Question from an IIABNY member: We are thinking of doing business with a property carrier which is a reciprocal. I just want to make sure they are covered under the New York State guaranty fund and there is no other issue with a reciprocal. I was told their policy is not assessable and they have A rated reinsurers.
Answer: The guaranty fund (the New York State Property/Casualty Insurance Security Fund) does cover most policies issued by reciprocals. Article 76 of the New York Insurance Law applies to the PCISF. Section 7602(c) states:
" Insurer " means any insurer (other than an insolvent insurer, or a municipal reciprocal insurer which issues policies not covered by the property/casualty insurance security fund, or a risk retention group …, or a provider of service contracts …) authorized to transact the (following) kinds of (insurance: Fire; miscellaneous property; water damage; burglary and theft; glass; boiler and machinery; elevator; animal; collision; personal injury liability; property damage liability; fidelity and surety; credit; motor vehicle and aircraft physical damage; marine and inland marine; and marine protection and indemnity.)
Note that Workers’ Compensation is not on that list. This is because there is a separate guaranty fund for Workers’ Comp, known as the Workers’ Compensation Security Fund. New York Workers’ Compensation Law Sections 106 and 107 clearly state that policies issued by reciprocal insurers are covered by this fund. Section 107 states:
The purpose of the fund is to assure to persons and funds entitled thereto the compensation and benefits provided by this chapter for employments insured in insolvent carriers, including the return of unearned premiums. Such fund shall be applicable to the payment of awards for compensation or death benefits and to the payment of benefits into the special funds … and remaining unpaid, in whole or in part, by reason of the default … of an insolvent carrier including the return of unearned premiums, but such fund shall not be applicable to the payment of any amounts due under any policy of reinsurance issued to an insurance carrier. The fund shall also be applicable to the payment of liability claims against an employer under the employer's liability insurance portion of the standard New York workers' compensation and employer's liability insurance policy, but no payment from the fund for such liability claim shall exceed the lesser of the policy limit or one million dollars on any one claim…
Section 106 defines the terms:
" Mutual carrier " means any mutual corporation or reciprocal insurer, other than an insolvent carrier, authorized to transact the business of workmen's compensation insurance in this state. …
" Reciprocal insurer " means any reciprocal insurer authorized to transact the business of workmen's compensation insurance in this state and such reciprocal insurer shall be deemed to be a mutual carrier within the intent of the several provisions of this article.
" Carrier " means a stock or mutual corporation or a reciprocal insurer or a nonprofit property/casualty insurance company, if such corporation or insurer is authorized to transact the business of workers' compensation insurance in this state, including but not limited to the issuance of an assumption of workers' compensation liability insurance policy, but not including any such corporation or insurer which is insolvent.
" Insolvent carrier " means a carrier as to which an order of rehabilitation or of liquidation, or, if such carrier be a foreign insurer, as to which an order for conservation of its assets within the state, shall have been made after the effective date of this article pursuant to article seventy-four of the insurance law, or a foreign carrier which withdraws from or discontinues operation in this state and fails to meet payments due on awards made, but not including a carrier, whether a domestic or foreign insurer, which shall have become rehabilitated and allowed to resume business after any such rehabilitation or conservation of assets and meets its obligations as they mature.
Therefore, most P&C policies issued by reciprocals are covered by the guaranty funds.