The Office of General Counsel issued the following opinion on May 29, 2002, representing the position of the New York State Insurance Department.
Re: The Fund
Question Presented:
By making charitable payments toward the cost of mental health treatment for certain individuals, is the Fund doing an insurance business within the meaning of N.Y. Ins. Law § 1101 (McKinney & Supp. 2000-2001)?
Conclusion:
No. As a charitable undertaking, the arrangement does not come within the N.Y. Ins. Law § 1101 definition of an "insurance contract". Accordingly, the Funds activities do not constitute doing an insurance business.
Facts:
The Fund was established on September 11, 2001 by ABC and XYZ from contributions made by the general public to meet the immediate and long-term needs of victims, families and communities impacted by the terrorist attacks. ABC and XYZ are charities of the type described in Section 501(c)(3) of the Internal Revenue Code. The Fund is technically a joint program of the two organizations, with an advisory board to oversee the Funds grant making activities. The board is comprised of representatives of ABC, XYZ and the civic and business communities.
As part of its overall mission, the Fund is developing a Program of long-term services for eligible persons, and has identified mental health services as a priority area of need. To meet these treatment and medication needs, the Fund is proposing to make payments up to a specified cap toward the cost of mental health treatment for eligible persons. It is currently anticipated that, under this Program, the Fund will provide reimbursement for (i) individual, group and family counseling by a licensed mental health professional or in a mental health program licensed by a government agency; (ii) outpatient substance abuse services by a licensed professional or in a substance abuse program licensed by a government agency; and (iii) psychotropic medications prescribed in the course of such treatment. Reimbursement will be limited to the lesser of (i) the providers actual charges for services, reduced by amounts reimbursed by other sources; or (ii) the maximum fee payment specified by the Fund. Where there is insurance or other sources of benefits available, the Fund will be a secondary payer and provide reimbursement for amounts not covered. (In isolated cases, the Fund may decide to pay the benefit subject to the right to received reimbursement when the primary benefit is paid).
Reimbursements will be subject to maximum benefit amounts specified by the Fund. It is expected that 15,000 persons will initially be enrolled in the Program. The Fund expects to monitor and evaluate the ongoing costs of the Program and expand the number of eligible people to the extent of available resources. The Fund is expected to retain a third-party administrator to process payment requests to reimburse eligible persons or their providers for amounts expended or due for services not covered by insurance or other sources, subject to an overall lifetime cap.
Analysis:
The term "insurance contract" is defined in N.Y. Ins. Law § 1101(a)(1) as meaning:
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.
The benefit being offered by the Fund does not come within the N.Y. Ins. Law § 1101(a)(1) definition of an "insurance contract". As is the case for any other type of charity, the Fund is making charitable payments to eligible persons. Although the Fund may have a moral or legal obligation to use the contributions that it received to aid persons impacted by the terrorist attacks, the Fund is not obligated to confer a benefit on any particular person. The Fund will not receive either direct or indirect payment of consideration from such persons for the promise of the benefit. Thus, an essential element in the formation of an insurance contract is missing. Because an insurance contract has not been formed, the Fund is not doing an insurance business and, accordingly, a license is not required.
For further information, you may contact Supervising Attorney Joan Siegel at the New York City office.