OGC Opinion No. 07-09-13
The Office of General Counsel issued the following opinion on September 12, 2007, representing the position of the New York State Insurance Department.
RE: Permissible Placement of Property Insurance
Questions Presented:
1. Is it permissible for an insurance broker, with the consent of the insured, to cancel mid-term an in-force property insurance policy with a New York authorized insurer in order to place the same risk with an unauthorized insurer?
2. Is it permissible to combine and insure a number of properties under a single policy, with the named insured being the managing agent for the properties, if the properties have separate and distinct ownership, and the managing agent has no ownership interest in the properties?
Conclusions:
1. No. An insurance broker may not cancel mid-term an in-force property insurance policy with a New York authorized insurer in order to place the same risk with an unauthorized insurer.
2. No. It is not permissible to combine and insure a number of properties under a single policy, with the named insured being the managing agent for the properties, if the properties have separate and distinct ownership, and the managing agent has no ownership interest in the properties.
Facts:
The question is of a general nature, without reference to particular facts.
Analysis:
The inquirer asks whether an insurance broker may, with the consent of the insured, cancel mid-term an in-force property insurance policy that was issued by a New York “admitted” company, in order to place the same risk with a “non-admitted” company. The inquirer points out that the admitted company that now has the policy has no solvency issue, and that there is no change in the nature of the risk that would make the current coverage unsuitable.
As a preliminary matter, the analysis below assumes that both of the questions presented concern property insurance. In addition, the New York Insurance Law does not define, and does not generally use the terms “admitted” or “non-admitted.” However, the Department understands such terms to generally have the same meaning as the terms “authorized” and “unauthorized.” See N.Y. Ins. Law § 107 (McKinney 2006).
Placement of a risk with an unauthorized insurer may only be done by a New York licensed excess line broker. See Insurance Law § 2117 (permitting insurance brokers, in certain circumstances not relevant here, to procure coverage for risks located outside of New York). An excess line broker that places business with an unauthorized insurer must comply with Insurance Law §§ 2105, 2118, 2130 and N.Y. Comp. R. & Regs. tit. 11, Pt. 27 (Regulation 41). Specifically, Insurance Law § 2118(b)(3)(A) is relevant to this inquiry. That section reads, in relevant part, as follows:
The submission of insurance documents to the excess line association shall be accompanied by a statement subscribed to, and affirmed by, the licensee or sublicensee as true under the penalties of perjury that, after diligent effort, the full amount of insurance required could not be procured, from authorized insurers, each of which is authorized to write insurance of the kind requested and which the licensee has reason to believe might consider writing the type of coverage or class of insurance involved, and further showing that the amount of insurance procured from an unauthorized insurer is only the excess over the amount procurable from an authorized insurer. . . . (Emphasis added.)
Insurance Law § 2118(b)(4)1 states, in pertinent part as follows:
The number of declinations constituting diligent effort in regard to placement of coverage with authorized insurers for purposes of paragraph three of this subsection shall be three….2
Insurance Law § 2118 requires that a diligent effort be made to procure insurance from an authorized insurer, and the statute permits placement with an unauthorized insurer only when coverage cannot be procured from the authorized insurer market, and only to the extent that it is in excess of any insurance available in the authorized market. See OGC Opinion 06-03-08 (March 7, 2006).
The inquirer has indicated that the insured already has coverage with an authorized insurer, and that there is no change in the nature of the insured’s risk. The excess line market was created to provide coverage to insureds when no coverage is available from an authorized insurer. The coverage in question is available; therefore, the broker may not cancel the insured property insurance policy in order to place it with an unauthorized insurer. In addition, Regulation 41 provides that in the absence of satisfactory explanation, failure by an excess line broker to comply with the applicable regulatory requirements may be considered evidence of conduct detrimental to the interests of the people of New York within the meaning of Insurance Law § 2118, or incompetency or untrustworthiness pursuant to Insurance Law§ 2110.
The inquirer also asks whether it is permissible to combine a number of properties that have totally separate and distinct ownership, and insure them under a single policy with the name insured being the managing agent for the properties, if the managing agent has no ownership interest in the properties. The type of policy that the inquirer refers to would constitute a group property insurance policy. See OGC Opinion 02-12-11 (December 10, 2002). With exceptions not relevant here, Insurance Law § 3435 generally governs the issuance of group property/casualty insurance in this state. 11 NYCRR § 153 (Regulation 135) implements Insurance Law § 3435 and establishes standards, requirements and procedures for all property/casualty insurance policies issued on a group or quasi-group basis in New York.
To that end, 11 NYCRR § 153.1(g) defines a “group policy” as a “policy underwritten and issued on a collective basis of: (1) property/casualty insurance insuring the interests of two or more persons or entities….” Certain types of policies, which are not included in the definition of “group policy,” may be written as a single policy with multiple insureds. These types of policies are set forth in 11 NYCRR § 153.1(g)(2)(v), which states that:
2) Where an insurer elects to issue a single policy with a first named insured and additional insureds, such policy shall not be considered a “group policy” in regard to the following:
(v) shared interest, provided that such shared interests exist among all additional insureds, and only to the extent of such shared interests.
“Shared interest” is defined in 11 NYCRR § 153.1(s)(1) as follows:
(s) Shared interests mean:
(1) for property insurance, insurable interest in the additional insured’s property, including legal interest in or control of such property, so that physical loss or damage to such property may result in pecuniary loss to the first-named insured.
For the policy here to be permissible, all additional insureds must have a shared interest. The arrangement described in the inquirer’s letter does not appear to fall within the shared interest exclusion set forth in Regulation 135, because the properties’ managing agent has no interests, ownership or otherwise, in the insured property. Nor is there a shared interest between or among the additional insureds. Therefore, in the view of the Department’s Office of General Counsel, it would not be permissible to issue such policy in New York.
For further information you may contact Associate Attorney D. Monica Marsh at the New York City Office.
1Insurance Law § 2118(b)(3)(E) and 11 NYCRR § 27.3(g)(1) set forth certain exemptions from the declination requirements in Insurance Law § 2118.
2 See also 11 NYCRR § 27.3(a).