrorist act, or to insurance industry charitable funds, can redound to the benefit of the association and its members and further ELANY's mission. Indeed, the Board believes that humanitarian aid of this sort and contributions to insurance industry charitable funds are consistent with a broader sense of social responsibility to the communities in which ELANY's members live and work. The letter thus proposes making de minimis charitable contributions in accordance with the following parameters:

1. ELANY will make no charitable contributions whatsoever, except to an organization providing humanitarian aid in the wake of a natural disaster or terrorist act, or to an organization established by the insurance industry for charitable works.

2. ELANY will limit total contributions to any given charitable organization to $1,000 in any calendar year.

3. ELANY will limit its aggregate contributions to $15,000 in any calendar year.

4. ELANY will itemize each charitable contribution made during the year under review in the annual audited statement that ELANY files with the Department, and will specify the organization to which the contribution was made, the date of the contribution, the amount of the contribution, and the nature and purpose of the gift.

5. ELANY's Board of Directors will approve each donation, irrespective of amount, and set forth each donation in the annual audited statement filed with the Department.

Within these narrowly drawn parameters, you ask whether ELANY may lawfully make limited and de minimis charitable contributions.

Analysis:

Although ELANY often regards itself as a trade association for excess line brokers, it is in fact a quasi-public entity that was not voluntarily formed, but rather created by N.Y. Ins. Law § 2130 (McKinney 2006) to facilitate and encourage compliance by its members with the laws of this State and with the rules and regulations promulgated by the Superintendent of Insurance with regard to excess line insurance. According to Section 1 of Chapter 630 of the Laws of 1998, the underlying purposes of ELANY include: (1) protecting persons seeking insurance in this State; (2) permitting excess line insurance to be placed with reputable and financially sound unauthorized insurers; and (3) protecting revenues of this State. The continued existence of ELANY is wholly at the discretion of the State; indeed, Insurance Law § 2130 is due to sunset on July 1, 2009, unless extended by the Legislature. At any time, the State could decide to terminate ELANY's existence and provide different means of fulfilling ELANY's statutory duties, most of which were performed by the Department itself prior to ELANY’s creation in 1988.

It is well-established under New York law that creatures of the State have no powers other than those that are expressly and impliedly conferred upon them by the Legislature. See Community Board 7 of the Borough of Manhattan v. Schaffer, 84 N.Y.2d 148, 639 N.E.2d 1, 615 N.Y.S.2d 644 (1994) (holding that a legislatively created entity such as a Community Board, established by N.Y. City Charter § 2800, had no authority to sue for document disclosure under the Freedom of Information Law); Matter of B.T. Productions, Inc. v. Barr, 44 N.Y. 2d 226, 376 N.E.2d 171, 405 N.Y.S.2d 9 (1978) (holding that agents of the New York State Organized Crime Task Force, an entity created pursuant to Executive Law § 70-a, had no power to apply for a search warrant); Matter of Pooler v. Public Service Commission, 58 A.D.2d 940, 397 N.Y.S.2d 425 (3d Dept. 1977) (holding that the State Consumer Protection Board, an entity created by the Executive Law, had no power to bring an Article 78 proceeding seeking judicial review of a decision of the Public Service Commission).

Given that the scope of ELANY’s permissible activities has been defined by the Legislature, any authority to make political or charitable donations must derive from Insurance Law § 2130. That statute specifically delineates ELANY's authority and duties as follows:

(a) There is hereby created a non-profit association to be known as the excess line association of New York. All excess line licensees shall be deemed to be members of the association. The association must perform its functions under the plan of operation established and approved under subsection (c) of this section and must exercise its powers through a board of directors established under subsection (b) of this section. The association shall be supervised by the superintendent. The association shall be authorized and have the duty to:

(1) receive and record all excess line insurance documents which excess line brokers are required to file with the association under section two thousand one hundred eighteen of this article;

(2) notify the superintendent or his designee prior to stamping submitted insurance documents as provided in paragraph three of this subsection if the association believes that the unauthorized insurer does not meet the standards of eligibility imposed by section two thousand one hundred eighteen of this article, together with any rules and regulations promulgated pursuant to said section;

