The Office of General Counsel issued the following opinion on April 7, 2008, representing the position of the New York State Insurance Department.
RE: “Accident” coverage endorsement to a general liability policy
May an unauthorized insurer that provides coverage in the excess line market offer insureds “accident” coverage as an endorsement to the insurer’s basic general liability policy?
No. The “accident” coverage described below falls within the parameters of accident and health insurance or workers’ compensation insurance, and an unauthorized insurer doing business in the excess line market may not write such coverage in New York State pursuant to N.Y. Ins. Law § 2105 (McKinney 2006).
The inquirer’s client underwrites general liability insurance in the “surplus line” market in New York. The client has discovered that another insurer in that market is issuing general liability polices with an “accident” coverage endorsement. The endorsement provides coverage to persons injured at the insured’s location and is based on a payment schedule. The client would like to add a similar endorsement to its general liability policy, and would like to know whether the Insurance Law and regulations promulgated thereunder permit an excess line insurer to provide “accident” coverage.
The inquirer asserts that “accident” coverage does not fall within the purview of accident and health insurance as defined in the Insurance Law. The inquirer states that the “accident” coverage does not have a health component, requires no additional premium for the coverage, and only provides a “schedule of limited benefits” of up to $10,000 for covered injuries. The inquirer believes this “accident” coverage should be a permissible endorsement to general liability polices written in the “surplus line” market because it is similar to the “med-pay” coverage that authorized insurers offer in their general liability policies.
At the Department’s request, the inquirer provided a draft of the policy of the client’s proposed “accident” coverage endorsement. Essentially, the policy covers death or dismemberment due to accidental injury on the insured’s premises. The policy also provides coverage for employees “working at least 20 hours per week and who are permanently employed inside the U.S.,” as well as for third parties who are lawfully on the covered premises, but excludes emergency medical and safety professionals, prisoners, or detainees. The policy contains a sliding scale of benefits depending on the nature of the injury, as well as an insurance reduction schedule based on the age of the covered person.
As a preliminary matter, the New York Insurance Law uses the term “excess line,” which the Department regards as synonymous with the term “surplus line.”
While New York authorized insurers generally are required to obtain from the Superintendent approval of their insurance policy forms for use in this State pursuant to Article 23 of the Insurance Law, there is no such requirement for unauthorized insurers issuing policies through a licensed excess line broker pursuant to Insurance Law §§ 2105 and 2118 and New York Codes Rules and Regulations (“NYCRR”) tit. 11, Part 27 (Regulation 41). See OGC Opinion No. 03-11-05 (Nov. 7, 2003). However, excess line policies issued in New York may not contain certain terms and conditions in contravention with 11 NYCRR § 27.11(a). That provision reads in pertinent part as follows:
No excess line broker shall procure coverage from an unauthorized insurer if such coverage is prohibited by law, including if such coverage:
(1) does not constitute insurance within the meaning of section 1101 or other sections of the Insurance Law;
(2) involves a kind of insurance not authorized under section 1113 or other sections of the Insurance Law;
(3) is not within the scope of section 2105 of the Insurance Law;
(4) is determined by any Appellate Division of the New York State Supreme Court or the New York Court of Appeals to be against public policy in this State; or
(5) has been otherwise proscribed by law. (Emphasis added).
Insurance Law § 2105(a) permits an excess line broker to procure from unauthorized insurers only certain kinds of insurance that are defined in Insurance Law § 1113(a). Accident and health insurance is specifically excluded from the type of insurance that an excess line insurer may issue in the State (with limited exceptions that are not relevant to this inquiry).
As presently proposed, the accident-related benefits provided in the draft “accident” coverage endorsement runs afoul of the Insurance Law because it falls within the purview of accident and health insurance as defined in Insurance Law § 1113(a)(3). That provision reads in relevant part as follows:
“Accident and health insurance,” means (i) insurance against death or personal injury by accident or by any specified kind or kinds of accident and insurance against sickness, ailment or bodily injury, including insurance providing disability benefits pursuant to article nine of the workers’ compensation law, . . . .
Accident insurance policies typically do not have a health component. Moreover, they usually contain schedules of benefits similar to the very schedule set forth in the proposed policy.
Further, the inquirer’s belief that this accident policy is more analogous to the medical payments (“med-pay”) coverage in a standard general liability policy is misplaced. Med-pay coverage, which is included in personal injury liability insurance, is authorized by Insurance Law § 1113(a)(13) (see OGC Opinion No. 02-01-35 (Jan. 30, 2002)), and provides coverage to all injured parties excluding the insured’s employees (who are covered by workers’ compensation and employers’ liability insurance under Insurance Law § 1113(a)(15)). Also, med-pay insurance provides coverage “irrespective of the legal liability of the insured.” See Ins. Law § 1113(a)(13).
The inquirer’s proposed accident coverage endorsement, by contrast, covers the insured’s employees as well as third parties, and only provides coverage for injury “sustained as a direct result of an unintended, unanticipated accident” (according to the definition of “injury” in the draft policy language). This language appears to exclude injury resulting from the liability of the insured. As such, the accident coverage as written fails to qualify as personal injury liability insurance, a type of insurance that an excess line insurer may provide pursuant to Insurance Law § 2105, and may even come within the purview of workers’ compensation insurance, which an unauthorized insurer in the excess line market may not provide pursuant to Insurance Law § 2105.
In sum, the proposed accident coverage endorsement is an impermissible form of accident and health insurance that an unauthorized insurer in the excess line market may not write in New York State.
The inquirer was directed to provide, within ten days of the receipt of this letter, the names of the insurers and brokers who presently are marketing this “accident” policy.
For further information you may contact Senior Attorney Camielle A. Campbell at the New York City Office.