OGC Op. No. 10-11-03
The Office of General Counsel issued the following opinion on November 15, 2010, representing the position of the New York State Insurance Department.
Re: Paintless Dent Repair Membership Program
Is the proposed Paintless Dent Repair Membership Program in compliance with the New York Insurance Law?
A service plan where a 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 such services for an additional fee per service, does not constitute the doing of an insurance business that requires a license, so long as the additional fee covers the cost of tendering the service including reasonable overhead. It is not possible at this time for the Insurance Department to verify whether the additional fee covers the cost of tendering the service plus reasonable overhead, so the Department can not comment on whether this particular program is in compliance with the Insurance Law.
The inquirer proposes a program through which a purchaser of a new or used automobile, in exchange for an additional fee, may buy paintless dent repair services from a dealer in conjunction with the purchase of the dealer’s products. The program will provide paintless dent repair services to its members for an upfront membership fee, plus a discounted fee for each individual service. The manufacturer of the product will be the primary obligor and administrator under the membership agreement. When a consumer requests the repair service, the manufacturer will arrange for the repair service and the service technician will collect the discounted fee at the time of service. The inquirer did not provide the actual membership agreement or specific details about what the program covers but under similar programs, after a membership fee is paid, a dealer agrees to perform necessary repair work for a stated discounted price in case the vehicle sustains physical damage for door dings and minor dents in accessible areas. Collision damage or very deep sharp dents are explicitly not included. The inquirer states that the fee charged for each service will cover the actual cost of services and overhead for each repair based upon the wholesale rate charged by the persons who do the repairs.
Because the inquirer did not provide the Department with specific facts our response must be general in nature. N.Y. Ins. Law § 1101 (McKinney 2006) is relevant to this inquiry. It defines the doing of an insurance business in New York, and reads in pertinent 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.
Insurance Law § 1101(b)(1) sets forth various acts that constitute doing an insurance business in New York in relevant part as follows:
(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;
(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;…
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(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.
Insurance Law § 1102(a) generally prohibits any unauthorized person from doing an insurance business in New York. It reads in pertinent part as follows:
No person firm, association, corporation or joint-stock company shall do an insurance business in this state unless authorized by a license in force pursuant to the provisions of this chapter, or exempted by the provisions of this chapter from such requirement….
The dent repair arrangement here contains the elements of an insurance contract because it confers a benefit upon the occurrence of a fortuitous event. However, 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 such services for an additional fee per service, does not constitute the doing of an insurance business, so long as the additional fee per service covers the actual cost of tendering the service including reasonable overhead. See Office of General Counsel (“OGC”) OGC Opinion No. 08-06-12 (June 30, 2008); OGC Opinion No. 08-02-05 (February 8, 2008); OGC Opinion No. 07-04-08 (April 10, 2007); Opinion No. 07-04-01 (April 2, 2007); OGC Opinion No. 02-05-20 (May 17, 2002).
It is unclear under the facts presented, and impossible for the Department to verify, whether the additional fee covers the cost of rendering the service including reasonable overhead. If the program does not meet that test, the agreement would constitute the doing of an insurance business and its sale would violate Insurance Law § 1102(a). Furthermore, if the program does meet that test, the program’s marketing, advertising and contractual materials, including the membership agreement, would still have to clearly, conspicuously and unambiguously state that the product being sold is not insurance and no reference could be made to the agreement being a “policy.” See OGC Opinion No. 10-03-03 (March 16, 2010).
For further information you may contact Associate Counsel Alexander Tisch at the New York City Office.