(3) stamp all excess line insurance documents which excess line brokers are required to file with the association under section two thousand one hundred eighteen of this article, provided that an unauthorized insurer meets the standards of eligibility imposed by section two thousand one hundred eighteen of this article, together with any rules and regulations promulgated pursuant to said section;

(4) prepare reports to be provided to the superintendent on the fifteenth day of every month, which reports shall include premium data from excess line licensee affidavits relating to excess line insurance filed by each licensee and stamped by the association during the preceding calendar month. Such reports shall also include corresponding licensee affidavits in such form as the superintendent may prescribe. The association shall provide each licensee with a copy of the report as it pertains to said licensee's business for the calendar month;

(5) prepare and deliver to each licensee and to the superintendent annually the reports of excess line business, which reports shall include a delineation of the classes and kinds of business procured during the preceding calendar year in such form as the superintendent may prescribe;

(6) deliver to each licensee standard forms for affidavits required under section two thousand one hundred eighteen of this article;

(7) employ and retain such persons as are necessary to carry out the duties of the association;

(8) borrow money as necessary to effect the purposes of the association;

(9) enter contracts as necessary to effect the purposes of the association;

(10) perform such other acts as will facilitate and encourage compliance by its members with the excess line law of this state and rules promulgated thereunder; and

(11) provide such other services to its members as are incidental or related to the purposes of the association.

It is clear that the making of political or charitable contributions does not come within any of the duties or authority set forth in Insurance Law § 2130(a)(1)-(9). And whereas paragraphs (10) or (11) of the statute authorize ELANY to engage in activities that “encourage compliance” with the excess line law and the regulations promulgated thereunder, and provide ELANY members with services that are “incidental or related to the purposes of the association,” the Department is of the view that with regard to political contributions, neither provision is applicable, particularly given ELANY’s quasi-public entity status and its dependency on the Legislature for its continued existence. Moreover, because Insurance Law § 2130 requires all excess line licensees to be members of ELANY, and since ELANY's contributions would be funded wholly by the fees paid by its members, to require members to make compulsory political contributions could conflict with their political or moral beliefs, and thus infringe upon their First Amendment rights. See Cahill v. Public Service Commission, 76 N.Y.2d 102, 556 N.E.2d 133, 556 N.Y.S.2d 840 (1990) (holding that the policy of the New York Public Service Commission authorizing utilities to pass along part of the cost of corporate charitable contributions to ratepayers violated the First Amendment rights of ratepayers). In short, in the Department’s estimation, Insurance Law § 2130(a) fails to provide sufficient authority for ELANY to make any political contributions.

As a general matter, the same rationale applies with equal force to charitable contributions. But ELANY’s assertion that certain targeted yet de minimis charitable contributions -- to humanitarian causes in the wake of natural disasters or terrorist acts (such as aid to victims of Hurricane Katrina) and to insurance industry charitable funds -- should be permissible, because such contributions redound to the benefit of the association and its members and further ELANY's mission, is not without merit. Contributions to charitable organizations providing humanitarian aid in the wake of a natural disaster or terrorist act, and to insurance industry charitable funds, may (as you state) be consistent with a broader sense of social responsibility to the communities in which ELANY's members live and work. But more importantly from the Department’s perspective, such activities are arguably consonant with Insurance Law § 2130(a)(11). Thus, although the Department previously opined that charitable contributions do not fall within the parameters of that statutory provision, upon further reflection the Department now concludes that de minimis charitable contributions to the circumscribed causes described above and within the narrow parameters that you propose may be “incidental or related” to ELANY's purposes.

Therefore, as long as the ELANY: (1) makes no charitable contributions whatsoever, except to an organization providing humanitarian aid in the wake of a natural disaster or terrorist act, or to an organization established by the insurance industry for charitable works; (2) limits its total contributions to any given charitable organization to $1,000 in any calendar year; (3) limits its aggregate charitable contributions to $15,000 in any calendar year; (4) itemizes each charitable contribution made during the year under review in the annual audited statement that ELANY files with the Department, and specifies the organization to whom the contribution was made, the date of the contribution, the amount of the contribution, and that nature and purpose of the gift; and (5) ensures that its Board will approve each donation, no matter what amount, then the Department has no objection to ELANY periodically making charitable contributions.

For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.