The Office of General Counsel issued the following opinion on February 17, 2004, representing the position of the New York State Insurance Department.
Re: Licensing Requirements for Provision of Web Site Database to Claims Adjusters
1. If an unlicensed foreign corporation assists New York insurance adjusters in settling claims by providing a web site that contains a database to calculate the projected material and labor costs associated with the repair or replacement of damaged fencing, will such corporation be acting as an insurance adjuster without a license in violation of the Insurance Law?
2. Does the corporation violate the New York Insurance Law by granting insurers access to a second database that contains the claimant information insurance adjusters input when they use the web site to calculate the projected material and labor costs associated with a claim?
1. No. Under the facts presented, the corporations provision of estimated costs for materials and labor associated with the repair or replacement of damaged fencing appears to be ministerial in nature (i.e., such provision does not entail the exercise of discretionary authority conferred by an insurer). Therefore, the corporation will not be acting as an independent adjuster without a license in violation of the Insurance Law if it provides the web site to insurance adjusters.
2. Please see analysis below.
The following facts were provided:
ABC Co. has created a web site that will enable claims adjusters to enter information regarding a potential claim for damage to fencing into ABC Co.s web site (the "Web Site") while speaking to the insured on the telephone. The Web Site will contain a database of fencing materials and labor costs for the local market in which the insured resides. Once all required information is entered into the Web Site by the claims adjuster, the Web Site will automatically calculate the total materials and labor charges to be incurred in completing the fence repair and/or replacement. This information will enable the claims adjuster to rapidly determine if a claim is covered, and if so, to process an insureds claim. It is currently anticipated that the Web Site will then e-fax the claim information to the insurance carriers processing center and that the insurance carrier will be responsible for generating the settlement letter and final payment of covered claims.
ABC Co. will also maintain a database of information relating to claims processed on its Web Site. Information in this database will include items such as an insureds name and address, and any claims made by the insured and processed on the Web Site. ABC Co. would like to share information in this database with all insurance companies that subscribe to the Web Site. By making this information available, insurance carriers could reduce the potential for fraudulent claims by an insured.
In consideration for access to its web site, ABC Co. will receive a fee from insurance companies for each claim processed using the Web Site. ABC Co. will not sell insurance to consumers nor will it collect any fees from consumers.
Only independent adjusters will use the Web Site, and the second database, which contains the claimant information inputted by insurance adjusters who use the web site, will no longer disclose the names of insureds.
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 presented facts, the Web Site performs the following functions:
(1) it allows an insurance adjuster to: (a) access a database that contains a local markets estimated fencing material and labor costs, and (b) select those costs that are applicable to a particular claim; and
(2) it acts as a calculator by simply adding the insurance adjusters selected database costs to arrive at a total cost amount.
Consequently, ABC Co.s provision of estimated material and labor costs associated with the repair or replacement of damaged fencing appears to be ministerial in nature (i.e., such provision does not entail the exercise of discretionary authority conferred by an insurer). Therefore, ABC Co. will not be acting as an independent adjuster without a license in violation of the Insurance Law if it provides the Web Site to insurance adjusters.
With respect to the availability of claimant information on ABC Co.s web site, N.Y. Comp. Codes R. & Regs. tit. 11, pt. 420 (2004) (Regulation 169) "governs the treatment of nonpublic personal information about individuals in this state by all licensees of the Insurance Department," § 420.1(a); and N.Y. Comp. Codes R. & Regs. tit. 11, pt. 421 (2004) (Regulation 173) "establishes standards for developing and implementing administrative, technical, and physical safeguards to protect the security, confidentiality, and integrity of customer information," § 421.0(a). But these Department regulations are only applicable to Department licensees. Consequently, the New York Insurance Law does not directly regulate ABC Co.s disclosure of an insurers inputted claimant information.
Nevertheless, if a Department licensee (e.g., insurance adjuster or insurer) intends to provide nonpublic personal information about claimants to a service provider such as ABC Co., the licensee must first: (1) exercise appropriate due diligence in selecting the service provider, § 421.7(a); (2) comply with § 420.13, which, inter alia, requires the licensee to enter into a contractual agreement with the service provider that prohibits it "from disclosing or using the information other than to carry out the purposes for which the licensee disclosed the information," § 420.13(a)(1)(ii); and (3) require the service provider to implement appropriate measures designed to meet the objectives of Regulation 173, and, where indicated, by the licensees risk assessment, take appropriate steps to confirm that its service provider has satisfied all such obligations, § 421.7(b).
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.