The Office of General Counsel issued the following informal opinion on May 30, 2000, representing the position of the New York State Insurance Department.

The Transaction of Private Passenger Automobile and Homeowner's Insurance Business on the Internet.

Questions Presented:

1. May private passenger automobile insurance coverage and homeowner's insurance coverage be bound on the Internet by an authorized New York insurer following the completion on the Internet of an electronic application that has been electronically signed by the applicant?

2. If insurance coverage may be bound on the Internet, is it acceptable under the New York Insurance Law for the insurer to give the insured the option to print the insurance binder off of the Internet to use as proof of insurance coverage until such time as non-electronic copies of the policy, declarations page, cover letter and I.D. cards are sent to the insured by U.S. mail?

3. If the answer to Question #2 is yes, is the insurer required to file the electronic document version of the binder that will be transmitted over the Internet with the Department?

4. An applicant that completes and submits an electronic application over the Internet is advised on the Internet by the insurer that it may run a credit report to verify eligibility. The applicant is then given the option to give or withhold consent for the insurer to obtain such report by responding yes or no to the question posed on the Internet. Does the applicant's response to the foregoing question, when the identity of the applicant is verified using electronic signature technology, constitute valid consent under the federal Fair Credit Reporting Act?

5. When an insurer declines to issue insurance coverage in the course of an Internet application process because the applicant does not meet the insurer's eligibility requirements, is the insurer required to send a separate notice of refusal to issue coverage to the applicant over the Internet if it sends such a notice to the applicant by U.S. mail?

6. When an insurer declines to issue insurance coverage in the course of an Internet electronic application process and the insurer transmits a notice of refusal to issue coverage to the applicant over the Internet must the notice contain the redlining statement required by law if the insurer also sends a non-electronic copy of the notice of refusal to issue coverage with the redlining statement to the applicant by U.S. mail?

7. Does the New York Insurance Law require that a notice of refusal to issue coverage for private passenger automobile or homeowner's insurance be sent by the insurer to an applicant within a certain time frame?

Conclusions:

1. Yes, private passenger automobile insurance coverage and homeowner's insurance coverage can be bound on the Internet by an authorized New York insurer following the completion on the Internet of an electronic application that has been electronically signed by the applicant.

2. Yes, it is acceptable under the New York Insurance Law for an insurer that binds such insurance coverage on the Internet to give the insured the option to print the insurance binder off of the Internet.

3. No, the insurer need not separately file the electronic version of the binder that will be transmitted over the Internet.

4. This question involves the Federal Fair Reporting Act, a statute that is outside the jurisdiction of this Department. As such, we refer you to your own counsel for advice on this matter.

5. No, when an insurer declines to issue insurance coverage in the course of an Internet application process, a separate notice of refusal to issue coverage is not required to be sent to the applicant over the Internet if such a notice is sent to the applicant by U.S. mail.

6. Yes, as to those insurance policies which are subject to Department Regulation No. 90, N.Y. Comp. Codes R. & Regs., Part 218.5(b) (1998) - - fire insurance, fire and extended coverage insurance and private passenger automobile insurance subject to § 3425 of the Insurance Law (McKinney 1985 and Supp. 2000)-- if the insurer chooses to send more than one notice, all notices of refusal to issue coverage mailed or delivered to an applicant by an insurer must contain the anti-redlining notice as prescribed in Part 218.5(b) of the regulation. Neither the anti-redlining statute nor the regulation applies to homeowner's insurance and the redlining statement is not required in connection with such policies.

7. Yes, as to those insurance policies which are subject to Department Regulation No. 90, N.Y. Comp. Codes R. & Regs., Part 218.3(b)(2) (1998) - - fire insurance, fire and extended coverage insurance and private passenger automobile insurance subject to § 3425 of the Insurance Law (McKinney 1985 and Supp. 2000)-- notices of refusal to issue coverage must be mailed or delivered to the applicant, which can be done by electronic means if the applicant consents to the use of electronic technology, not more than thirty days after the application is received by the insurance agent or broker. The regulatory requirement for the mailing or delivery of notice of refusal to issue does not apply to homeowner's policies.

