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. 09-03-01

The Office of General Counsel issued the following opinion on March 2, 2009, representing the position of the New York State Insurance Department.

Re: Tuition Guarantee Plan Clarification

Question Presented:

May a school agree in advance to obligate itself to permit its students to attend the school tuition-free upon the death of a student’s parent or guardian if the school does not charge a separate fee for this arrangement?

Conclusion:

No. A school may not agree in advance to obligate itself to permit its students to attend the school tuition-free upon the death of a student’s parent or guardian even if the school does not charge a separate fee for this arrangement, because such arrangement would constitute the doing of an insurance business in violation of N.Y. Ins. Law § 1102 (McKinney 2006).

Facts:

The inquirer reports that he represents providers of tuition programs to educational institutions, and that he seeks clarification regarding the New York State Insurance Department’s (“Department”) position on ABC’s Tuition Guarantee Plan as set forth in OGC Opinion 08-11-09 (Nov. 19, 2008). The inquirer provided the Department with a letter dated December 11, 2008 addressed to “Parents and Guardians” from ABC’s principal, alerting the students’ parents and guardians that ABC terminated its Tuition Guarantee Plan. That letter also states:

it is the intention of ABC to honor our moral commitment to the families of our students. We will voluntarily provide tuition assistance, for the remainder of this school year and on into the future, for a student who loses a parent, stepparent or guardian (A maximum of two persons) who is registered with the school as providing support for the student. Commencing with the new school year registration, the families of incoming students will have the opportunity to register the names of those family members who are the designated providers.

The inquirer states that based upon the December 11, 2008 letter, it appears that ABC may offer its Tuition Guarantee Plan if it does not charge a separate fee for the Plan, and that if a student’s parent or guardian passes away, then ABC may permit the student to attend ABC tuition-free. Thus, the inquirer seeks clarification as to whether ABC’s revised program constitutes the doing of an insurance business.

Analysis:

Insurance Law § 1102 prohibits any person, firm, association, corporation, or joint-stock company from doing an insurance business in New York unless licensed by the Department or exempt from licensing. Insurance Law § 1101(b)(1) defines “doing an insurance business” in relevant part as:

(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;

(B) making, or proposing to make, as warrantor, guarantor or surety, any contract of warranty, guaranty or suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the warrantor, guarantor or surety;

(C) collecting any premium, membership fee, assessment or other consideration for any policy or contract of insurance;

(D) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this chapter;

(E) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this chapter. (Emphasis added.)

Furthermore, Insurance Law § 1101(a)(1) defines an “insurance contract” as:

any agreement or other transaction whereby one party, the ‘insurer’, is obligated to confer [a] 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. (Emphasis added.)

Pursuant to Insurance Law §1101(a)(2), a “fortuitous event” is “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.”

In addition, Insurance Law § 1113(a) sets forth the permissible kinds of insurance in New York. One such permissible kind of insurance is life insurance, which Insurance Law § 1113(a)(1) defines in pertinent part as “every insurance upon the lives of human beings, and every insurance appertaining thereto….”

In OGC Opinion 08-11-09, the Department opined that ABC’s Tuition Guarantee Plan constituted the doing of a life insurance business in violation of the Insurance Law. The Department reasoned that by requiring its students’ parents or guardians to purchase the Tuition Guarantee Plan, ABC was entering into an agreement to provide a benefit of pecuniary value (i.e., attending ABC tuition-free) based upon the happening of a fortuitous event (i.e., the death of a parent or guardian).

In a December 11, 2008 letter from ABC’s principal to parents and guardians, ABC advised that it will “voluntarily provide tuition assistance, for the remainder of this school year and on into the future, for a student who loses a parent, stepparent or guardian (A maximum of two persons) who is registered with the school as providing support for the student.” The only change ABC has made is that it is not charging its students’ parents or guardians a separate fee for this arrangement. However, whether ABC charges a separate fee does not change the nature of the arrangement. Indeed, Insurance Law § 1101(b)(4) states that “the fact that no profit is derived from the making of insurance contracts, agreements or transactions, or that no separate or direct consideration is received therefor, shall not be deemed conclusively to show that the making thereof does not constitute the doing of an insurance business.” See also Ollendorff Watch Co. v. Pink, 279 N.Y. 32, 37 (1938) (stating that “[t]he payment of a sum of money is not necessary to constitute the consideration of an insurance contract”). Thus, ABC is still doing a life insurance business in violation of the Insurance Law § 1101, because it is still agreeing to obligate itself to provide a benefit of pecuniary value (i.e., attending ABC tuition-free) dependent upon the happening of a fortuitous event (i.e., the death of a parent or guardian).

As stated in OGC Opinion 08-11-09, nothing in the Insurance Law or regulations promulgated thereunder prohibit the school from offering its students scholarships based upon financial need. However, a school must establish a mechanism whereby it decides, on a case-by-case basis, whether a student warrants a scholarship or attendance at the school tuition-free on a charitable basis. In the absence of a duly issued license to do an insurance business, however, a school may not agree in advance to obligate itself to permit the student to attend the school tuition-free in the event that the parent or guardian should pass away.

For further information, you may contact Senior Attorney Joana Lucashuk at the New York City Office.