OGC Opinion No. 06-03-19

The Office of General Counsel issued the following informal opinion on March 31, 2006, representing the position of the New York State Insurance Department.

Re: Out of State Rim and Tire Programs

Question Presented:

Does the Insurance Law prohibit an automobile dealership located outside New York from selling the Comprehensive Tire & Wheel Road Hazard Protection program (the "Program") to a New York State resident who purchases a vehicle from the dealership for registration in New York State?

Conclusion:

Although the Program would constitute insurance under the Insurance Law, if sold in New York, the Insurance Law would not prohibit an automobile dealership located outside New York from selling the Program to a New York State resident who purchases a vehicle from the dealership for registration in New York State, provided that the transaction, including all solicitation, negotiation, and other activities relating to the sale and issuance and delivery of the contract occur outside New York.

Facts:

This inquiry was submitted for a particular dealership that has locations both in and outside New York. For purposes of this analysis, it is assumed that neither the dealership nor any of its employees are licensed in New York as insurance producers.

The inquirer submitted a copy of the contract between a purchaser and the "Administrator", Auto Company, for the Program. Thus, the obligor of the program appears to be Auto Company. Auto Company's obligations under the contract are insured by ABC Assurance Company. Neither of these entities is authorized to do an insurance business in New York State.

The contract "provides for the repair or replacement of the listed vehicle's tires and/or wheels, which, during the term of this Agreement, become unserviceable because of a puncture caused by a road hazard." A road hazard is defined by the contract as "a condition on a public roadway which should not exist there, such as potholes, nails, glass, etc."

Analysis:

Generally, tire and rim programs that provide coverage for damages caused by road hazards, such as potholes, nails and glass, are insurance and not warranties or service contracts. See e.g., Opinions of General Counsel No. 05-02-08 (February 3, 2005) and 05-03-30 (March 22, 2005). The Department has reviewed the Program and has determined that if it were offered in New York it would constitute insurance and not a warranty or a service contract.

Thus, in the absence of a license to do an insurance business in New York, Auto Company may not offer the Program in New York. If Auto Company were to do so, it would be engaging in an insurance business in this state without a license in violation of N.Y. Ins. Law §1102 (McKinney Supp. 2006). If any dealer were to offer the Program to customers in New York, the dealer would be aiding an unauthorized insurer in violation of N.Y. Ins. Law § 2117(a) (McKinney Supp. 2005).

However, the Insurance Law would not prohibit an automobile dealership located outside New York from selling the Program to a New York State resident who purchases a vehicle from the dealership for registration in New York State, provided that the transaction, including all solicitation, negotiation, and other activities relating to the sale and issuance and delivery of the contract occur outside New York.

For further information please contact Assistant Counsel Brenda M. Gibbs at the Albany Office.