Facts:

Company A plans to begin selling personal passenger automobile insurance and homeowner's insurance in New York State over the Internet. Under the current plan, which extends only to the initial phases of the insurance transaction, Company A insurance coverage could be applied for and coverage would be bound on-line. In the future, the program may be extended beyond this initial phase to other aspects of the insurance transaction. The electronic signature of the applicant would be applied to the electronic application for insurance coverage before it is transmitted to Company A. An applicant who completes and submits an electronic application via the Internet will be advised on the Internet by Company A that company A may run a credit report to verify eligibility. The applicant is then given the option to give or withhold consent to obtain a credit report by responding yes or no to Company A on the Internet. An electronic signature would be affixed to the applicant's response to the foregoing which could then be verified by Company A. Company A had not yet implemented the electronic signature technology it will use in conjunction with its Internet plan. In order for Company A to satisfy itself of security for these on-line transactions, each applicant would be given a user ID and password by Company A to enter a secured location on the company’s web site where the applicant would apply for the coverage and subsequently receive notice electronically either that the coverage has either been bound or declined.

Analysis:

New York State has enacted the Electronic Signatures and Records Act ("ESRA") as part of Chapter 4 of the Laws of 1999 that added the State Technology Law as new Chapter 57-A of the Consolidated Laws. ESRA establishes a legal framework in New York for the conduct of electronic commerce. This Department has recognized that insurance business may be conducted by means of electronic commerce and, in this regard, issued Circular Letter No. 33 (1999), which you may view on the Department's Web site at http://www.ins.state.ny.us. Insurance coverage, including those kinds Company A will be selling under its plan, may be bound over the Internet by Company A following the completion of an electronic insurance application that has been electronically signed by the applicant.

When insurance business is conducted by means of electronic commerce all statutory and regulatory requirements applicable to the insurance forms and notices must be satisfied by the electronic records and electronic procedures utilized by the insurer. This letter cannot specifically address each and every substantive and formatting requirement that may be applicable. Formatting requirements prescribed by the New York Insurance Law, such as font size, type, style, clarity, prominence, attachments, placement and color, may be met electronically if the sender and recipient of the electronic document utilize a computer technology that ensures the creation, transmission, and receipt of a document equivalent to that prescribed by the Insurance Law's formatting requirements.

If the document in question is one that was filed with and approved by the Department for use in New York State it should be transmitted over the Internet in a format which ensures that those viewing it and printing it receive the document in the same format as the non-electronic document that was approved for use in New York State. However, as to documents which are not filed with or approved by the Department, to the extent that some of these documents are subject to statutory formatting requirements, they should be transmitted over the Internet in a format which ensures that those viewing it and printing it receive the form or notice in the format required by statute or regulation.

Electronic Insurance Application and Binder -

Neither the insurance applications nor binders for private passenger automobile and homeowner's insurance are required to be filed with or approved by the Department.

The electronic insurance application process that Company A's plan incorporates depends upon the acquisition and implementation of electronic signature software. ESRA governs what constitutes an electronic signature in New York and only those electronic signatures which meet all five criteria contained in ESRA are, in accordance with § 104(2) of ESRA, given the same validity and effect as the use of a signature affixed by hand. "Electronic signature" is defined in § 102(3) of the State Technology Law as follows:

The Office for Technology ("OFT") as the Electronic Facilitator has promulgated an emergency regulation, N.Y. Comp. Codes R. & Regs. tit. 9 Part 540 (2000), implementing the law. Company A should refer to the foregoing regulation for guidance in selecting electronic signature technology.

Should Company A decide to expand its Internet insurance business beyond homeowner's insurance to insurance policies which cover the peril of fire or explosion insuring property in this State, other than for owner-occupied buildings used predominantly for residential purposes which consist of not more than four dwelling units, an anti-arson application would also be required. As to such policies, Company A would be required to provide applicants with an anti-arson application that comes within the parameters of Department Regulation No. 96, N.Y. Comp. Codes R. & Regs. tit. 11 Subpart 62-4, (1999). The regulation was promulgated pursuant to § 3403 of the New York State Insurance Law (McKinney 1985 and Supp. 2000). The anti-arson application process could also be completed as an electronic document, and be signed and affirmed by the applicant by means of an electronic signature which is in compliance with ESRA and the regulations promulgated by OFT thereunder.

