OGC Opinion No. 09-09-03

The Office of General Counsel issued the following opinion on September 15, 2009, representing the position of the New York State Insurance Department.

RE: Loss Transfer Jurisdiction

Questions Presented:

1. When a person has a large self-insured retention and the amount of damages at issue in a loss transfer inter-company arbitration falls within the retention, is the self-insured the appropriate party to the arbitration (as opposed to the liability insurer that insures the losses above the retention)?

2. Is a person’s self-insured status a valid affirmative defense to jurisdiction by a liability insurer?


1. Yes. A person who has, pursuant to the New York Vehicle & Traffic Law (“VTL”), registered a motor vehicle with proper proof of financial security, that indicates that the person is self-insured with respect to the vehicle, is the appropriate party to a loss transfer inter-company arbitration if the amount at issue wholly falls within the retention amount.

2. The loss transfer inter-company arbitration panel may evaluate all defenses raised at the arbitration, including jurisdictional affirmative defenses.


It is reported that the inquirer’s organization, XYZ, the designated administrator of arbitrations of no-fault loss transfer claims, handles claims filed against liability insurers and self-insurers. The inquirer presents an example of an arbitration request where a large trucking company has a large self-insured retention and a liability policy to cover the liability exposure above the retention. The arbitration is for an amount that falls wholly within the retention. The inquirer asks whether the self-insured is the proper party to the arbitration, and if so, whether the liability insurer, a named party to the arbitration, may raise the insured’s status as a self-insured as a valid affirmative defense.


N.Y. Ins. Law § 5105 (McKinney 2000) is relevant to the inquiries. That statute reads, in pertinent part, as follows:

(a) Any insurer liable for the payment of first party benefits to or on behalf of a covered person and any compensation provider paying benefits in lieu of first party benefits which another insurer would otherwise be obligated to pay pursuant to subsection (a) of section five thousand one hundred three of this article or section five thousand two hundred twenty-one of this chapter has the right to recover the amount paid from the insurer or any other covered person to the extent that such other covered person would have been liable, but for the provisions of this article, to pay damages in an action at law. In any case, the right to recover exists only if at least one of the motor vehicles involved is a motor vehicle weighing more than six thousand five hundred pounds unloaded or is a motor vehicle used principally for the transportation of persons or property for hire…

(b) The sole remedy of any insurer or compensation provider to recover on a claim arising pursuant to subsection (a) hereof, shall be the submission of the controversy to mandatory arbitration pursuant to procedures promulgated or approved by the superintendent. Such procedures shall also be utilized to resolve all disputes arising between insurers concerning their responsibility for the payment of first party benefits.

Insurance Law § 5102(g) defines “insurer” as “the insurance company or self-insurer, as the case may be, which provides the financial security required by article six or eight of the vehicle and traffic law.”

Under the facts presented here, the vehicles in question are owned by a large trucking company, which is self-insured for purposes of the VTL, and therefore is an “insurer” for purposes of Insurance Law § 5105. Provided that the vehicles in question weigh more than 6,500 pounds unloaded, the mandatory arbitration provisions set forth in Insurance Law § 5105(a) apply, and thus provide the sole remedy for the party seeking arbitration.

A. Proper Parties to Loss Transfer Arbitration

VTL § 312 (McKinney 2005) is relevant to the first question, which asks whether the proper party to a loss transfer arbitration is the excess liability insurer or the trucking company as the self-insurer. That law requires an application for motor vehicle registration to be accompanied by proof of financial security, which shall be evidenced by proof of insurance or evidence of a financial security bond, a financial security deposit or qualification as a self-insurer.

Here, the trucking company has satisfied the VTL requirements necessary to qualify as a self-insurer. Consequently, the trucking company also is a self-insurer for purposes of Article 51 of the Insurance Law. Given that circumstance, the trucking company is the proper party to the arbitration.

B. Jurisdictional Defenses Relating to Self-Insured Status

The second query asks whether a party’s self-insured status is a valid affirmative defense to jurisdiction by a liability insurer. Pursuant to section 65-4.11(a)(4) of Tit. 11, Subpart 65-2 (Reg. 68-B) of the New York Codes, Rules and Regulations (“NYCRR”) “[a]ny determination as to whether an insurer is legally entitled to recovery from another insurer shall be made by an arbitration panel appointed pursuant to this section.” Self-insurers are subject to mandatory inter-company arbitration pursuant to 11 NYCRR § 65-4.11(a), which states that the “term insurer as used in this section shall include both insurers and self-insurers as those terms are defined in this Part and article 51 of the Insurance Law.” Therefore, it is for the arbitration panel to determine whether a jurisdictional affirmative defense predicated on an insured’s self-insured status is valid.

For further information, you may contact Associate Counsel Alexander Tisch at the New York City Office.