The Office of General Counsel issued the following opinion on December 23, 2004 representing the position of the New York State Insurance Department.

Re: Service Contract Refund Agreement

Question Presented:

Is a company (which is not the warrantor, the service contract provider or the selling automobile dealership) doing an insurance business when it offers a "Service Contract Refund Agreement" (Agreement) that will pay the purchaser of such Agreement the full cost (up to $2,500) of his or her vehicle service contract if the purchaser has not made use of any benefit under such service contract?


No. Such company would not be doing an insurance business by offering the Agreement because the Agreement is not insurance, as defined by N.Y. Ins. Law § 1101(a)(1) (McKinney Supp. 2004).


ABC Inc., a company, which is not a warrantor, service contract provider or selling automobile dealership, is offering a "Service Contract Refund Agreement" to a New York automobile dealership that plans on selling the Agreement to its customers. When a dealership customer purchases the Agreement, which is not part of any vehicle service contract, ABC Inc. will pay the purchaser the full cost (up to $2,500) of the associated service contract if the purchaser has, inter alia, not made use of any benefit under the service contract. The Agreement does not indicate whether the vehicle service contract is a service contract under Article 79 of the New York Insurance Law (McKinney 2000 & Supp. 2004) or a warranty made by the manufacturer or dealer, but this opinion applies to both.


N.Y. Ins. Law § 1102(a) (McKinney Supp. 2004) provides, in pertinent part, that "[n]o person, firm, association, corporation or joint-stock company shall do an insurance business in this state unless authorized by a license in force pursuant to the provisions of this chapter, or exempted by the provisions of this chapter from such requirement."

N.Y. Ins. Law § 1101(b)(1)(A)-(B) (McKinney Supp. 2004) defines "doing an insurance business" as follows:

(b)(1) Except as provided in paragraph two, three or three-a of this subsection, any of the following acts in this state, effected by mail from outside this state or otherwise, by any person, firm, association, corporation or joint-stock company shall constitute doing an insurance business in this state and shall constitute doing business in the state within the meaning of section three hundred two of the civil practice law and rules:

(A) making, or proposing to make, as insurer, any insurance contract, including either issuance or delivery of a policy or contract of insurance to a resident of this state or to any firm, association, or corporation authorized to do business herein, or solicitation of applications for any such policies or contracts;

(B) making, or proposing to make, as warrantor, guarantor or surety, any contract of warranty, guaranty or suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the warrantor, guarantor or surety. . . .

N.Y. Ins. Law § 1101(a)(1)-(2) (McKinney Supp. 2004) defines "insurance contract" and "fortuitous event," respectively, 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 of 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 the control of either party.

Under the facts presented, the Agreement is not an insurance contract because ABC Inc.’s payment of the service contract purchase price is not dependent upon an event in which the purchaser has a material interest that would be adversely affected (i.e., the obligation to pay, if any, is triggered by the absence of any service request, which is not an adverse occurrence). Accordingly, under the facts provided, ABC Inc. may sell the Agreement because the Agreement is not insurance as defined by N.Y. Ins. Law § 1101(a)(1) (McKinney Supp. 2004).

Please note that no insurance is available in New York that may indemnify ABC Inc. from losses resulting from the sale of its Agreement.

For further information you may contact Senior Attorney Kristian Earl Lynch at the New York City Office.