The Office of General Counsel issued the following informal opinion on July 26, 2000, representing the position of the New York State Insurance Department.
Re: Attorney Retainer Agreement
Does the proposed agreement by a law firm, as stated below, constitute the doing of an insurance business in New York?
The proposed agreement would be an attorney retainer agreement, and would not constitute the doing of an insurance business, so long as it was clarified that the fee did not cover multiple occurrences.
A law firm (the firm") intends to provide legal representation, through its attorneys licensed in New York, to New York physicians who seek advice regarding, and/or subjected to possible adverse review by, Peer Review Organizations ("P.R.O."). The agreement, which will be entered into in advance between the firm and a physician, will be labeled "Physician Retainer Agreement." It provides for an advance payment for certain listed basic services; the rendition of additional legal services at a discounted rate; and an accounting, upon request of the value of the Retainer and any services provided. The basic representation services under the program are as follows:
A consultation with the participating physician to determine if the physician has a legal problem with a P.R.O.;
Provision of up to three letters, telephone calls, or detailed legal instructions for P.R.O. related issues;
Attendance of an attorney at a scheduled appearance before the P.R.O.;
A fee of $165 is charged to cover the basic service. The firm earns it as follows:
$20 for initial consultation;
$25 for each of up to the three letters, telephone calls, or detailed instructions;
$70 for the attendance of attorney at a scheduled appearance before the P.R.O.
If the services are not fully utilized by the participating physician during the year for which they have been paid, the physician will receive educational materials and/or educational programs from the firm on P.R.O. related services.
Additional legal services will be provided at specified rates, which are discounted from the usual fees that the firm charges. Other expenses, such as costs of expert witnesses, medical consultants, photocopying, filing fees, etc., are extra and are the responsibility of the physician.
N.Y. Comp. Codes R. & Regs. tit. 11 § 261.1(b) (1999) (Regulation 161) defines an attorney retainer agreement to mean:
an agreement by an individual, corporation, or other business entity to pay in advance a fee to an attorney, admitted to practice in the jurisdiction where the services are to be rendered, in order to retain or secure the right of access to the services of an attorney and for such services as may be provided in the future and disbursements related thereto, provided there is a provision for an accounting of the value of such retainer and any services provided.
An attorney retainer agreement, under which legal services are provided for a prepaid fee, does 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 agreement 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 (in this case, the firm) may not assume a risk of loss.
When Regulation 161 was promulgated, the Department recognized that retainers are often entered into because the parties contemplate the need for services that may arise out of fortuitous events. An accounting ensures that the attorney will not provide services of a fortuitous nature that would exceed the value of the fee received for such services under the retainer.
The agreement in question lists the services that may be rendered under the basic representation service and the costs attributable to such services. The costs attributable to those services that are dependent upon the happening of fortuitous events, will be sufficient to cover the firms cost of rendition.
The initial consultation with the physician by the law firm to ascertain whether a legal problem exists, is not considered to be a benefit dependent upon a fortuitous event, though the remaining basic benefits, namely, the three letters and the appearance before the P.R.O., are dependent. Under the agreement, no more than $145 worth of services that are dependent upon a fortuitous event may be rendered under the basic representation service. The balance of the $165 fee covers not only the consultation, but can also be considered as covering the membership in the program, with the right to obtain discounted services.
However, it is not clear from the agreement what would happen if there were more than one peer review proceeding. To the extent that services were not rendered, the value of those services could be credited against other services rendered. For example, if only one letter was required in one P.R.O. proceeding, and a second proceeding became necessary, then the value of the two unneeded letters (in this case, $50) could be credited against the other services rendered.
Based upon the fact that the fee covers the cost of rendition of the services, and subject to the proposed clarification of the agreement, the retainer agreement would not violate the New York Insurance Law.
Please note that the above opinion is limited to interpretation of the Insurance Law and no opinion is rendered regarding any other law.
For further information, you may contact Attorney Paul Zuckerman at the New York City Office.