The Office of General Counsel issued the following opinion on March 20, 2003, representing the position of the New York State Insurance Department.

Re: Application of Excess Line Taxes and Rate Filing Requirements to Excess Line Marine Insurance Placements.

Questions Presented:

1. Is marine insurance placed with an unauthorized insurer subject to the rate filing requirements of Article 23 of the Insurance Law?

2. Is ocean marine insurance and inland marine insurance placed with an unauthorized insurer subject to excess line premium taxes?

3. Pursuant to the Insurance Law, is marine protection and indemnity insurance treated in the same manner as ocean marine insurance in regard to excess line taxes?

Conclusions:

1. No. Article 23 does not apply to insurance placed with an unauthorized insurer.

2. Marine insurance may be procured from an unauthorized insurer only by a licensed excess line broker and is subject to the excess line premium taxes, except that to the extent specifically provided for in Section 2117, a licensed insurance broker may place certain classes of marine insurance exempt from the excess line premium tax.

3. Marine protection and indemnity insurance is not subject to excess line taxes in connection with ocean going vessels. Any other contract of marine protection and indemnity insurance would be subject to excess line taxes.

Facts:

Mr. A stated in our telephone conversations that his client is an unauthorized insurer located in England. Insurance brokers and agents in New York and New Jersey would procure insurance, which he characterized as ocean marine insurance and/or marine protection and indemnity insurance, on behalf of prospective insureds and place it with the unauthorized insurer. Mr. A also stated that the insurer would provide insurance to insureds that are engaged in the activities of freight forwarders, non-vessel operating common carriers, container providers, shipping agents and vessel charterers and would include transportation by road, rail, inland waterways, air or ocean going vessels. Mr. A indicated that he believes that all such insurance would be exempt from New York excess line requirements, including taxes.

Analysis:

The term "ocean marine" insurance is not defined in the New York Insurance Law, but is generally understood to be encompassed within the definition of "marine and inland marine insurance" under Section 1113(a)(20). A distinction between marine insurance and inland marine insurance is drawn in the last sentence of subsection (a)(20). It states that "In this chapter ‘inland marine’ insurance shall not include insurance of vessels, crafts, their cargoes, marine builders’ risks, other similar risks, commonly insured only under ocean marine insurance policies." Section 2105(a) also contains a reference to "ocean marine" insurance under Section 2117.

However, Section 2117 does not use the term "ocean marine insurance", but rather defines certain classes of business under which a licensed insurance broker may place insurance with an unauthorized insurer without having to utilize the excess line market or pay the excess line premium tax. Accordingly, the issue is not whether a particular contract of insurance constitutes "ocean marine insurance". Rather, the issue is whether the contract comes within one of the exceptions contained in Section 2117(b) or (c).

Question No. 1

Pursuant to N.Y. Ins. Law § 2302(a) (McKinney 2000), Article 23 applies to "all kinds of insurance written on risks or operations in [New York]" by an insurer authorized to do business in New York, subject to certain exceptions. Therefore, unauthorized insurers are not subject to the rate filing requirements of Article 23.

Question No. 2

N.Y. Ins. Law § 2105 (McKinney Supp. 2003) provides licensing requirements for excess line brokers and provides, in relevant part, as follows:

N.Y. Ins. Law § 2118(d) (McKinney Supp. 2003) provides, inter alia, that a licensed excess line broker must pay a premium tax based upon the premium charged to the insured by the unauthorized insurer for insurance procured by the excess line broker pursuant to such license. Section 2105(a) expressly exempts ocean marine insurance and other contracts of insurance enumerated in Section 2117(b) and (c) from the licensing requirements contained in Sections 2105 and 2118.

N.Y. Ins. Law § 2117(a) (McKinney Supp. 2003) prohibits any person from acting on behalf of an unauthorized insurer. However, Section 2117(b) and (c) authorize any licensed insurance broker to place certain contracts of insurance with an unauthorized insurer, including in relevant part the following:

Hence, a policy providing coverage solely of the types specified in Section 2117(b) and (c) may be placed pursuant to an insurance broker’s license and an excess line broker’s license is not required. These placements are not subject to the excess line tax. Therefore, marine insurance, except as provided in Section 2117(b), would be subject to excess line premium taxes.

N.Y. Ins. Law § 9102(b)(1) (McKinney 2000), provides that the tax:

In regard to "inland marine insurance", the allocation schedule contained in N.Y. Comp. Codes R. & Regs. tit. 11, Part 27, Appendix A (Regulation 41) provides that the excess line premium tax is allocated on property permanently or principally situated in New York State. The schedule also provides that no premium tax for ocean marine insurance is allocated to New York. For purposes of allocation, ocean marine insurance means insurance of the types specified in Section 2117(b)(3)(A).

While a general warehouse-to-warehouse policy,2 covering goods between point of importation and exportation would come within the exception, a policy that includes extensions to the policy that change it to a hybrid policy, containing elements of inland marine risks, would not be subject to the exceptions for marine insurance contained in Section 2117(b). Examples of an inland marine exposure would be a furrier’s block policy, insuring goods against fire or theft on American premises, or transporting goods using inland transportation to other locations in the country for exhibition or sale. See OGC Opinion dated February 28, 1994.

In summary, the exception in Section 2117(b)(3)(A) applies only to marine insurance involving a ship in course of exportation from or importation into any country, or transportation coastwise. In all other cases, an excess line broker must be utilized and the premium tax would be allocated based upon Appendix A.

Question No. 3

Mr. A stated in his inquiry that the Excess Line Association of New York ("ELANY") Bulletin 2000-15 stated that ocean marine insurance and marine protection and indemnity insurance will be treated in the same manner in regard to excess line taxes.

Pursuant to Section 2105(a), marine and inland marine insurance under Section 1113(a)(20) is one of the enumerated kinds of insurance that an excess line broker may place with an unauthorized insurer. Section 2105(a) does not enumerate marine protection and indemnity insurance under Section 1113(a)(21) as one of the kinds of insurance that an excess line broker is authorized to place. However, the Department has long stated that former Section 46(20) (the predecessor Section to 1113(a)(20)) includes within it the power to do marine protection and indemnity insurance. Former Deputy Superintendent Counsel Raymond Harris stated in an Opinion letter dated April 16, 1946 as follows:

Thus, marine protection and indemnity insurance may be placed by a licensed excess line broker. Section 2117(b)(3)(B) permits a licensed insurance broker to place insurance in connection with ocean going vessels against any of the risks specified in Section 1113(a)(21). Therefore, only such contracts of marine protection and indemnity insurance would be exempt from excess line taxes. Any other contract of marine protection and indemnity insurance would have to be placed by an excess line broker and would be subject to the excess line tax, in accordance with the allocation schedule contained in Appendix A.

For further information you may contact Senior Attorney Pascale Joasil at the New York City Office.

---

1 N.Y. Ins. Law § 1113(a)(21) (McKinney Supp. 2003) provides as follows:

2 A warehouse-to-warehouse policy insures goods against loss or damage while carried on cargo ships as well as during inland transportation from their warehouse for delivery to the ship and from the ship to the warehouse of the receiver of the goods.