OGC Opinion No. 09-08-04

The Office of General Counsel issued the following opinion on August 7, 2009, representing the position of the New York State Insurance Department.

RE: Electronic Delivery of Insurance Policies

Questions Presented:

1. Does Office of General Counsel (“OGC”) Opinion 09-01-01 (January 6, 2009) apply to commercial lines insurance policies?

2. May an insurer electronically send an insurance policy to an insured without first obtaining the insured’s consent to engage in an electronic transaction, if the insurer also offers the insured the option to insist upon being sent a paper copy of the policy?

3. Is the insurer or the insurance producer responsible for delivery of the insurance policy to the insured?

4. If an insurance policy is issued electronically by an insurer to an insurance producer, may the producer electronically send the policy to the insured without first obtaining the insured’s consent to electronically receive the insurance policy?

Conclusions:

1. Yes. OGC Opinion 09-01-01 (January 6, 2009) applies to commercial lines insurance policies.

2. No. An insurer may not electronically send an insurance policy to an insured unless the insured has first consented to engage in an electronic transaction, even if the insurer provides the insured with an option to insist upon receiving a paper copy of the policy.

3. Yes. An insurer is responsible for delivery of the insurance policy to the insured or such person that the insured designates, but the insurer may delegate such task to either its insurance agent or the insurance broker.

4. No. Even if the insurer electronically sends the insurance policy to the insurance producer, the insurance producer may not electronically forward the policy to the insured unless the insured has consented to engage in an electronic transaction.

Facts:

The inquiry is of a general nature, without reference to particular facts.

Analysis:

I. Background

In OGC Opinion 09-01-01 (January 6, 2009), the Department concluded that an insurer may issue a pet insurance policy via the Internet, and the insurer may deliver the executed policy to the insured via the Internet, if the insured has consented to receive the insurance policy electronically, which the insured may then print from the insured’s personal computer. The opinion relied upon two statutes: Article III of the N.Y. State Technology Law, (McKinney 2008), also known as the Electronic Signatures and Records Act (ESRA), which establishes that electronic transactions are the legal equivalent of paper-based transactions, and sets forth a legal framework for legal electronic transactions in New York, and the federal Electronic Signatures in Global and National Commerce Act (“E-SIGN”), 15 U.S.C.A. §§ 7001-7031 (West 2008), which establishes the legal validity of electronic records and signatures. E-SIGN reads in pertinent part as follows:

II. Applicability of prior opinion to commercial lines insurance

The inquirer notes that the analysis and conclusions contained in OGC Opinion 09-01-01 (January 6, 2009) address personal lines insurance, and question whether those conclusions also apply to commercial lines insurance. OGC has opined that the term “electronic record,” as defined in N.Y State Tech. Law § 302(2), includes insurance policy forms and certificates, and that pursuant to N.Y. State Tech. Law § 305(3), electronic records “shall have the same force and effect as those records not produced by electronic means”. See OGC Opinion 05-11-28 (November 23, 2005). Since the law does not draw any distinction between commercial or personal lines insurance in this context, the statutes apply equally to both personal lines and commercial lines insurance.

III. Consent to engage in an electronic transaction

The inquirer also asks whether an insurer may electronically send an insurance policy to an insured without first obtaining the insured’s consent, if the insurer also offers the insured the option to insist upon being sent a paper copy of the policy.

Both ESRA and E-SIGN law preserve the consumer’s right not to consent to receive electronic documents. N.Y. State Tech. Law § 309 states that “nothing in this article shall require any entity or person to use an electronic record or an electronic signature unless otherwise provided by law.” Similarly, § 7001(b)(2) of E-SIGN states that this subchapter does not “require any person to agree to use or accept electronic records or electronic signatures, other than a governmental agency with respect to a record other than a contract to which it is a party.” Consequently, an insurer that sends a policy to an insured electronically without first obtaining the insured’s consent may not cure the violation simply by offering the insured the option of insisting upon receiving a paper copy of the policy.

IV. Delivery of an insurance policy to the insured

The inquirer next asks whether an insurer or an insurance producer is responsible for delivering the insurance policy to the insured. If delivery of the policy is required, the insurer, as the party in privity with the insured, is obliged to deliver the insurance policy to the insured, or to the insured’s designated representative. See Goldner v. Kemper Ins. Co., 125 A.D.2d 954 (App. Div. 4th Dep’t. 1986). However, nothing in the Insurance Law or regulations promulgated thereunder prohibits an insurer from delegating to its agent, or to an insurance broker the task of delivering the policy to the insured.

V. Electronic delivery of the insurance policy by the insurance producer to the insured

Finally, the inquirer questions whether an insurance policy that is issued electronically by the insurer to the insurance producer may be electronically transmitted by the producer, to the insured. As noted above, even if the insurer electronically sends the insurance policy to the insurance producer, the producer may not electronically forward the policy to the insured unless the insured consents to receive the policy in that format.

For further information, one may contact Senior Attorney Susan A. Dess at the New York City office.