The Office of General Counsel issued the following opinion on June 3, 2003 representing the position of the New York State Insurance Department.
Re: Requirements to qualify as "Same Industry Trust"
1. Based upon the facts presented, does the ABC Industry Group Insurance Fund established by a Life Assurance Company qualify as a "same industry trust", as the term "same industry" is used in N.Y. Ins. Law § 3201(b)(1) (McKinney 2003)?
2. If a group insurance trust does not qualify as a "same industry trust", must it provide a New York resident with New York State mandated benefits?
1. No. Based upon the facts presented, the "same industry" requirement, as that term is used in N.Y. Ins. Law § 3201(b)(1) (McKinney 2003) is not met.
2. Yes. An out-of-state multiple employer trust comprised of employers not participating in the same industry is subject to the provisions of N.Y. Ins. Law § 3201(b)(1) (McKinney 2003) and, accordingly must provide New York State mandated benefits.
The Consumer Services Bureau received a complaint from a New York resident who is insured under a fully insured group medical plan through his employer. The employers main location is in New York and the policy was issued in Rhode Island under a multiple employer trust. The complainant questioned the policy provision that only provides a maximum of $300.00 per annum for child wellness coverage.
The insurer asserted that because transportation, communication and public utilities are all included in the same divisional classification under the Standard Industrial Classification Codes, the "same industry" requirement was met by the ABC Industry Group Insurance Fund and consequently, the provisions of N.Y. Ins. Law § 3201(b)(1) (McKinney 2003) do not apply. The Consumer Services Bureau disagreed and informed the insurer that the fact that the trust participants all shared the same divisional classification under the Standard Industrial Classification Codes was not sufficient to warrant a determination that this is a "same industry trust". The insurer was advised that N.Y. Ins. Law § 3201(b)(1) (McKinney 2003) is applicable and thus, the policy is deemed to have been delivered in New York regardless of the place of actual delivery and, must provide New York State mandated benefits to New York residents.
The insurer also objected to the Department not having established standards or guidelines by formal rule-making to define "same industry".
N.Y. Ins. Law § 3201(b)(1) (McKinney 2003) provides:
(b)(1) No policy form shall be delivered or issued for delivery in this state unless it has been filed with and approved by the superintendent as conforming to the requirements of this chapter and not inconsistent with law. A group life, group accident, group health, group accident and health or blanket accident and health insurance certificate evidencing insurance coverage on a resident of this state shall be deemed to have been delivered in this state, regardless of the place of actual delivery, unless the insured group is of the type described in: (A) section four thousand two hundred sixteen, except paragraph four where the group policy is issued to a trustee or trustees of a fund established or participated in by two or more employers not in the same industry with respect to an employer principally located within the state, paragraph twelve, thirteen or fourteen of subsection (b) thereof; (B) section four thousand two hundred thirty-five except subparagraph (D) where the group policy is issued to a trustee or trustees of a fund established or participated in by two or more employers not in the same industry with respect to an employer principally located within the state, subparagraph (K), (L) or (M) of paragraph one of subsection (c) thereof; or (C) section four thousand two hundred thirty-seven (except subparagraph (F) of paragraph three of subsection (a) thereof; of this chapter; and where the master policies or contracts were lawfully issued without this state in a jurisdiction where the insurer was authorized to do an insurance business. With regard to any certificate deemed to have been delivered in this state by virtue of this paragraph, the superintendent shall (i) require that the premiums charged be reasonable in relation to the benefits provided, except in cases where the policyholder pays the entire premium; (ii) have power to issue regulations prescribing the required, optional and prohibited provisions in such certificates; (iii) establish an accelerated certificate form approval procedure available to an insurer which includes a statement in its policy form submission letter that it is the company's opinion that the certificate form or forms comply with applicable New York law and regulations. The superintendent, upon receipt of such a filing letter, shall grant conditional approval of such certificate form or forms in reliance on the aforementioned statement by the company upon the condition that the company will retroactively modify such certificate form or forms, to the extent necessary, if it is found by the superintendent that the certificate form fails to comply with applicable New York laws and regulations. The superintendent may, with regard to the approval of any certificate deemed to have been delivered in this state by virtue of this paragraph, approve such certificate if the superintendent finds that the certificate affords insureds protections substantially similar to those which have been provided by certificates delivered in this state. Any regulations issued by the superintendent pursuant to this paragraph may not impose stricter requirements than those applicable to similar policies and certificates actually delivered in this state.