There is nothing in the Insurance Law which prevents the insurer from giving the insured the option to print the insurance binder off of the Internet. Under § 3404(h) of the Insurance Law (McKinney Supp. 2000), a binder for a fire insurance policy is required to be in the form of "a written document" which includes specified items and that temporarily obligates the insurer to provide insurance coverage pending issuance of the insurance policy. The foregoing requirement for a written document would be met by a binder which is created as an electronic document.

You may wish to consider whether persons other than the insured who have an interest in making certain that insurance coverage is in place accept an insurance binder printed off of the Internet as proof of insurance coverage. For example, the Department of Motor Vehicles administers New York law requirements that all vehicles be insured for liability. Private entities such as car rental companies and mortgage banks also have interests that the property they lease and lend upon be properly insured. Under § 105(3) of ESRA an electronic record has the same force and effect as records not produced by electronic means. However, § 109 of ESRA provides that the use of electronic records is voluntary: "Nothing in this article shall require any entity or person to use an electronic record or an electronic signature unless otherwise provided by law." Where there is a statutory requirement that an entity or person accept a binder as proof of insurance coverage, the more specific statutory requirement would govern to require acceptance of a binder even if it was created by the insurer as an electronic record. An example of such a statute is Subsection (h) of § 3404 of the Insurance Law (McKinney Supp. 2000) which provides that in regard to binders for fire insurance contracts certain mortgage lenders must accept a binder.

In the course of an insurance transaction that takes place on the Internet, just as with non-electronic insurance transactions, Company A must make all of the statutorily required offers of coverages (e.g., as to no-fault and physical damage coverages) and deductible amounts to applicants

Notices of refusal to issue coverage -

Under § 3429 of the New York State Insurance Law (McKinney 1985), insurers are prohibited from refusing to issue, renew or cancel policies of fire insurance, fire and extended coverage insurance and automobile insurance, subject to § 3425, based solely on the geographical location of the risk within the State. The prohibited practice is commonly known as redlining. Department Regulation No. 90, N.Y. Comp. Codes R. & Regs. Part 218 (1998) was promulgated pursuant to the foregoing statute. The Office of General Counsel has concluded that Regulation No. 90 does not apply to homeowners insurance but does apply to policies of "fire or fire and extended coverage" which is either mono-line fire insurance or fire insurance with an extended coverage endorsement to add the coverages of windstorm, hail, explosion riot, riot attending a strike, and loss resulting from aircraft, vehicles and smoke.

Part 218.3(b)(1) of the Regulation No. 90 requires that all notices by an insurer to new applicants for insurance of refusal to issue coverage must state the specific reason or reasons for such action. Paragraph (2) of subdivision (b) further requires that all notices by an insurer of refusal to issue coverage must be "mailed or delivered" to the applicant not more than thirty days after the application is received by the insurance agent or broker. Under Part 218.3(b) of the regulation, all notices of refusal to issue (and other notices specified therein) must contain the redlining complaint notice contained therein. Moreover, the regulation specifies the following formatting requirements for the complaint notice. It "…shall be clearly and prominently set out in bold face type on the front (except that the company name, company representative, company address and company phone number may be stamped, or typed in the appropriate place in the notice), so that it draws the readers attention on all notices of refusal to issue,…".

The language of the regulation does not preclude the mailing or delivery of notice of refusal to issue coverage by the insurer to the applicant by electronic means via the Internet and such notice can be given by electronic means if the applicant consents to the use of electronic technology. The formatting requirements contained in the regulation, however, must be met by an insurer who gives such notice by electronic means via the Internet. If the insurer decides to send a non-electronic notice of refusal to issue coverage to the applicant by U.S. mail, even though the rest of the insurance transaction has been conducted electronically via the Internet, the insurer is not required to send an additional notice of refusal to issue coverage via the Internet.

As to the time frame for the giving of notice of refusal to issue coverage in the instant situation where the applicant is dealing directly with the insurer via the Internet and there may be no agent or broker involved in the transaction, the thirty day period for the giving of notice of refusal to issue coverage begins to run from the time that the applicant sends completed electronic application to the insurer via the Internet and the insurer receives it electronically.

 

The above opinion is informal and not binding on any court. For further information you may contact Associate Attorney Barbara Kluger at the New York City Office.