The office of General Counsel has issued the following informal opinion on February 28, 2000, representing the position of the New York State Insurance Department.
Prepaid legal services plans
May an agent licensed in New York sell a prepaid legal services plan?
If a prepaid legal services plan does not violate the Insurance Law, there would be no prohibition in such law against an insurance agent (or other insurance licensee) to sell the plan, so long as the agent (or other insurance licensee) does not do so in the capacity of an insurance agent (or other insurance licensee). However, we have insufficient information to determine whether the specific plan inquired about would violate the Insurance Law.
In regard to a specific pre-paid legal services plan, the Department was asked whether a licensed agent in New York may sell the plan.
Legal services arrangements pursuant to which legal services are provided for a prepaid fee do not constitute the doing of an insurance business within the meaning of N.Y. Ins. Law § 1101 (McKinney 1985 & Supp. 1999-2000) so long as the services are not dependent upon the happening of a fortuitous event (as such term is defined in subsection (a)(2) of such section) in which the recipient of the services has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of such event.
However, the plan may provide for services that are dependent upon the happening of a fortuitous event, without constituting the doing of an insurance business, if a separate fee for each such service is charged, and the fee for the service fully covers the cost of rendition of such services, including reasonable overhead, thus avoiding the assumption of a risk of loss in rendering the service. In other words, the arrangement may provide for a prearranged discount on the services, but the provider of the services may not assume a risk of loss.
In N.Y. Comp. Codes R. & Regs. tit. 11 § 261.1(a) (1999) (Regulation 161), the Department codified the above interpretation of the Insurance Law by defining an "access plan" to mean:
an arrangement for the providing of legal services on a prepaid fee basis, where such services are not dependent upon the happening of a fortuitous event in which the recipient of the services has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of such event; except that an access plan may agree to provide such services in the event a separate fee for each such service is charged, and the fee for the service fully covers the cost of rendition, including reasonable overhead.
No insurance license is required to sell an access plan in New York. Accordingly, a licensed insurance agent (or other insurance licensee) in this state may sell an access plan, but must make it clear to prospective purchasers that the plan is not insurance, and that the agent (or other insurance licensee) is not selling the plan in the capacity of a licensed agent (or other insurance licensee). An agent (or other insurance licensee) that sold a plan that contained insurance benefits would violate N.Y. Ins. Law § 2117 (McKinney 1985 & Supp. 1999-2000), unless the plan was offered by an insurer licensed in New York to write legal services insurance.
After reviewing the submitted pre-paid legal plan, it appeared that many of the benefits would clearly be permissible. These include review of contracts, leases, and other documents review, preparation of simple wills, living wills, and health care proxies, and assistance in determining which government agency to contact.
However, it was not entirely clear the subject plan would come within the above definition of an access plan because apparently, some of the benefits that do not have separate fees for each service may be dependent upon the happening of fortuitous events. These include unlimited services for out-of-court arrangements or settlements; and unlimited advice when being sued in small claims court. Additionally, the Department could not determine whether the additional fees for certain of the services that are clearly dependent upon the happening of fortuitous events will be sufficient to cover the attorney's cost of rendition. For example, the provision of a $50 for each case for unlimited assistance in collecting claims of $2,000 or less, or for driver's license reinstatement, seems inadequate. Many of the other fee per service benefits cost $50 an hour. Assuming that the fee covers the cost of rendition of the services, those benefits would not violate the New York Insurance Law.
For further information, you may contact Supervising Attorney, Paul A. Zuckerman at the New York City office.