History of the Term "Same Industry"
The term "same industry" which was added to Section 3201(b)(1) by Section 2 of Chapter 369 of the Laws of 1985, was originally added to former Section 221 (current Section 4235) by Section 2 of Chapter 709 of the Laws of 1948. It appears that the language was added to bring the definition of group accident and health insurance into conformity with the definition of group life insurance (former Section 204) as amended by Chapter 324 of the Laws of 1947.
The Insurance Department memorandum to the Governor dated March 19, 1948 in support of Chapter 709 of the Laws of 1948 provides, in pertinent part,
"Prior to the amendment last year a policy of group life insurance could be issued to an employer or to the trustees of a fund established by members of a trade association and maintained by contributions of employers for the sole benefit of the employees of contributing employers. Section 221 as presently constituted contains a similar provision with respect to group accident and health insurance. In the 1947 amendment to Section 204 the requirement in the case of a trusteed group that the employers be members of a trade association was repealed and a subdivision added which permits a policy to be issued to the trustees of a fund established by two or more employers in the same industry. . . .
Since it is a common practice for a group of employers in the same industry, particularly those who are parties to a bargaining agreement with a union, to adopt a broad insurance program covering not only life insurance but also accident and health insurance, it is desirable that such employers should be able to obtain the group accident and health coverage conditions that are the same as those which are permissible in the case of group life insurance. Inasmuch as employers included in a group may or may not be members of a trade association, it was found that the former law relating to trade associations was unworkable. . . .
From the memorandum cited, it appears that the term "same industry" was meant to refer to industries in which it was a common practice for a group of employers to adopt broad insurance programs covering employees of all such employers.
Prior Department Determinations:
In a letter to an insurer dated May 13, 1955 addressing the issue of whether the National Association of Manufacturers of the United States of America ("NAM") is an association of employers engaged in the same industry, pursuant to Section 204(1)(e) (now Section 4216(b)(5)), Deputy Superintendent and Counsel Raymond Harris stated:
According to the legislative history of this paragraph, it was passed to permit a group life insurance policy to be issued to the trustees of a fund established by the employer-members of an association engaged in the same trade, namely, the Milk Dealers Trade Association. I also note that there is at least one case holding that the words "trade association" convey the meaning of an association of employers engaged in the same trade. . . . It occurs to me that the general observations and purpose of NAM are quite different from those which would ordinarily be the normal objects and purposes of an association of members engaged in the same trade. The Department has also ruled from time to time that a chamber of commerce or merchants association is not to be considered to be a trade association within the meaning of the above mentioned paragraph (e). (emphasis added)
I believe also that we should keep in mind one of the principles which should characterize a group life insurance plan set forth in a memorandum of the Life Insurance Association of America submitted to the subcommittee on Group Life Insurance of the National Association of Insurance Commissioners dated December 5, 1944, namely:
The group must be a single cohesive whole, membership in which is based on some strong motive other than that of obtaining insurance, and such that the provision of insurance on a group basis is a natural outgrowth of the relationship of the member of the group to each other.
Therefore, as a matter of first impression, I am inclined to believe that the NAM does not qualify as a trade association under the statute. . . . (emphasis added)
Two years later an insurance brokerage firm requested an opinion as to whether this same association, National Association of Manufacturers, NAM, constituted a same industry employer group as defined in Section 204(1)(d). The Departments October 28, 1957 letter noted that "inasmuch as members of the National Association of Manufacturers may be engaged in the manufacturing of diverse kinds of products, they cannot qualify as a group of employers engaged in the same industry as required by paragraph (d)."
The phrase "same industry" refers to the primary activities of the employer, not incidental functions. The Department has ruled that a group of employers consisting of small savings banks, real estate management companies, and small title companies scattered throughout the State was not a "same industry" group, even though they all may be engaged in the management of real estate because the primary activity of savings banks and title insurance companies was not the management of real estate. In a letter dated November 19, 1951, Deputy Superintendent and Counsel Raymond Harris wrote, "It is my understanding of this statutory provision, particularly on the basis of legislative history, that the term "same industry" refers to the primary activities of the employer, rather than the incidental functions. . . ."
