The Office of General Counsel issued the following opinion on April 23, 2003, representing the position of the New York State Insurance Department.
Re: Independent Adjuster Licensing
If ABC Administrators ("ABC Co.") administers a closed block of variable life insurance policies for the New York licensed XYZ Life Insurance Company ("XYZ Life") by performing the functions listed below, will ABC Co. be acting as an independent adjuster without a license in violation of the Insurance Law?
No. The duties that ABC Co. will perform for XYZ Life are ministerial in nature and, as a result, do not require the exercise of discretionary authority. Therefore, ABC Co. will not be acting as an independent adjuster without a license in violation of the Insurance Law if it performs the tasks listed below.
ABC Administrators plans to perform the following functions, in strict accordance with XYZ Lifes death claim guidelines manual, as an administrator for the New York licensed XYZ Life Insurance Company:
(1) Receive notification that insureds have passed away;
(2) Produce death claim acknowledgement forms;
(3) Search for policies insuring the deceased, "freeze" policies at time of notification of insureds death, which includes halting all pending transactions, and obtain policy files of the deceased;
(4) Obtain policy value as of date of death, prepare and send letters and forms to beneficiaries, and verify that such functions have been performed;
(5) Process receipt of documents from beneficiaries, prepare payment proposals for beneficiaries in strict accordance with XYZ Lifes death claim guidelines manual, and calculate post-mortem interest;
(6) Enter checks or wire requisitions into the cash disbursements system at the direction of XYZ Life, perform data entry for the preparation of state tax notices and Form 712 Life Insurance Statements, and verify that such functions have been performed; and
(7) Obtain necessary approvals from the insurer, provide insurer with policy file information for reinsurance purposes, and file closed claim folders.
The functions retained by XYZ Life include the following:
(1) Provide a checklist of tasks to be performed and paperwork to be completed by ABC Co.;
(2) Prescribe policy regarding allocation of deceaseds funds to money market accounts;
(3) Maintain all aspects of reinsurance related to deceaseds policies;
(4) Require copies of any forms or correspondence sent to beneficiaries;
(5) Prescribe range of settlement options available to beneficiaries;
(6) Review and, approve or disapprove payment proposals for all checks and wire requisitions;
(7) Fund disbursement accounts;
(8) Service all variable life policyholder accounts and maintain direct contact with policyholders;
(9) Retain ultimate authority to pay or deny all death claims; and
(10) Fund all approved death claims.
N.Y. Ins. Law § 2102(a)(1) (McKinney 2000) provides that: "[n]o person, firm, association or corporation shall act as an . . . insurance adjuster in this state without having authority to do so by virtue of a license issued and in force pursuant to the provisions of this chapter."
The New York Insurance Law defines an "independent adjuster," in pertinent part, as:
[A]ny 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 . . . .
N.Y. Ins. Law § 2101(g)(1) (McKinney 2000).
Thus, pursuant to the above-quoted statutes, an entity that investigates and adjusts claims on behalf of an insurer must be licensed as an independent adjuster.1
"Investigating and adjusting claims" entails the exercise of discretionary authority, which is conferred by the insurer to an adjuster, rather than the performance of strictly ministerial tasks. Office of General Counsel Opinion No. 03-02-05 (2003). Some examples of activities that the Insurance Department regards as discretionary acts include: reviewing claims to uncover unnecessary medical treatments, fees above the usual and customary, coding errors or abuses, experimental procedures, and pre-existing conditions; processing claims; authorizing payments; issuing and signing checks (after making the unilateral determination to issue such checks); evaluating the merits of a loss; negotiating on behalf of insurers; and making recommendations to, or advising insurers. Id.
Under the facts presented, ABC Co.s proposed tasks appear to be ministerial in nature (i.e., they do not entail the exercise of discretionary authority). Therefore, ABC Co. will not be acting as an independent adjuster without a license in violation of the Insurance Law if it performs the tasks listed above.
Please note that this opinion is based strictly on the assumption that the proposed functions do not entail the exercise of discretionary authority.
For further information you may contact Senior Attorney Kristian Earl Lynch at the New York City Office.
1 The exemptions of N.Y. Ins. Law § 2101(g)(1)(A)-(F) are not applicable to ABC Administrators.