OGC Opinion No. 08-09-12

The Office of General Counsel issued the following opinion on September 26, 2008, representing the position of the New York State Insurance Department.

RE: Licensed bail bond agent conducting non-bail bond business

Question Presented:

May a licensed bail bond agent engage in a related business that does not require licensing by the Department, and conduct that related business from the same physical location as the licensed business?

Conclusion:

Yes. A licensed bail bond agent may engage in a related business that does not require licensing by the Department, and conduct that related business from the same physical location as the licensed business, provided that the agent independently conducts each business, and does not tie-in the solicitation for the non-licensed activity to the sale of insurance.

Facts:

The inquirer reports that the inquirer wants to open a business that, for a fee, provides a service to detainees held in custody pending payment of bail. Using the service, a detainee may charge the full amount of her bail to the inquirer’s business, which will then pay the detention center where the detainee is being held and thus secure the release of the detainee. The inquirer states that the business that the inquirer wishes to open is substantially similar to one that the Department’s Office of General Counsel (“OGC”) previously determined was neither doing an insurance business nor a bail bond business, but was only acting as a cash facilitator, for which no license is required. See OGC Opinion dated February 3, 2003.¹

The inquirer asks whether the Insurance Law allows the inquirer to conduct such a business, and to do so from the inquirer’s bail bond office.

Analysis:

In the OGC Opinion dated February 3, 2003, the Department opined that a cash facilitator business was not conducting a bail bond business pursuant to N.Y. Ins. Law § 6801(a)(1) (McKinney 2008) nor doing an insurance business, which would require a license pursuant to Insurance Law§ 1102,² where the cash facilitator business merely acted as a delivery service and did not deposit money or property as bail for another. In the absence of any transfer of risk, the Department opined, no insurance license was required.

At that time, the Department offered no opinion as to whether other statutes or case law might permit or prohibit such services in New York. Assuming that such a business is otherwise authorized by law, the question presented by the instant inquiry is whether the inquirer, as a licensed bail bond agent, may operate it simultaneously with the inquirer’s bail bond business.

As is the case for a licensed insurance agent or broker, a bail bond agent may sell non-insurance products or conduct other non-insurance business if the agent or broker makes clear to prospective purchasers that the product is not insurance (or in this case, a bail bond), and that the bail bond agent is not selling the product in the bail bond agent’s capacity as a licensed bail bond agent, or vice versa. See OGC Opinions dated August 31, 2007 and February 28, 2000. Furthermore, the bail bond agent must make clear that the sale of the bail bond is independent of the sale of the non-insurance product. See OGC Opinion dated March 3, 1992.

Insurance Law § 2324(a) prohibits the use of rebates or other unlawful inducements or tie-ins in connection with the sale of property/casualty insurance, and states in relevant part as follows:

Whether offering the service of the non-licensed business constitutes an unlawful rebate, inducement or tie-in that violates Insurance Law § 2324(a)³ generally depends upon two factors. First, whether the service is available for anyone’s use, meaning any member of the general public, and not just clients of the bail bond business, may purchase the service; and second, whether the purchase of services from the non-licensed business is tied to the purchase or solicitation of a bail bond. If the service is available to anyone, and not tied to the purchase or solicitation of a bail bond, then it likely would not violate Insurance Law § 2324(a). See OGC Opinions dated February 16, 2006; December 13, 2006 and October 31, 2003.

Assuming that a cash facilitator business is otherwise authorized by law, and no restrictions limit where such business may be located, it may be conducted in the same physical location as a licensed bail bond business, provided that the bail bond agent independently conducts each business, and does not tie-in the solicitation for the non-licensed activity to the sale of the insurance.

For further information, one may contact Senior Attorney, Susan A. Dess at the New York City office.

¹ 1 Rather than selling a bail bond to the detainee, a cash facilitator obtains the required cash through the detainee’s charge card, which names the business as a vendor, and thereby enables the business to receive payment from the detainee’s charge card company in the amount of the cash required to post bail. The inquirer in the February 3, 2003 opinion represented that payment of the bail was accomplished through a series of simultaneous wire transfers through the federal reserve system, so that funds were simultaneously transferred from the detainee’s charge card to the business’s account, and then to the detention center to pay the bail bond, without any transfer of risk to the cash facilitator.

² Insurance Law § 6801(a)(1) provides that “any person . . . who shall for another deposit money or property as bail . . . shall be deemed to be doing a bail bond business and doing an insurance business as defined in article eleven of this chapter.” Insurance Law § 1102 prohibits any person from doing an insurance business without a license and states in relevant part: “no 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.”

³ With respect to life, accident and health insurance, an agent or broker subject to the provisions of New York Insurance Law § 4224(c) may not distribute promotional novelties in connection with the sale of insurance unless specified in the policy or contract.