OGC Op. No. 11-01-01
The Office of General Counsel issued the following opinion on January 5, 2011, representing the position of the New York State Insurance Department
Re: Bail Fund
I write in response to your inquiry, which asks whether XYZ Fund, Inc. (“Fund”) may implement and administer a lending program designed to provide direct financial assistance to qualifying community members in the Bronx who have familial or community relationships with individuals accused of committing non-violent crimes in New York City. The purpose of the lending program is to provide the qualifying community members with loans so they may post bail for accused individuals they have relationships with.
May the Fund provide direct financial assistance to persons who will use such assistance to post cash bail for indigent persons in New York, in the manner described below, without running afoul of the New York Insurance Law?
Yes. In the manner described below, the Fund may provide direct financial assistance to persons who will use such assistance to post cash bail for indigent persons without running afoul of New York Insurance Law Articles 11 and 68.
The inquirer reports that the Fund is a duly incorporated not-for-profit entity that was originally formed for the purpose of supporting indigent defendants in the South Bronx, including the posting of bail in small amounts (e.g. $500 to $1,000). The inquirer has since amended the purpose of the Fund to provide loans to qualifying community members in the Bronx who have familial or community relationships with individuals accused of committing non-violent crimes in New York City. The purpose of the loans is to provide bail to the accused individuals. The accused defendant individuals are (i) represented by The Bronx Defenders, a public not-for-profit corporation, (ii) charged with a misdemeanor or felony charge, (iii) being held on bail of $1,500 or less and (iv) not considered high flight risks by the New York Criminal Justice Agency. At the conclusion of the defendant’s court case, the borrower will be required to pay back to the Fund the loan amount, together with accrued interest. The Fund will not provide any services to defendants in connection with the posting of the bonds and will not deposit money or property as bail or execute as surety for any defendant. It is contemplated that no bail bonds or insurance will be used as part of this proposal as the borrower will directly post bail. The inquirer provided a draft promissory note that sets forth the terms of the loan. It is asked whether, pursuant to the Insurance Law, the Fund may provide such loans.
Article 68 governs bail bonds and is relevant to the inquiry. N.Y. Ins. Law § 6801(a)(1) (McKinney 2000) provides:
Any person, firm or corporation in any court having criminal jurisdiction or in any criminal action or proceeding who shall for another deposit money or property as bail or execute as surety any bail bond who within a period of one month prior thereto shall have made such a deposit or given such bail in more than two cases not arising out of the same transaction shall be deemed to be doing a bail bond business and doing an insurance business as defined in article 11 of this chapter.
Insurance Law § 6801(b)(1) states that:
No person, firm or corporation shall in this state do an insurance business or a bail bond business as defined in subsection (a) of this section unless authorized by a license issued and in force as provided under article eleven of this chapter.
Further, Insurance Law § 6802(a) states that:
No person, firm or corporation or any officer or employee thereof shall act in this state as an agent or solicitor or an insurer doing a bail bond business in soliciting, negotiating or effectuating any such deposit or bail bond by such insurer unless licensed by the superintendent as an agent pursuant to the provisions of this section. Any person, firm or corporation so acting without being duly licensed shall be guilty of a misdemeanor.
The Fund’s original operating plan was in clear violation of Article 68 of the Insurance Law because the Fund was depositing money or property as bail directly for defendants. Such operation constituted doing a bail bond business and doing an insurance business without a license pursuant to Insurance Law § 6802(a).
However, the Fund’s current proposal does not implicate Article 68 of the Insurance Law, nor any other provision of the Insurance Law, because the Fund will not be directly posting bail for defendants as it did in its earlier incarnation. A loan program to persons who are not actual defendants does not constitute depositing “money or property as bail or execut[ing] as surety any bail bond” as set forth in Insurance Law § 6801(a)(1) even if the promissory note signed by the borrower indicates that the loan is to be used for bail on behalf of a specific person. Further, the Fund is not obligating itself in advance to any prospective borrower pursuant to an agreement. Therefore, the Fund would not be providing a pecuniary benefit dependent upon a fortuitous event. 1 As such, the Fund would not be acting either as an insurer or as a bail bond agent.
This opinion interprets the Insurance Law only. The Department’s Office of General Counsel does not offer an opinion on whether the structure of the Fund complies with the New York Banking Law or any other state or federal laws.
For further information you may contact Associate Counsel Alexander Tisch at the New York City Office.
1 Insurance Law § 1101 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 or 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 control of either party.