New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

The Office of General Counsel issued the following informal opinion on June 7, 2001, representing the position of the New York State Insurance Department.

RE: Medical Malpractice Self-Insurance

Issue:

May a Medical Group self-insure both itself and its constituent physicians for medical malpractice arising out of activities engaged in on behalf of the Group?

Conclusion:

Yes, such self-insurance is permissible under the Insurance Law.

Facts:

The Department indicated in an earlier opinion that an Independent Practice Association (IPA), in which a medical group (Group) would be a participant, could self-insure its own liability, but could not self-insure any obligation to indemnify individual physicians against their own liability. The Department was thereafter inquired as to whether the Group could "self-insure itself and its physicians".

Analysis:

There is no prohibition in the Insurance Law against an entity’s self-funding its potential liability to third parties. Accordingly, the Group could self-insure its own liability, whether vicarious or direct.

As to the Group’s constituent physicians, it is assumed that the inquiry refers to whether the Group may self-insure its physicians for any individual liability incurred in furtherance of the Group’s business. There is no prohibition in the Insurance Law against the Group’s self-insuring any such obligation. The Group, however, could not cover any claims arising out of the physicians’ activities outside of the Group’s practice, which would constitute doing an insurance business. The situation with the Group is thus distinguishable from that with respect to the IPA since the Group and its constituent physicians may be considered a single unified entity for this purpose, as contrasted to the IPA that is a separate entity from its member physicians.

If the Group decides to self-insure, as is permitted by the Insurance Law, there are no requirements imposed by the Insurance Law. The Group, however, might contact its own attorney concerning any requirements imposed by hospitals or others and the possible tax ramifications of such self-insurance.

This opinion is limited to the interpretation of the Insurance Law and should not be construed as construing any other applicable statute.

For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.