The Office of General Counsel issued the following opinion on December 16, 2003, representing the position of the New York State Insurance Department.
Re: Proposed Restructuring of a Reciprocal Insurers Attorney-in-Fact
1. Will changing the business form of ABC Administrators, Inc. from a business corporation to a limited liability company result in a termination of the attorney-in-fact for purposes of N.Y. Ins. Law § 6106(a)(4)(C)?
2. Will the subscribers agreements describing the attorney-in-fact as "ABC Administrators, LLC" be viewed, in the absence of any other difference, as identical in terms to agreements naming the attorney-in-fact as "ABC Administrators, Inc." for purposes of N.Y. Ins. Law § 6106(a)(2)?
1. No, changing the business form of ABC Administrators, Inc. from a business corporation to a limited liability company will not result in a termination of the attorney-in-fact for purposes of N.Y. Ins. Law § 6106(a)(4)(C).
2. Yes, subscribers agreements that describe the attorney-in-fact as "ABC Administrators, LLC" will be viewed, in the absence of any other difference, as identical in terms to agreements naming the attorney-in-fact as "ABC Administrators, Inc." for purposes of N.Y. Ins. Law § 6106(a)(2).
ABC Administrators, Inc. ("ABC Inc."), the attorney-in-fact for XYZ Insurers ("XYZ"), is a New York corporation and a wholly owned subsidiary of The 123 Insurance Group, Inc. ("123 Group"), a publicly traded foreign corporation. The 123 Group would like to convert ABC, Inc. into a limited liability company ("ABC LLC"), and proposes to do this by forming a new LLC that would be owned by the 123 Group, then merging ABC Inc. into it, with ABC LLC remaining as the successor entity. No change in the executive management or personnel of ABC Inc. is expected as a result of its conversion to ABC LLC.
The management agreement currently in force between XYZ and ABC Inc. does not prohibit the merger or consolidation of the attorney-in-fact. The agreement does prohibit assignment to another party without the approval of XYZs Board of Governors and the Superintendent of Insurance.
This inquiry concerns the effect of the proposed reorganization for purposes of N.Y. Ins. Law § 6106(a)(2) and 6106(a)(4)(C). Those sections provide in pertinent part as follows:
(2) Every subscriber's agreement shall be identical in terms, except as to the date and the name and address of the subscriber, with all other subscriber's agreements currently in force and effect with all other subscribers of such reciprocal insurers.
N.Y. Ins. Law § 6106(a)(2)(McKinney 2000).
(4) The following provisions shall be contained in either the subscriber's agreement or a separate management agreement between the attorney-in-fact and the advisory committee . . . .
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(C) A provision that the advisory committee may, upon a vote of a majority of its members at any regular or special meeting thereof and upon written notice to the superintendent and the attorney-in-fact, recommend termination of the attorney-in-fact for a stated cause and appointment of a new attorney-in-fact, subject to the provisions of any management agreement approved by the superintendent. Termination of the attorney-in-fact shall require the approval of a two-thirds majority of the subscribers present in person or by proxy at a special meeting called for that purpose . . . .
N.Y. Ins. Law § 6106(a)(4)(McKinney 2000).
The transaction proposed herein, the conversion of ABC Inc. from a business corporation to ABC LLC by way of a merger of the existing corporation into a newly formed LLC is permitted under the provisions of both the N.Y. Business Corp. Law § 904-a (McKinney 2003) and N. Y. Ltd. Liab. Co. Law § 1001 (McKinney 2003). Furthermore, Article 61 of the Insurance Law does not prohibit an LLC from functioning as an attorney-in-fact for a reciprocal insurer. For purposes of Article 61, "attorney-in-fact" is defined as "a person designated and appointed by subscribers to a reciprocal insurer to act for and bind the subscribers in all transactions relating to or arising out of the operations of a reciprocal insurer, subject to limitations as may be lawfully provided." N.Y. Ins. Law § 6101(b)(McKinney 2000).
The term "person" is in turn defined as "an individual, partnership, firm, association, corporation, not-for-profit corporation, joint-stock company, trust, any similar entity, or any combination of the foregoing acting in concert." N.Y. Ins. Law § 6101(f)(McKinney 2000).
Although the statute does not specifically enumerate an LLC as one of the options, the Department generally considers an LLC sufficiently similar in nature to a partnership or firm to constitute a permitted form of business organization for its licensees. See OGC Opinion No. 03-10-15 (October 21, 2003). Accordingly, the Department would not object to the conversion of ABC Inc. into an LLC.
With respect to the specific inquiries, the Department would not regard the proposed reorganization as a "termination" for purposes of N.Y. Ins. Law § 6106(a)(4)(C). The reorganization of ABC Inc. will not constitute a termination in that ABC LLC will remain owned and operated by the same parties that currently own and operate ABC Inc. The essential identity of ABC Inc. is not being changed, only its form of organization is being changed. A true termination would involve the replacement of the attorney-in-fact with a different one. See N.Y. Ins. Law § 6106(a)(4)(C), which discusses the "appointment of a new attorney-in-fact."
Similarly, the subscribers agreements will be regarded as "identical" for purposes of N.Y. Ins. Law § 6106(a)(2). In the absence of any other change to the substantive terms of the subscribers agreements, the mere substitution of the name ABC LLC for ABC Inc. will not mean that the agreements are not "identical in terms" under N.Y. Ins. Law § 6106(a)(2).
For further information you may contact Supervising Attorney Michael Campanelli at the New York City Office.