The Office of General Counsel issued the following opinion on September 25, 2003, representing the position of the New York State Insurance Department.
Re: Licensing Requirements for Access Plans
Do the activities of the proposed access plan constitute the doing of an insurance business within the meaning of N.Y. Ins. Law § 1101(a)(McKinney 2000), thereby requiring licensing as an insurer?
The information the inquirer supplied about the plans activity is insufficient to enable the Department to determine whether or not such plan would be doing an insurance business in New York, thus, requiring licensing. As such this opinion will discuss, generally, the rules and regulations that govern access plans in New York.
The inquirer states that a corporation intends to set up access plans throughout the United States and would like to know whether New York would impose any licensing requirements on the following activities. The inquirer states that members of the access plan would pay an annual fee of $175.00. As a result, members would have access to a range of benefits including 24 hours a day, 7 days a week access to counselors. The counselors would be intake personnel who screen members calls and channel them to the appropriate area of law involved.
In-house expertise areas include Wills, Trusts, Estate Planning, Social Security, Medicare, Medicaid, Elder Abuse and Asset and Retirement Planning. Matters that fall outside of these in-house areas are referred to lawyers who entered into contractual arrangements in advance to provide the required legal services at 25% below their customary charges.
The inquirer further states that the access plan will not:
- Offer any form of insurance either as a direct insurer or offer any form of indemnity coverage.
- Recommend, furnish or pay for the legal services of our members.
- Provide telephone advice or personal consultation.
- Refer clients to attorneys on a pro-bono basis.
The inquirer seeks confirmation that such services may be offered in New York without licensing.
N.Y. Ins. Law § 1116(a)(3)(McKinney 2000) provides, as follows:
(a)(3) Legal services insurance may not be written except (i) in conjunction with prepaid legal services plans as authorized in this section, or (ii) pursuant to a regulation promulgated by the superintendent permitting legal services to be written as part of a policy of liability insurance covering related risks and, provided further, that legal services for defense only coverages for commercial or other business related lawsuits or arbitration proceedings commenced against the business entity that purchased the policy is not more than an incidental part of such liability insurance.
The inquirer intends to set up access plans1 throughout the United States but would like to know what, if any, licensing requirements apply to such activities in New York. N.Y. Ins. Law § 1101(a)(1)(McKinney 2000) defines an insurance contract as 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. A "fortuitous event" is any occurrence or failure thereof, which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party.
It is the Departments position that legal services arrangements, pursuant to which legal services are provided for a prepaid fee, do not constitute the doing of an insurance business within the meaning of section 1101 of the Insurance Law, so long as the services are not dependent upon the happening of a fortuitous event. Thus, an arrangement that charges a prepaid fee and provides its members with, for example, a will upon request would not constitute the doing of an insurance business, so long as such service is not conditioned upon the happening of a fortuitous event.
If, however, the services provided are dependent upon the happening of a fortuitous event, such arrangement would constitute the doing of an insurance business, unless a separate fee for each such service is charged, and the fee for the service fully covers the cost of rendition of such services, thus, avoiding the assumption of a risk of loss in rendering the service. The arrangement may even provide for a prearranged discount on services, but the provider of the services may not assume a risk of loss.
Without reviewing a more detailed plan of operation, the Department is unable to determine whether the proposed plan constitutes the doing of an insurance business which would require licensing as an insurer. For example, the inquirer states that based on a contractual agreement, affiliated attorneys will provide services to members at 25% below their customary charges. As mentioned above, an arrangement may provide for a prearranged discount on services, but the provider of the services may not assume a risk of loss. Therefore, where a discount is provided for services that are dependent upon the happening of a fortuitous event, the separate discounted fee charged by the provider/attorney, must be sufficient to cover the cost for rendering such service to the member (i.e., cost of labor, material and reasonable overhead expense). Where the discounted fee results in insufficiency in the cost of rendering the services, the provider have assumed a risk of loss, thus, doing an insurance business.
Consequently, in order for the Department to determine whether the proposed plan would be doing an insurance business, it would need to see a detailed description of the plan of operation, including the membership package, fee and discount arrangements and the plans contract with affiliated attorneys.
As a final matter, this opinion is limited to an interpretation of the New York Insurance Law and Regulations. No opinion is offered concerning the effect that Federal or other New York State laws might have on the operation of such plan in New York.
For further information you may contact Associate Attorney D. Monica Marsh at the New York City Office.
1See, N.Y. Comp. Codes R. & Regs. tit. 11, § 261.1(a) (Regulation 161) (2000), which defines access plans.