OGC Opinion No. 04-10-28: New York Free Trade Zone

OGC Op. No. 04-10-28

The Office of General Counsel issued the following opinion on October 27, 2004, representing the position of the New York State Insurance Department.

Re: New York Free Trade Zone

Question Presented:

May an insurer issue an Owners Contractors and Protective (OCP) insurance policy in the New York Free Trade Zone (NYFTZ) in conjunction with a Commercial General Liability (CGL) policy that is issued in the NYFTZ as a class 1 risk, even though the OCP policy is not, by itself, eligible to be issued in the NYFTZ?

Conclusion:

No. The insurer may not issue the OCP policy in the NYFTZ, in conjunction with the CGL policy that is issued in the NYFTZ as a class 1 risk, where the OCP policy is not, by itself, eligible to be issued in the NYFTZ.

Facts:

XYZ Company ("XYZ Co.") entered into a contractual agreement with the State of New York to perform certain services for the State. The State requires XYZ Co. to purchase an OCP policy in the name of the State to protect the State's interests for work performed by XYZ Co. The OCP policy does not meet the eligibility criteria (i.e. the premium threshold) to be written in the NYFTZ. XYZ Co. purchased a CGL insurance policy that protects XYZ Co. for its operations. This policy is issued in the NYFTZ as a class 1 risk. The inquirer would like to know whether an insurer may issue an OCP policy in conjunction with the CGL policy that is written in the NYFTZ, even though the OCP policy is not, by itself, eligible to be written in the NYFTZ.

Analysis:

N.Y. Ins. Law Article 63 (McKinney 2000) allows certain special risks to be written free of filing rates or policy forms in what is sometimes called the Free Trade Zone. In order to effectuate the provisions of Article 63, the Department promulgated N.Y. comp. Codes R. & Regs. tit. 11, §§ 16.0-16.13 (1995) (Regulation 86). Section 16.1(f) provides as follows:

(f) Special Risk means:

(1) Class 1. Where all or part of the insured's business operations, for which coverage is authorized by the kinds of insurance defined in section 1113(a) of the Insurance Law, is insured in a single policy written in accordance with section 6303 of the Insurance law, and which is written with or is reasonably expected to produce a billed annual premium of at least:

(i) $100,000 for at least one kind of insurance; or

(ii) $200,000 for more than one kind where the premium for any one kind of insurance does not exceed $100,000.

(2) Class 2. Coverages that are:

(i) of an unusual nature, a high loss hazard or difficult to place; and (ii) enumerated in the list contained in section 16.12(e) of this Part, or additions thereto made pursuant to section 16.8(f) of this Part.

In accordance with the above, to be written in the NYFTZ as a class 1 risk, all or part of the insured's business operations must be insured in a single policy with a premium of at least $100,000 for at least one kind of insurance or $200,000 for more than one kind where the premium for any one kind of insurance does not exceed $100,000. Thus, although Regulation 86 contemplates that more than one kind of insurance may be written, such coverage must be written in a single policy, not as separate policies as the insurer described.

The insurer should also be aware that N.Y. Comp. Codes R. & Regs. tit. 11, § 16.8(b) (Regulation 135) provides that class 1 or class 2 coverage may not be provided in a manner that would constitute a group policy within the meaning of Regulation 135.

Consequently, an insurer may not issue the OCP policy in the NYFTZ in conjunction with the CGL policy that is issued as class 1 risk in the NYFTZ, where the OCP policy is not, by itself, eligible to be issued in the NYFTZ.