N.Y. Comp. Codes R. & Regs. tit. 11, § 262.0 – Preamble.

(a) This Part implements, interprets, and clarifies chapter 65 of the Laws of 1998, as amended by chapter 28 of the Laws of 2003, as it pertains to legal services insurance. This Part should be read in conjunction with Part 261 of this Title (Regulation 161) which was being promulgated at the same time. The preamble of Part 261 (section 261.0 of this Title) more fully explains the background, legislative history and intent of chapter 65.
(b) Section 1116(a)(3) of the Insurance Law, as amended effective April 1, 1999, provides that legal services insurance may not be written except:
1. (1) in conjunction with prepaid legal services plans as authorized in section 1116; or
2. (2) pursuant to a regulation promulgated by the superintendent permitting legal services insurance to be written as part of a policy of liability insurance covering related risks, provided that legal services for defense-only coverages for commercial or other business related lawsuits or arbitration proceedings commenced against the business entity that purchased the policy is not more than an incidental part of such liability insurance.
  Section 1116(a)(2), as amended, provides that a prepaid legal services plan may include legal services insurance as part of the plan, provided, however, that not more than an incidental amount of the premium with respect to such prepaid legal services plan shall be attributable to legal services for defense-only coverages for commercial or other business related lawsuits or arbitration proceedings commenced against the business entity that purchased the policy.
(c) Legal services insurance is often thought of as being legal defense insurance, or defense- only coverage, particularly in connection with liability insurance. However, legal services insurance is a broader concept, and may encompass situations where coverage is provided for initiation of a proceeding. Examples include a suit alleging infringement of a patent right, or an appeal from a license denial by an administrative agency. This Part addresses various aspects of legal services insurance, which may not be provided except in accordance with the provisions of this Part.
(d) Legal services insurance does not include defense-only coverage that is incident to a claim of legal liability if that claim could be covered under a liability insurance policy written in New York. In such a case, the defense is part of the liability insurance, and subject to the requirements of the Insurance Law applicable thereto. Chapter 65 did not intend to bifurcate the coverage available under a liability insurance policy by permitting separate defense-only coverage when, under New York law, the policy could afford coverage for the legal liability but the insurer chooses not to provide such coverage. Accordingly, legal services insurance may not provide defense-only coverage for a claim of legal liability that could be covered by a policy of liability insurance.
(e) As noted, chapter 65 permits legal services insurance to be written as part of a policy of liability insurance in connection with related risks. This means that the risk exposure under the legal services insurance must relate to the same kind of risk exposure that is covered under the liability provisions of the policy. For example, a medical malpractice policy may include legal services insurance coverage in regard to the medical malpractice exposure, but not for other kinds of liability exposure. Hence, the policy could provide coverage in an administrative proceeding involving the medical provider’s medical license, but could not provide coverage in a motor vehicle proceeding. Additionally, related risk does not refer to risks of entities related to the insured.
(f) This Part prohibits coverage in a criminal proceeding, except where the Legislature has expressly stated that the public policy of the state is to allow such coverage. The Legislature has made such a declaration in Business Corporation Law, section 726, Not-for-Profit Corporation Law, section 726 and Banking Law, section 7023 in regard to the indemnification of officers and directors of corporations. In light of the enactment of chapter 65, this Part recognizes criminal proceeding coverage, but only in the context of such laws.
(g) Section 1116(h), as amended, provides that the superintendent shall promulgate such regulations that are necessary to implement the provisions of section 1116. Furthermore, the superintendent is directed by chapter 65 to promulgate such rules and regulations as are necessary to implement its provisions on or before April 1, 1999. Chapter 65, as amended by chapter 28 of the Laws of 2003, provides that the new paragraph (29) of section 1113(a) of the Insurance Law and various conforming amendments implementing new paragraph (29) shall take effect April 1, 1999. Section 1116(c), as amended, provides that contracts issued in connection with a prepaid legal services plan may be issued on a group basis subject to regulations promulgated by the superintendent.