The Office of General Counsel issued the following informal opinion on September 5, 2002 representing the position of the New York State Insurance Department.
Re: Stop-Loss Insurance Provider in Rehabilitation & Insureds Dishonored Claims Questions Presented:
1. Does the New York State Insurance Department require New York authorized property/casualty stop-loss insurers to have insolvency insurance?
2. Do New York State security funds or guaranty associations provide coverage for stop-loss accident and health insurance policies written by property/casualty insurers?
Conclusions:
1. No. In New York State, authorized insurers are not required to purchase insolvency insurance to cover the risk of their own prospective default. In fact, such insurance is not available in New York State.
2. No. New York State security or guaranty funds do not provide coverage for stop-loss accident and health policies written by property/casualty insurers.
Facts:
The Town of X ("Town X") is an exempt insurer that provides medical coverage to its employees. Town X has stop-loss insurance through an insurance company (the "Insurance Company"). The Insurance Company is a Pennsylvania property/casualty insurer that was authorized in New York to write accident and health insurance, including stop-loss coverage. In April 2002, the State of Pennsylvania placed the Insurance Company in rehabilitation. The Insurance Company is currently not honoring any claims.
Analysis:
Stop-loss insurance is insurance issued to exempt insurers that provide insurance coverage (for example, an employer providing health insurance to its employees). Office of General Counsel Opinion dated December 9, 1998 (NILS Opinion No. 98-95). "The stop-loss coverage indemnifies the exempt insurer when the benefits provided by the exempt insurer exceed a specified amount." Id. It does not provide direct coverage to the employees or other beneficiaries. Id.
There is no requirement that New York authorized property/casualty stop-loss insurers have insolvency insurance to cover the risk of their own prospective default; in fact, such insurance is not available in New York.
The Life Insurance Guaranty Fund, the Property/Casualty Security Funds and The Life Insurance Company Guaranty Corporation of New York Act (Articles 75, 76 and 77 of the New York Insurance Law, respectively) are New York States only insurance security funds/guaranty associations. None of these security funds/guaranty associations cover the Insurance Companys policy with Town X under the facts presented for the following reasons: (1) the Life Insurance Guaranty Fund only applies to policies and contracts issued by domestic life insurance companies prior to August 2, 1985, N.Y. Ins. Law §§ 7501, 7502(f)-(g), 7503(5)(g) (McKinney 2000); (2) the Property/Casualty Security Funds do not cover stop-loss, accident and health policies, N.Y. Ins. Law §§ 7603(a)(1), 7604(a) (McKinney 2000); and (3) The Life Insurance Company Guaranty Corporation of New York Act only covers certain contracts and policies issued by life insurance companies, N.Y. Ins. Law §§ 7702, 7703(a) (McKinney 2000). Accordingly, under the facts presented, no New York security fund, or guaranty association, will provide coverage for Town Xs stop-loss insurance contract.
Please note that this opinion is based solely on the New York State Insurance Law.
For further information you may contact Senior Attorney Kristian Earl Lynch at the New York City Office.
1 The inquiry contained a conflation of reinsurance and stop-loss insurance that is not accurate. Please note that the Department considers stop-loss insurance to be direct insurance (in this instance, accident and health insurance), not reinsurance. New York State Insurance Department Circular Letter 1982-7 (April 13, 1982). Consequently, the Insurance Company did not reinsure Town X it sold Town X a stop-loss accident and health insurance policy.