This interpretation was reiterated in a March 26, 1971 letter where the Department opined:
This Department has consistently held that the term `employers in the same industry as contained in Section 204(d)(1) of the Insurance Law refers to the primary activity of such employers. While it is permissible for professional employers, such as attorneys and accountants, to establish funds eligible for group insurance policies they can do so within each specific profession, but not intermingle firms which are engaged in various professional activities under a heading of "Professional Service Industry Group."
SIC Codes - "Same Industry"
While the Department recognizes that the SIC Manual is a standard tool for classifying businesses by their economic activity, the first digit of the Code number, the "economic division" designation, cannot alone be used to determine whether employers are engaged in the same industry.
In a Tax Department ruling regarding a similar question (G.C.M. 39299, 7/20/84), Assistant Commissioner Winborne stated:
The association has suggested the use of the SIC category "Economic Division" as an appropriate basis for determining whether an employment-related common bond exists among employees. The SIC is published by the Office of Management and Budget as a means of categorizing business establishments according to the type of economic activity in which they are engaged. It is used extensively by private industry and government agencies in compiling industrial statistics. The SIC is organized in such a way that all establishments primarily engaged in the same type of economic activity, as defined by the principal product or group of products or services rendered, are grouped in the same 4-digit industrial code. The 4-digit industries are gathered into 3-digit "Industry Groups," which are divided into 2-digit "Major Groups." The "Major Groups" are classified into eleven "Economic Divisions."1
In the present case, the association claims that employees of employers who are described by Economic Division * * * of the SIC share an employment-related common bond. Economic Division * * * which is entitled * * * consists of Major Groups * * * through * * *. As the title implies, this division encompasses a wide range of establishments engaging in diverse economic activity. Division * * * contains 70 Distinct 4-digit industries including * * *.
Although entities comprising a 4-digit industry or even a 3-digit "Industry Group, " might be classified as within the "same line of business" under the guidelines discussed above, an Economic Division would not generally be so classified. Employers engaged in industries within Economic Division * * * do not use similar production or marketing facilities, do not produce products or provide services having markedly similar characteristics and do not compete in the same markets. The employees of employers in these businesses therefore do not satisfy the employment-related common bond requirement of Treas. Reg. §1.501(c)(9)-2(a)(1).
Additionally, in a memorandum discussing the 1985 revisions to the New York group insurance laws, which was circulated to insurers active in the small employer multiple employer trust market, the Department stated:
We believe that industry classifications based upon the SIC one-digit economic activity divisions does not constitute "same industry" as the term is used in Section 3201(b)(1) and formerly used in Sections 4216(b)(4) and 4235(c)(1)(D) of the New York Insurance Law. There does not appear to be the required close association among employers and employees in the one-digit divisions. In fact, the SIC manual demonstrates that the one-digit divisions consists of many different industries and groups of industries. It appears that if the Office of Management and Budget were left with the task of defining "same industry", it would rely upon the four-digit industry codes and/or the three-digit industry groups, rather than the one-digit economic activity division.
We believe that the 1985 revisions to the New York group insurance law requires an insurer, using the one or two digit SIC approach, or something similar thereto to file for approval all certificate forms evidencing insurance coverage on New York residents which are used in conjunction with out-of-state group policies issued to newly recognized groups, including different-industry METs, or group not specifically described in law.
The Statutes & Regulations:
N.Y. Ins. Law § 3201(b)(1) (McKinney 2003) provides that a certificate issued to a New York resident shall be deemed to have been delivered in this state where the group policy is issued to the trustee of a fund established or participated in by two or more employers not in the same industry with respect to an employer principally located within the State (Section 4235(c)(1)(D)) and where the master policy or contract was lawfully issued outside of New York. Such certificates must be filed and approved by the Superintendent as conforming with New York law.
N.Y. Comp. Codes R. & Regs. tit. 11, §§ 59.0-59.8 (1995) (Reg. 123), which was promulgated to implement Section 3201(b)(1), provides in Section 59.4 that certificates subject to approval under Section 3201(b)(1), "shall afford insureds protections substantially similar to those provided by group policies and certificates delivered in New York. . . ."
"Substantially similar" is defined in Section 59.1(b)(1) of Reg. 123 to mean "providing all mandated coverages at a reasonable level of benefits."
