The Office of General Counsel issued the following informal opinion on September 10, 2001, representing the position of the New York State Insurance Department.
Re: Contracts for Home Health Services
Do the contracts presently issued by ABC corporation, which provide for home health services on a fee for service basis, constitute the doing of an insurance business by it?
The contracts issued by ABC corporation do not constitute the doing of an insurance business.
ABC corporation sells a contract, primarily through licensed insurance agents and brokers, to individuals in need of home health services, who would not qualify for long term care insurance as that term is defined in New York Insurance Law §1117 (McKinney 2000). The contract presently being issued to New York residents provides that they will receive specified services on a fee for service basis from licensed home health agencies. Once a contract is entered into, the entitlement of the client to the services will not lapse at the conclusion of any period of time. If the client dies or is placed in a long term care facility, any amounts pre-paid for future services are refunded.
At present, if the client requests termination of the contract within 3 days, he or she has a contractual right to a full refund of all amounts paid. It is the present practice of ABC corporation, however, to grant a full refund if a request is made within the first 30 days after entering into the contract. ABC corporation is contemplating extending the unconditional refund period in the contract to either 10 or 30 days.
New York Insurance Law §1101(a) (McKinney 2000) defines an insurance contract:
(1) Insurance contract means any agreement or other transaction whereby one party, the insurer, is obligated to confer benefit of pecuniary value upon another party, the insured or beneficiary, dependent upon the happening of a fortuitous event in which the insured or beneficiary 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.
(2) Fortuitous event means any occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party.
New York Insurance Law §1102 (McKinney 2000) proscribes the issuance of an insurance contract by one who is neither licensed by this Department or exempt from such licensure.
Because the contract that is being and will be issued by ABC corporation in New York will not provide unlimited services in exchange for a fee but will be on a fee for service basis, there is no fortuitous event and, therefore, the contract is not insurance. The retention by ABC corporation of any amount that is forfeited because a prompt request for a refund was not made would not render the contract one of insurance. Nor would retention by ABC corporation of an administrative fee, which reflects the actual costs to ABC corporation of effectuating and then terminating the contract, constitute the doing of an insurance business.
Based upon the material heretofore submitted and previous correspondence, the contracts presently issued by ABC corporation do not constitute the doing of an insurance business within the meaning of the Insurance Law. This determination should not be construed as having been based upon a review of any statute other than the New York Insurance Law.
For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.