OGC Op. No. 04-01-13
The Office of General Counsel issued the following opinion on January 9, 2004, representing the position of the New York State Insurance Department.
Re: Terrorism Exclusions in Inland Marine Insurance Policies
1. How does the Insurance Department define what constitutes an "inland marine" policy?
2. Would a policy covering fine art constitute inland marine insurance?
3. Does N.Y. Ins. Law § 3404 apply to an inland marine insurance policy?
4. Does New Yorks position regarding terrorism exclusions for fire-following coverage apply to New York based property that is temporarily outside New York if the policy is purchased by a New York based insured and issued subject to New York law?
1. The Insurance Department is guided by the 1976 Nation-wide Marine Definition adopted by the National Association of Insurance Commissioners, subject to certain modifications, as described in Circular Letter No. 22 (2000).
2. A policy covering fine art may be written as inland marine insurance.
3. N.Y. Ins. Law § 3404 does not apply to an inland marine insurance policy.
4. New Yorks position regarding terrorism exclusions for fire-following coverage applies to New York based property that is temporarily outside New York if the policy is purchased by a New York based insured and issued subject to New York law.
This is a general inquiry regarding inland marine insurance and coverage for acts of terrorism. No specific facts were provided.
Although "marine and inland marine" insurance is defined in N.Y. Ins. Law § 1113(a)(20) (McKinney 2004), the Insurance Department is guided by the 1976 Nation-Wide Marine Definition (the "Definition") adopted by the National Association of Insurance Commissioners (NAIC), subject to certain exceptions, which are specified in the Department's Circular Letter No. 22 (2000), copy enclosed. The Circular Letter, which is available on the Departments website at http://www.ins.state.ny.us/cl00_22.htm, also explains the distinction between inland marine and ocean marine insurance.
In regard to fine arts, the Definition contains two provisions that are relevant. Under Section I E 8 of the Definition, regarding personal property floater risks, "Fine Arts Floaters covering paintings, etchings, pictures, tapestries, art glass windows, and other bona fide works of art of rarity, historical value or artistic merit" may be issued on a marine basis. Similarly, under I F 18 of the Definition, regarding commercial property floater risks, "Fine Art Policies covering paintings, etchings, pictures, tapestries, art glass windows, and other bona fide works of art of rarity, historical value or artistic merit, for account of museums, galleries, universities, businesses, municipalities and other similar interests", may be issued on a marine basis.
Accordingly, a policy insuring fine arts may be written as inland marine insurance. However, please note that the Insurance Law does not mandate that such coverage must be written as marine insurance. A fine art policy may be also be written by an insurer licensed to write burglary and theft insurance under N.Y. Ins. Law § 1113(a)(7)(C) (McKinney 2004), which is "insurance of individuals by means of an all-risk type of policy commonly known as the "Personal Property Floater" against any kind and all kinds of loss of or damage to, or loss of use of, any personal property other than merchandise."
Assuming that the fine arts coverage is written as inland marine insurance, the inquirer asked whether the policy must comply with the requirements of N.Y. Ins. Law § 3404 (McKinney 2000), which provides that no insurance policy may provide coverage with respect to the peril of fire that is not at least as favorable to the insured as that provided for in the standard fire policy, which is contained in § 3404. No insurer may issue a fire insurance policy on any property in this state containing an exclusion not specifically permitted under § 3404. Since a terrorism exclusion is not one of the permissible exclusions that are specified in the standard fire policy and the addition of such exclusion would have the effect of narrowing the coverage otherwise provided under the standard fire policy, this Department has previously concluded that no policy of fire insurance made, issued or delivered on any property in this state may contain a terrorism exclusion with respect to the peril of fire.
In a November 14, 2002, opinion, this office opined that § 3404 does not apply to a jewelers block insurance policy and there is nothing in the Insurance Law that specifically restricts or otherwise limits the exclusions that may be contained in a jewelers block insurance policy in this regard or that would otherwise require such a policy to provide coverage for damage or loss resulting from acts of terrorism. The opinion followed a 1959 New York Court of Appeals decision, Woods Patchogue Corp. v. Franklin National Insurance Company of New York, 5 N.Y.2d 479, 158 N.E.2d 710, 186 N.Y.S.2d 42 (1959). Although the opinion was limited to addressing jewelers block insurance, it referenced § 3404(f)(2), which provides that policies of automobile or aircraft physical damage insurance or policies of inland marine insurance "may be issued as heretofore without reference to the limitations" contained in paragraph (1), including the provision requiring terms no less favorable to the insured than those contained in the standard fire policy. Section 3402(f)(2), which was originally added in 1962 to § 3404s predecessor section, § 168 of the 1939 Insurance Law, appears to have broader applicability than the Woods Patchogue case. Accordingly, it is the opinion of this office that § 3404 does not apply to inland marine policies.
Circular Letter No. 25 (Dec. 23, 2002) provides guidelines for the use of terrorism exclusions by an insurer in New York. Including inland marine policies. A copy of Circular Letter No. 25 may be found on the Departments website at http://www.ins.state.ny.us/cl02_25.htm.
The inquirer also asked whether § 3404 applies to property that is temporarily outside New York where the policy was issued subject to New York law to an insured based in New York. Section 3404, by its terms, applies to a "policy or contract of fire insurance made, issued, or delivered by any insurer on any property in this state " § 3404(b). New York courts have held that § 3404 and (its predecessors) does not apply to real property located outside of New York. See National Factors, Inc v. Waters 42 Misc. 2d 822; 249 N.Y.S.2d 121; (Sup Ct. NY Cty 1964). However, we are not aware of any case that held that § 3404 did not apply to personal property while it is temporarily outside of New York. Nor is it likely that the Department would approve a policy that provided for different levels of coverage based solely on the temporary location of insured property. Hence, a New York fire insurance policy should provide equal protection to the property regardless of its location.
For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.