New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

George E. Pataki
Governor

Gregory V. Serio
Superintendent

The Office of General Counsel issued the following opinion on October 1, 2003 representing the position of the New York State Insurance Department.

Re: Third Party Administrator of Group Dental Insurance

Questions Presented:

(1) Must the Third Party Administrator Corporation ("TPA") become licensed in New York State as an independent adjuster if its duties were billing, enrollment, termination, and customer service, as defined in the facts below on behalf of an authorized N.Y. Ins. Law Article 43 Corporation (McKinney 2000 & Supp. 2003) that would sell group dental insurance to employers of 5 - 99 employees, with a portion of the groups' employees residing in New York State, if the TPA would not perform utilization review or solicit on behalf of the insurer?

(2) Must the TPA become licensed in New York State as an insurance agent?

Conclusions:

(1) No. The duties of the TPA for the insurer as defined in the facts below do not relate to the adjudication of claims. Thus, the TPA would not be "investigating and adjusting claims" pursuant to N.Y. Ins. Law § 2101(g)(1) (McKinney 2000). Therefore, the TPA is not required to become licensed in New York State as an independent adjuster.

(2) No. The duties of the TPA for the insurer as defined in the facts below do not relate to the solicitation of, negotiation for, procurement, or making of, an insurance contract. Thus, the TPA would not be an insurance agent pursuant to N.Y. Ins. Law § 2101(a) (McKinney 2000). Therefore, the TPA is not required to become licensed in New York State as an insurance agent.

Facts:

An inquirer questioned whether a TPA must be licensed in New York State as an independent adjuster to provide the functions below that would be performed for a N.Y. Ins. Law Article 43 Corporation (McKinney 2000 & Supp. 2003), which would sell group dental insurance with a portion of various groups' employees residing in New York State.

(1) Billing -- The insurer would sell group dental insurance to employers through various Plans. Distinctions among the Plans include deductible, coinsurance, and orthodontia as an option. The insurer would provide the TPA with the specific Plan's premium per employee. The employer would provide the TPA with the number of its employees. The amount of premium that the TPA would collect from a specific employer is based upon the specific Plan's premium per employee multiplied by the number of employees. The TPA would then forward that premium to the insurer.

(2) Enrollment -- The TPA would receive information regarding additional employees to a specific group from its employer and communicate the associated increase in premium and coverage to the insurer. If there were enrollment of a new group the insurer would receive an application from its agent. If the TPA were to receive the application for a new group from the agent, the TPA would contact the employer to ascertain its name and address, the specific Plan, the number of employees, the premium per employee, and multiply the premium per employee by the number of employees. The TPA would then communicate this information associated with the new group's enrollment to the insurer.

(3) Termination -- If an employee were terminated from a specific group, the TPA would receive that information from the employer and communicate the decrease in amount of employees with associated decrease in premium and coverage to the insurer.

(4) Customer Service -- The employer or insurer could make a mistake; i.e., incorrect month of enrollment or incorrect premium payment. The TPA would communicate this error to the insurer or employer for a remedy. The TPA would distribute material that describes coverage to the employer. If the employer or employee were to ask the TPA a question about this material, the TPA would refer the inquirer to the insurer. Thus, the TPA acts solely as a conduit of material to the employer that describes coverage.

The TPA would not perform utilization review or solicit on behalf of the insurer. For the purpose of this opinion it is presumed that the TPA would not negotiate, procure, or make an insurance contract on behalf of the insurer.

Analysis:

At the outset it should be noted that there is no licensing or registration requirement for a TPA as such under the New York State Insurance Law. However, any person or entity, including a TPA, that performs functions that require licensing as an independent adjuster or otherwise must be accordingly licensed. N.Y. Ins. Law § 2102(a)(1) (McKinney 2000) states, in pertinent part:

(a)(1) No person, firm, association or corporation shall act as an insurance agent . . . or 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 statutory definition of independent adjuster contained in N.Y. Ins. Law § 2101(g)(1) (McKinney 2000) states:

(1) The term "independent adjuster" means 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, except that such term shall not include: . . . . .(Emphasis added)

None of the statutory exceptions which follow in Subparagraphs (A)-(F) of the foregoing statutory provision apply to the TPA.

Under the facts, the TPA would not perform any function related to the adjudication of claims. Accordingly, the TPA is not required to become licensed in New York State as an independent adjuster.

The statutory definition of insurance agent contained in N.Y. Ins. Law § 2101(a) (McKinney 2000) states:

(a) In this article, "insurance agent" means any authorized or acknowledged agent of an insurer . . . and any sub-agent or other representative of such an agent, who acts as such in the solicitation of, negotiation for, or procurement or making of, an insurance . . . contract, other than as a licensed insurance broker, except that such term shall not include: . . . .

None of the statutory exceptions that follow this provision apply to the TPA.

Under the facts the TPA would not perform any function related to the definition of insurance agent. Accordingly, the TPA is not required to become licensed in New York State as an insurance agent.

The TPA's duties for the insurer would be performed from its San Francisco, California location by mail, telephone, the internet, or other communication in New York State with the insurer and employers of the groups. The inquirer questioned whether such factors would be relevant to the Department’s response, inasmuch as the TPA's activities as described above, regardless of where performed, do not require licensing in New York State as an independent adjuster, insurance agent, or otherwise under the New York State Insurance Law.

Since this opinion is limited to a construction of the New York State Insurance Law, the inquiry regarding other out-of-state business requirements is not addressed.

For further information you may contact Senior Attorney Robert Freedman at the New York City Office.