The Office of General Counsel issued the following opinion on February 11, 2008 representing the position of the New York State Insurance Department.
Re: New York State Guaranty Fund for Annuities and Life Insurance
1. If an insured had three separate individual life insurance policies, each with a death benefit and/or cash value of $500,000 or more, with three different insurance companies, is the protection provided by the Guaranty Corporation to the individual $500,000 per company (in this case $1,500,000) or $500,000 in the aggregate, regardless of the number of companies and/or contracts?
2. If the individual life insurance policy is purchased in New York State by a New York resident but the companys principal headquarters or home state is elsewhere, does the insured or annuitant have protection between that other state and New York for a total of $500,000?
1. Under the hypothetical presented, the protection afforded by the Guaranty Corporation would be $500,000 under each contract, for an aggregate coverage, should all three life insurers become insolvent, of $1,500,000.
2. The total protection afforded by the Guaranty Corporation to a New York resident who has purchased an individual life insurance policy or annuity contract from an authorized life insurer domiciled in another jurisdiction would be $500,000, less any amount available from the comparable organization of the other jurisdiction. The allocation of responsibility between the Guaranty Corporation and the other jurisdictions analogous entity would be determined by an examination of both jurisdictions relevant statutes.
According to Insurance Department records, the inquirer is licensed as an insurance agent pursuant to N.Y. Ins. Law § 2103(a) (McKinney 2006). With respect to the two hypotheticals set forth above, no additional facts have been furnished.
Before turning to the inquiries, a few points of clarification are necessary. For the purposes of this opinion, it is presumed that all the policies and contracts in question were issued after the 1985 creation of the Guaranty Corporation, and that the former Guaranty Fund, operated in accordance with Insurance Law Article 75, is not implicated. It is further presumed that the three insurers mentioned in the first hypothetical are domestic insurers. If not, the first conclusion stated above should be read in conjunction with the response to the second hypothetical.
New York Insurance Law §7702, which is relevant to the inquiries, sets forth the purpose of the Guaranty Corporation. That statute provides, in pertinent part:
The purpose of this article is to provide funds to protect resident policyowners, insureds, beneficiaries, annuitants, payees and assignees of life insurance policies, health insurance policies, annuity contracts, funding agreements and supplemental contracts issued by life insurance companies, subject to certain limitations, against failure in the performance of contractual obligations due to the impairment or insolvency of the insurer issuing such policies or contracts. . . .
The protection provided by the Guaranty Corporation is different from the protection afforded by the former Article 75 Life Insurance Guaranty Fund, which provided protection with respect to policies and contracts issued by domestic life insurance companies, no matter where the insured were domiciled, but did not provide protection to New York policyholders of non-domestic life insurers.
The obligations of the Guaranty Corporation with respect to insolvent life insurance companies are set forth in Insurance Law § 7708. Subsection (a) thereof speaks to situations involving insolvent domestic life insurers:
If a domestic insurer is an impaired or insolvent insurer, the corporation shall with the approval of the superintendent: (1) guarantee, assume or reinsure, or cause to be guaranteed, assumed or reinsured, the covered [life, annuities and accident & health] policies of residents, or arrange for replacement by policies found by the superintendent to be substantially similar to such covered policies; (2) assure payment of the contractual obligations of the impaired or insolvent insurer to residents; and (3) provide such moneys, pledges, notes, guarantees or other means as are reasonably necessary to discharge such duties. The aggregate liability of the corporation under this subsection shall not exceed five hundred thousand dollars for all benefits, including cash values, with respect to any one life.
In the Insurance Departments view, the $500,000 referenced in the statute constitutes the Guaranty Corporations total obligation to a policyowner for any one insurer. If an individual has a policy with more than one individual life insurer that becomes insolvent, the $500,000 limit applies to each such insurer. Accordingly, under the first hypothetical, the aggregate liability of the Guaranty Corporation would be $1,500,000.
The Guaranty Corporation is an entity separate and distinct from the Insurance Department. The Guaranty Corporation has its own Board of Directors, and website: (www.nylifega.org).
As to the second question, the obligations of the Guaranty Corporation with respect to insolvent authorized foreign life insurance companies are set forth in Insurance Law § 7708(b):
If a foreign or alien insurer is an impaired or insolvent insurer, the corporation shall with the approval of the superintendent: (1) guarantee, assume or reinsure or cause to be guaranteed, assumed or reinsured the covered policies of residents, or arrange for replacement by policies found by the superintendent to be substantially similar to such covered policies; (2) assure payment of the contractual obligations of the insolvent insurer to residents; and (3) provide such moneys, pledges, notes, guarantees or other means as are reasonably necessary to discharge such duties. The aggregate liability of the corporation under this subsection shall be the excess over any amount that the superintendent determines to be the statutory obligation of the guaranty corporation or association of the foreign or alien insurer's state of domicile or state of entry, but in no event shall the corporation's liability, when added to the amount so determined to be available from such other guaranty corporation or association, exceed five hundred thousand dollars for all benefits, including cash values, with respect to any one life. . . .
All states and the District of Columbia have entities similar to the Guaranty Corporation. Where a licensed foreign insurer becomes insolvent, its state of domicile may have provisions allocating the total benefit between that states guaranty entity and the guaranty entity of the insureds domicile.
Accordingly, while the aggregate coverage provided under Insurance Law § 7708(b) is $500,000, the allocation of liability between the Guaranty Corporation and the analogous entity in the other jurisdiction would be determined in accordance with applicable principles of conflicts of law1.
For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.
1 In addition, please be advised that Insurance Law § 7718, imposes restrictions on advertisement of the Guaranty Corporation. That statute provides:
No person, including an insurer, agent or affiliate of an insurer . . . shall make, publish, disseminate, circulate or place before the public, or cause directly or indirectly, to be made, published, disseminated, circulated or placed before the public . . . any advertisement, announcement or statement which uses the existence of the [Guaranty] corporation for the purpose of sales, solicitation or inducement to purchase any form of insurance covered by this article, provided, however, that this section shall not apply to the corporation . . . or to prohibit the furnishing of written information in a form prepared by the corporation and approved by the superintendent by a member insurer directly to a policyholder in response to a written request therefor.