OGC Op. No. 08-07-05
The Office of General Counsel issued the following opinion on July 10, 2008, representing the position of the New York State Insurance Department.
RE: Auto Repair Discount
Would the Discount Certificate offer provided to members of the ABC Auto Club, as described in a letter sent by its operator, constitute doing an insurance business as defined by N.Y. Ins. Law
§ 1101 (McKinney 2006), for which a license is required under Insurance Law § 1102(a)?
The Discount Certificate offer provided to members of the ABC Auto Club, as described in a letter sent by its operator, would constitute doing an insurance business as defined by N.Y. Ins. Law § 1101 (McKinney 2006), for which a license is required under Insurance Law § 1102(a), if the discounted fee charged a member for auto repair is less than the labor, material, and reasonable overhead costs incurred by the auto repairer to provide such service.
The Insurance Department’s Office of General Counsel issued opinions dated April 2, 2007 and April 1, 2008 in response to inquiries made by the operator of the ABC Auto Club about various auto repair discount offers. The operator presented new facts in his May 8th letter, wherein he reported that ABC Auto Club (“Club”) proposes to provide its new members with a Discount Certificate good for $750 off any auto body repair work costing in excess of $1,500 that is performed by a participating auto repairer. The Club would not reimburse the participating auto repairer for the discount provided. The auto repairer would assume the $750 discount.
N.Y. Ins. Law § 1101 (McKinney 2006) is germane to your inquiry. That statute defines the doing of an insurance business, and reads in relevant part as follows:
(a)(1) "Insurance contract" means any agreement or other transaction whereby one party, the "insurer", is obligated to confer benefit of pecuniary value upon another party, the "insured" or "beneficiary", dependent upon the happening of a fortuitous event in which the insured or beneficiary has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of such event.
(2) "Fortuitous event" means any occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party.
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(b)(1) Except as provided in paragraph two, three or three-a of this subsection, any of the following acts in this state, effected by mail from outside this state or otherwise, by any person, firm, association, corporation or joint-stock company shall constitute doing an insurance business in this state and shall constitute doing business in the state within the meaning of section three hundred two of the civil practice law and rules:
(A) making, or proposing to make, as insurer, any insurance contract, including either issuance or delivery of a policy or contract of insurance to a resident of this state or to any firm, association, or corporation authorized to do business herein, or solicitation of applications for any such policies or contracts;
The transaction described constitutes insurance within the meaning of Insurance Law § 1101 because it obligates the auto repairer to confer a pecuniary value upon the member upon the happening of a fortuitous event (namely, the occurrence of physical damage to the member’s vehicle.) An Office of General Counsel Opinion (“OGC Op.”) dated April 2, 2007 states that “a service plan where the pre-paid fee is a membership fee, and where certain services occasioned by the happening of a fortuitous event are offered by the provider of the services for an additional fee per service (even if such charge is less than the usual fee for such service), does not constitute the doing of an insurance business that requires a license, so long as the additional fee covers the cost of rendering the service, including reasonable overhead.” However, an auto repairer that accepts the Discount Certificate that was enclosed in the May 8th letter sent by the Club’s operator may assume a near 50% discount, which seems likely to result in the auto repairer assuming the cost of rendering services. The Discount Certificate thus would not seem to satisfy the cost-of-rendition requirement. See also OGC Ops. 5/2/2005; 10/2/2003; 5/17/2002; 5/29/ 2001; 5/30/2000; 2/26/1996.
Insurance Law § 1102(a) requires anyone doing an insurance business in New York to be licensed, unless otherwise exempted from this requirement by the Insurance Law. No such exemption would appear to be applicable here. Thus, the auto repairer would have to become licensed as an insurer in order to participate in the discount certificate program.
For further information you may contact Associate Attorney Sally Geisel at the New York City Office.