The Office of General Counsel issued the following opinion on February 24, 2003, representing the position of the New York State Insurance Department.
Re: Third Party Administrator
1) Must a Third Party Administrator ("TPA"), which is also an insurer that is not authorized in New York and is operating from Connecticut, be licensed as an independent adjuster in order to adjust medicare supplement health insurance claims in New York on behalf of various unauthorized insurers?
2) If the TPA obtains an individual adjusters license, would it cover all employees adjusting claims or are individual licenses required for such employees?
3) Is an insurance agents license required for the TPA to issue insurance policies on behalf of authorized insurers?
4) May the TPA act in the name "XYZ Life Insurance Company"?
1) Any person, including a TPA, that adjusts claims in New York must become licensed as an independent adjuster, regardless of the location of its office.
2) An individual independent adjusters license is required for an employee of an adjuster if the employees functions include adjusting claims within the meaning of N.Y. Ins. Law § 2101(g)(1) (McKinney 2000).
3) Yes. An entity issuing insurance policies in New York must be either an authorized insurer or a licensed insurance agent acting on its behalf.
4) No. Publicizing the name of an unauthorized insurer would violate N.Y. Ins. Law § 2122 (McKinney 2000). The TPA must write to the Departments Licensing Bureau at One Commerce Plaza, Albany, NY 12257 to request approval for use of its proposed name of "XYZ Administrative Services."
ABC Health Management System, Inc. ("ABC") describes itself as "a fully licensed third party administrator in all fifty states, including New York." ABC handles claims for insurers, all of which are not authorized to do an insurance business in New York. ABCs duties as a TPA include issuing policies, adjusting claims, collecting insurance premium monies, and answering questions by insureds about their insurance policies. ABCs compensation is payment of a percentage of the insurance premium monies it collects on medicare supplement health insurance issued by various insurers. It also pays commissions to licensed agents.
XYZ Life Insurance Co. ("XYZ"), an unauthorized insurer, will acquire ABC in January 2003 as part of a business expansion. There will be no change in the described duties of ABC or in its personnel. XYZ has applied for a certificate of authority to conduct business in New York from the N.Y.S. Department of State, which ABC states is requiring the written consent of the Insurance Department for XYZ to act as a TPA to be attached to XYZs application, although the copy of the letter from the Department of State that was provided appears to require this Departments consent for use of the companys name, pursuant to N.Y. Business Corporation Law § 301(a)(5) (McKinney Supp. 2003). If unable to use the name "XYZ Life Insurance Company" in New York, XYZ proposes to use a fictitious name as TPA in New York, "XYZ Administrative Services." XYZ has also applied to the Insurance Department to be licensed as an insurer. Until it is licensed, it will not act as an insurer in this state.
The New York State Insurance Law does not specifically define "third party administrator" and does not regulate activities of TPAs as such. However, any person or entity that engages in activities in New York that would require licensing (e.g., acting as an adjuster involving discretionary authority and not doing purely ministerial acts) must obtain the appropriate license from the New York State Insurance Department.
N.Y. Ins. Law § 2101(g)(1) (McKinney 2000) defines independent adjuster to mean:
any person, firm, association or corporation who, or which, for money, commission, or any other thing of value, acts in this state on behalf of an insurer in the work of investigating and adjusting claims arising under insurance contracts issued by such insurer and who performs such duties required by such insurer as are incidental to such claims and also includes any person who for compensation or anything of value investigates and adjusts claims on behalf of any independent adjuster [with inapplicable exceptions]. . .
N.Y. Ins. Law § 2102(a)(1) (McKinney 2000) prohibits anyone from acting in this state as an insurance adjuster without having the appropriate license. N.Y. Ins. Law § 2108(a)(3) (McKinney 2000) requires that no adjuster may act on behalf of an insurer unless it is licensed as an independent adjuster. Conducting adjusting activities with a person in New York by e-mail, telephone, or mail would constitute doing business in New York, regardless of whether the claimant was a New York resident.
Please note that pursuant to N.Y. Ins. Law § 1214 (McKinney 2000), if XYZ adjusts claims in this state on behalf of an unauthorized insurer, such unauthorized insurer would have to execute and file a written appointment of the Superintendent as its attorney in fact, against which lawful processes in any proceeding may be served.
Notwithstanding ABCs duties as described in its January 2, 2003 letter, XYZ may not issue policies in New York on behalf of unauthorized insurers. Such actions would be in violation of N.Y. Ins. Law § 2117 (McKinney Supp. 2003), which provides that only an authorized insurer or its lawfully appointed licensed agent may issue insurance policies in this state, except for inapplicable exceptions such as excess line coverage. An unauthorized insurer may not collect premiums in New York as this would also constitute an unlawful doing of an insurance business pursuant to N.Y. Ins. Law § 1101(b)(1)(C) (McKinney Supp. 2003). N.Y. Ins. Law § 1102 (McKinney 2000) prohibits anyone from doing an insurance business in this state without being licensed unless exempt from licensing.
Commissions from the sale of health insurance may not be shared with anyone except a licensed accident and health insurance agent of the authorized insurer making such payment or to a licensed broker. N.Y. Ins. Law § 2114 (McKinney Supp. 2003). Accordingly, XYZ may not accept or pay commissions since it is not licensed in this state.
N.Y. Ins. Law § 2122(a)(2) (McKinney 2000) provides that "[n]o insurance agent, insurance broker or other person, shall, by any advertisement or public announcement in this state, call attention to any unauthorized insurer or insurers." Accordingly, XYZ would be in violation of this statute if its unauthorized insurance name appeared on its stationery, in the telephone or building directory, and on its office door. Placing the unauthorized insurers name into the stream of commerce such as in directories, displaying it on an outside door, or on stationery, including business cards, are all considered by the Department to be a public announcement that would attract notice.
After being appropriately licensed as an adjuster, the company may do business under a different or fictitious name, if approved by the Department, without being in violation of § 2122. If and when XYZ becomes licensed as an insurer here, it may then use its own name without being in violation of said statute to adjust its own policies. To adjust policies of other insurers, it would need to use the name it is licensed under as an adjuster, although at that point it may seek approval to amend its licensed adjusters name.
Inquiries should be sent directly to the Departments Licensing Bureau for approval to use a proposed name in New York. Review of N.Y. Business Corporation Law § 1301 (McKinney Supp. 2003) is suggested.
For further information you may contact Associate Attorney Jeffrey A. Stonehill at the New York City Office.