On September 15, 2023, New York Governor Kathy Hochul signed into law legislation (S.5959-B/A.5718-B), which allows out-of-state “risk retention groups” registered in New York State to offer automobile insurance coverage to 501(c)(3) not-for-profit organizations in the state.

The new law was principally drafted by Richard Liskov and Jule Rousseau at the request of a firm client.

In the 1986 Liability Risk Retention Act, US Congress intended to enable persons and entities in the same trade, business, or profession to band together to form a liability insurance company that would not need to be licensed in every state and which could provide the initial layer of desperately needed liability insurance at a time when that coverage was either completely unavailable or prohibitively expensive. Therefore, Congress explicitly preempted state laws that barred such group liability insurance with an important exception: state laws that barred group automobile liability insurance were not preempted. See 15 U.S.C. Sec. 3905.

For decades, New York State would only allow a domestic risk retention group to provide automobile liability coverage to nonprofits. Given the relatively stringent regulation of a domestic risk retention group (RRG), there was unsurprisingly no real market for nonprofits to obtain group automobile liability coverage. The new law significantly aids nonprofit organizations in obtaining such insurance from a registered RRG even if organized in another state.

The newly enacted legislation amends Section 5913 of the Insurance Law and Sections 311 and 370 of the Vehicle and Traffic Law to allow certain risk retention groups to issue automobile liability insurance coverage to 501(c)(3) not-for-profit organizations so that they may continue to offer transportation services.

Specifically, in addition to insurers duly authorized to transact business in New York, the law now authorizes “a risk retention group not chartered in this state but which is registered with the superintendent under the federal liability risk retention act of 1986, comprised entirely of organizations that are tax-exempt under section 501(c)(3) of the federal internal revenue code and where the risk retention group qualifies as a charitable risk pool; or under section 501(n) of the federal internal revenue code” to issue automobile liability insurance for vehicles registered in New York State and for vehicles registered in another state, or in both New York State and another state.