OGC Opinion No. 07-03-12

The Office of General Counsel issued the following opinion on March 16, 2007 representing the position of the New York State Insurance Department.

RE: Applicability of notice requirement under Regulation 64 to Fidelity and Surety Insurance

Question Presented:

Does 11 NYCRR § 216.9 apply to a claim made on a fidelity insurance policy or a contract of surety?


No. Since neither fidelity insurance coverage nor contracts of surety are liability insurance, 11 NYCRR § 216.9 does not apply.


The inquirer, asks without reference to any facts, whether § 216.9 of N.Y. Comp. Codes R. & Reg. tit. 11, Pt. 216 (Regulation 64) applies to a claim made on a fidelity insurance policy or a contract of surety.


The inquiry asks about Section 216.9 of 11 NYCRR 216. That regulatory provision, which pertains to liability claims, reads as follows:

Upon payment of $5,000 or more in settlement of any third party liability claim, where the claimant is a natural person, the insurer shall cause written notice to be mailed to the claimant at the same time payment is made, by the insurer or its representative (including the insurer's attorney), to the claimant's attorney or other representatives of the claimant by draft, check or otherwise.

Liability insurance is an agreement to cover a loss resulting from the insured’s liability to a third party, such as a loss incurred by a driver who injures a pedestrian. A fidelity bond, by contrast, indemnifies an employer due to embezzlement, larceny, or gross negligence by an employee or other person holding a position of trust (Garner, Bryan A., Black’s Law Dictionary [West 2004]). A surety bond, or performance bond, is a bond given by a surety, typically to ensure the timely performance of a contract or other obligation.

In instances where a claimant is a natural person, and where an insurer makes to a claimant’s attorney or other representative a payment, by draft, check or otherwise, of $5,000 or more in settlement of a third party liability claim, 11 NYCRR § 216.9 requires the insurer to provide notice to the claimant that payment is made. The Department promulgated 11 NYCRR § 216.9 at the request of the Lawyers’ Fund for Client Protection (formerly known as the Clients’ Security Fund) of the State of New York, which sought this regulation in response to documented instances of theft by attorneys who had forged their clients’ endorsements on settlement checks and unlawfully appropriated the proceeds. The Lawyers’ Fund for Client Protection, in conjunction with the Insurance Department, determined that the opportunity for forgery and concealment of theft would be measurably reduced by providing the third party liability claimant with notice that a claim had been paid to a claimant’s attorney or other representative.

Since 11 NYCRR § 216.9 was enacted as a response to attorneys who had stolen and forged their clients’ third party liability claim checks, it does not address fidelity insurance and surety bonds. Nevertheless, the rationale underlying the promulgation of § 216.9 is equally valid for bonds or other circumstances where the payment is made to a natural person’s attorney or other representative, and therefore it is prudent for insurers to provide such notice in those instances. Moreover, the Department is considering amending the regulation to extend its scope to address situations beyond the context of liability insurance.

For further information you may contact Assistant Attorney Sapna Maloor at the New York City office.