by John D. Darer CLU ChFC CSSC
The New York State Insurance Department opined on September 14, 2006 that a Statement of Guarantee, backing up the qualified assignee in a structured settlement, issued by an unauthorized insurer is not construed as "doing business as an insurance company" in contravention to New York insurance statutes. First, a little background...
The process of setting up a structured settlement generally involves a release of claims against a defendant in exchange for "a promise to pay" certain customizable, negotiated future periodic payments. This oblgation is then assigned by the defendant, or its insurer (if applicable) to a third party called a "qualified assignee". As part of the "qualified assignment", the defendant and/or insurer pays money to the qualified assignee, generally a special purpose corporation whose business is holding such obligations , which then purchases a structured settlement annuity as a "qualified funding asset". The performance of some qualified assignees may be guaranteed in several ways:
- a wraparound guarantee from the annuity issuer itself (Assignees of Massachussetts Mutual Life, MetLife, New York Life, John Hancock, Allstate Life Insurance Company, Hartford Life, Aviva Life Insurance Company and Aviva Life Insurance Company of New York, Liberty Life
- a guarantee by a separate related insurance company (Assignees of American General Life, Allstate Life Insurance Company of New York)
- a guarantee from an upstream non -insurance company holding company (assignees of Pacific Life, Hartford Life (offers the guarantee in #1 above and this)
- a keep well or capital maintenance agreement from an upstream parent (assignees of Aviva Life Insurance Company and Aviva Life insurance Company of New York-in addition to the wrap around mentioned in #1)
The New York State Insurance Department was posed the following question: "Would an insurer that is not authorized to do an insurance business in New York be doing an insurance business when it undertakes to guarantee the non-insurance obligations of its structured settlement company subsidiary where the structured settlement company has purchased an annuity, which is issued by another subsidiary that is an authorized insurer in New York, to fund its obligations under the structured settlement?"
The Department disagreed with the inquirer, whose "facts" set forth that the guarantee was issued by in another state. The Department states "that the sole evidence of the guaranty is the Statement of Guarantee that is provided by the forein life insurer to the claimant in New York. Accordingly, the transaction occurs in New York.
According to the Department, "unless the parent guarantees insurance obligations of its subsidiary, this Department has generally considered a guaranty by a parent to its subsidiary to be incidental to the parent’s legitimate business or activity. The mere fact that the guarantor is also an insurer does not preclude it from making such an incidental guaranty"
The Department also addressed a second issue in its opinion letter, as to whether any of the parties would be calling attention to an unauthorized insurer in violation of N.Y. Ins. Law § 2122(b)(2) (McKinney 2006), which provides:
(2) No insurance agent, insurance broker or other person, [sic] shall by any advertisement or public announcement in this state, call attention to any unauthorized insurer or insurers.
The conclusion drawn in the opinion letter is favorable to the foreign life insurer, in that it ackowledges that the foreign life insurer makes the guarantee solely in its legitimate capacity as the qualified assignee's parent and not as an insurer (a fact which the opinion letter says is further clarified by the addition of the disclaimer that the Notice of Guarantee is not an insurance contract). In addition the Department ackowledges that the foreign life insurer is also not seeking to advertise or hold itself out as an insurer or undertake any other activity in this State.
For the complete text of the opinion letter please click here