N.Y. Ins. Law § 3221 (McKinney 2003) entitled "Group or blanket accident and health insurance policies; standard provisions" mandates that all such policies delivered or issued for delivery in New York that provide medical, major-medical or similar comprehensive-type coverage must provide "well-child" benefits (Section 3221(l)(8)(B)(i-iii).
In determining whether the definition of a Multiple Employer Trust comes within the N.Y. Ins. Law § 3201(b)(1) "same industry" exception, the Department, considers the facts and circumstances relevant to the group in question to ascertain whether the participating employers are engaged in the same primary activity. In the inquirers letter the inquirer stated that the inquierer believes that, because the employers all share the first economic division classification (Division E: Transportation. Communication, Electric, Gas and Sanitary Services), they comprise a "same industry trust". The Department disagrees. The information provided does not demonstrate that the employers comprising the ABC Industry Group Insurance Fund are engaged in the same primary activity. It has been the Departments experience that, if the only SIC classification number that these employers share is the first economic division classification, they may span a variety of different industries. Thus, based upon the information that the inquierer provided, the ABC Industry Group Insurance Fund cannot be considered a "same industry" trust and must comply with N.Y. Ins. Law § 3201(b)(1). Accordingly, LAC must provide "well child benefits" to the complainant as a coverage mandated by N.Y. Ins. Law § 3221(l)(8)(B)(i-iii).
However, if the inquirer can provide this Office with additional information concerning the employers that participate in the ABC Industry Group Insurance Fund, to demonstrate that the primary activities of these employers meet the "same industry" standard, as described herein, the Department will re-consider its determination.
The inquirer also states that the inquirer believes that the Departments interpretation of the term "same industry" should have been the subject of formal rule-making. A "Rule" is defined in N.Y. A.P.A. § 102(2)(a) (McKinney 1995) as meaning:
(i) the whole or part of each agency statement, regulation or code of general applicability that implements or applies law, or prescribes a fee charged by or paid to any agency or the procedure or practice requirements of any agency, including the amendment, suspension, or repeal thereof and (ii) the amendment, suspension, repeal, approval, or prescription for the future of rates, wages, security authorizations, corporate or financial structures or reorganization thereof, prices, facilities, appliances, services or allowances therefor or of valuations, costs or accounting, or practices bearing on any of the foregoing whether of general or particular applicability.
N.Y. A.P.A. § 102(2)(b) (McKinney 1995) contains the exceptions to the definition of a "Rule" and includes:
(iv) forms and instructions, interpretive statements and statements of general policy which in themselves have no legal effect but are merely explanatory.
The Departments determinations of whether a MET meets the "same industry" requirement fall within the above cited exception. As stated previously, in making a determination whether a particular MET qualifies as a "same industry" trust, the Department considers the facts and circumstances relevant to the group in question to ascertain whether the participating employers are engaged in the same primary activity. The SIC code is not determinative; rather, if it is provided, it is just one factor the Department considers when making a determination as to whether a particular MET qualifies as a "same industry" trust.
The Court of Appeals in Roman Catholic Diocese of Albany v. New York State Department of Health, 66 N.Y.2d 948, 498 N.Y.S.2d 780 (1985), adopting the dissent in the Appellate Division opinion, 109 A.D.2d 140, 490 N.Y.S.2d 636 (3rd Dept.1985), stated that:
(O)nly a fixed, general principle to be applied by an administrative agency without regard to other facts and circumstances relevant to the regulatory scheme of the statute it administers constitutes a rule or regulation required by NY Constitution, article IV, § 8 to be filed in the office of the Department of State.
In the Appellate Division dissenting opinion, adopted by the Court of Appeals, Justice Levine noted that a broad view of when a rule is required will "create uncertainty in the field of administrative law where agencies announce or evolve guidelines to aid in making ad hoc decisions in performing their adjudicative function rather than their quasi-legislative, rule-making role." Id. at 146, 490 N.Y.S.2d 636, 640.
Accordingly, it is the opinion of this Office that determinations of whether a particular MET is a "same industry" trust need not be the subject of formal rule-making.
For further information one may contact Supervising Attorney Joan Siegel at the New York City Office.
1 The one digit codes are the broadest categories. The four digit codes are the narrowest.