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

David A. Paterson
Governor

Eric R. Dinallo
Superintendent

OGC Op. No. 08-11-06

The Office of General Counsel issued the following opinion on November 25, 2008, representing the position of the New York State Insurance Department.

RE: Vehicle Purchase Option

Question Presented:

Does a contract that requires an auto auctioneer to purchase, at Black Book value, a vehicle from a customer of an auto dealer within three years from the date the customer purchased the vehicle for sale constitute insurance within the meaning of the New York Insurance Law?

Conclusion:

No. A contract that requires an auto auctioneer to purchase, at Black Book value, a vehicle from a customer of an auto dealer within three years from the date the customer purchased the vehicle for sale does not constitute insurance.

Facts:

The president of a company that provides various programs and products to automobile dealers stated:

I have been asked by a principal in the Auto Auction Industry to make available to auto dealers and their customers their “vehicle purchase option.” Said option offers to purchase a vehicle obtained at a dealer by a customer, at a later date (up to 3 years from in-service date) and at a specified price (based upon the industry wide “Black Book”1 price listing at the time customer decides to sell his vehicle). They advise that they are simply offering a “buy-sell” option to the customer to sell the vehicle through their auctions within a 3 year period and which requires, should customer exercise “option,” the auction provider to effect [sic] the purchase from the customer at that time, at the current “Black Book” price. (Emphases omitted.)

He asked whether the “vehicle purchase option” constitutes insurance under the Insurance Law.

Analysis:

N.Y. Ins. Law § 1101 (McKinney 2006), entitled “Definitions; doing an insurance business,” is applicable to the inquiry. Insurance Law § 1101(a) reads in relevant part as follows:

(a) In this article:

(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.

The “vehicle purchase option” described in the inquiry does not constitute insurance because there is no “fortuitous event” involved. Here, a customer who buys an automobile from a car dealer contracts with an auto auctioneer to buy the customer’s auto should the customer decide to sell it within three years from the date of purchase. Whether a customer sells his vehicle is not a fortuitous event because selling the auto is entirely within the customer’s control.

Hence, the vehicle purchase option does not fit the definition of insurance set forth in the Insurance Law.

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

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1 “Black Book” is a publication that provides price guidelines of used cars, collectible autos, and other vehicles.