OGC Opinion No. 09-01-01

The Office of General Counsel issued the following opinion on January 6, 2009 representing the position of the New York State Insurance Department.

RE: Electronic Delivery of Executed Insurance Policies via the Internet

Question Presented:

May an insurance policy that has been issued and executed on the Internet be considered a properly delivered and valid insurance contract if the insured prints the policy from the Internet on the insured’s personal computer?

Conclusion:

Yes. Nothing in the Insurance Law or regulations promulgated thereunder prohibits an insurance company from issuing and delivering an insurance policy to an insured via the Internet if the insured has consented to receiving electronic documents. The electronic documents must conform to applicable substantive and formatting requirements of the Insurance Law and any other applicable laws.

Facts:

The inquirer reports that the inquirer works for a New York licensed insurance agency named ABC, which sells and administers pet insurance¹ in New York over the Internet through New York licensed insurance agents and adjusters. DEF, which is authorized to do an insurance business in New York, issues the pet insurance policies for ABC, which markets the policies with the help of XYZ, an organization that registers dogs. XYZ allows ABC to use its name to market the Product, a healthcare plan for pets. The XYZ logo appears on the Product’s marketing brochure that is distributed to dog owners by XYZ when it communicates with owners of newly registered dogs. XYZ includes an ABC brochure for the Product in the envelope with registration documents for new dog owners.

Currently, if a person wishes to purchase the insurance through ABC, he or she has three options. First, the applicant may telephone ABC and provide information to a licensed insurance agent, who on behalf of the applicant, completes an Internet application on-line. The applicant provides premium payment authorization over the telephone, providing a charge card number. If the application is approved during the telephone call, a hard copy of the policy will be mailed to the insured. Second, the applicant may complete a hard copy application and either mails it with a check, send it by facsimile, or email an electronically scanned copy of the application to ABC and then provide the premium payment. The applicant will then receive a hard copy of the policy in the mail. Third, an applicant may complete the Internet application on-line on the ABC website and authorize premium payment over the Internet. Upon completion of the application, the ABC website informs the applicant whether he or she has been accepted for coverage. If accepted, then ABC mails a hard copy of the policy to the insured.

ABC would like to improve the on-line purchase process by allowing applicants to download the insurance policy from the Internet using their personal computers rather than having to wait for ABC to deliver the policy to the newly insured through the mail. To this end, ABC asks whether an insurer may deliver an insurance policy to an insured by placing the policy on the Internet and letting the insured access it and print it at the completion of an on-line insurance policy sales transaction.

Analysis:

Two laws are relevant to the inquiry. The first, Article III of the N.Y. State Technology Law, (McKinney 2008), also known as the Electronic Signatures and Records Act (ESRA), establishes that electronic transactions are the legal equivalent of paper-based transactions, and sets forth a legal framework for legal electronic transactions.
The second is the federal Electronic Signatures in Global and National Commerce Act (“E-SIGN”), 15 U.S.C.A. §§ 7001-7031 (West 2008), which establishes the legal validity of electronic records and signatures. E-SIGN reads in pertinent part as follows:

The Insurance Law does not prohibit an insurance company or an insurance agent from electronically transmitting an insurance policy to insureds, provided that the policy otherwise conforms to the Insurance Law and any other applicable laws. The Insurance Department’s Office of General Counsel (OGC) has opined that the term “electronic record,” as defined in the N.Y. State Tech. Law § 302(2), includes insurance policy forms and certificates, and that pursuant to N.Y. State Tech. Law § 305(3), electronic records “shall have the same force and effect as those records not produced by electronic means”. See OGC Opinion dated November 23, 2005. Further supporting the legal effect of electronically transmitted records is § 7001(a)(2) of E-SIGN, which provides that an electronic record may not be denied legal effect just because of its electronic form. See OGC Opinion dated November 23, 2005. In that opinion, OGC opined that statutes that provide for “delivery” permit electronic communications pursuant to the authority established under ESRA and the federal E-SIGN law. Id.; see also Circular Letter No. 33 (1999) (stating that electronic communications are permitted where statutes provide for “delivery”); Supp. No. 1 to Circular Letter No. 33 dated September 3, 2002.

Both ESRA and the federal E-SIGN law have a section that preserves the consumer’s right not to consent to receive electronic documents. N.Y. State Tech. Law § 309 states that “nothing in this article shall require any entity or person to use an electronic record or an electronic signature unless otherwise provided by law.” Similarly § 7001(b)(2) of E-SIGN states that this subchapter does not “require any person to agree to use or accept electronic records or electronic signatures, other than a governmental agency with respect to a record other than a contract to which it is a party.”

Before an insurance company or its agent may transmit insurance policy forms to an insured electronically, it must obtain the insured’s consent. If the insured refuses to consent to receiving documents electronically, the insurance company or its agent must print a hard copy document for delivery to that insured. See OGC Opinion dated November 23, 2005.

The electronic version of an insurance policy must be a verbatim copy of the original hard copy document that the insurer files with the Department, and the electronic version of an insurance policy must conform to all other applicable statutory requirements. See OGC Opinion dated February 10, 2000 (stating that electronically transmitted insurance forms must be formatted in a manner that ensures that those viewing it on-line and printing it, receive a document that contains the same substance, in the same format, as the original non-electronic document that was filed with the Department).

Accordingly, insurance companies and their agents may make available electronic versions of insurance policies on the Internet for insureds to print on personal computers. Such insurance policies will be considered as properly delivered if the insured has consented to receipt of electronic documents. The electronic policies must conform to applicable substantive and formatting requirements of the Insurance Law, and any other applicable laws.

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

¹ In New York, pet insurance is known as “animal insurance.” It is an authorized kind of insurance under N.Y. Ins. Law § 1113(a)(11) (McKinney 2008), which defines it as “a loss of or damage to any domesticated or wild animal resulting from any cause.”