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 July 7, 2004, representing the position of the New York State Insurance Department.

RE: Third Party Administrator

Question Presented:

Are "third party administrators" subject to the licensing requirements of the New York Insurance Law?

Conclusion:

The New York Insurance Law does not provide for the licensing of "third party administrators" as so denominated. However, a person or entity that engages in activities that require licensing, such as, for example, acting as an insurer, agent, broker, or adjuster, must obtain the appropriate license from the Insurance Department.

Facts:

An inquirer questioned whether his employer must file an application for a "third party administrator" license in New York.

Based on the inquirer’s statements, the employer provides insurers and HMO’s with access to radiology providers (typically, imaging centers) that the employer contracts with. The employer receives payment from insurers and HMO’s for the services provided by the radiology providers, and the employer in turn pays the radiology providers their fee. Specifically, the inquirer stated:

1) [Employer] provides administrative services to insurers. [Their] customers contract with [them] in order to obtain access to [employer’s] network of radiology providers, and to have [employer] perform certain administrative functions. [Employer’s] sole function as a TPA within the State of New York will be administration of payment to radiology providers who are in the [employer’s] network, not to insured persons.

a) [Employer] will be compensated on a fee-for-service basis by its customer(s).

2) [Employer] does not have agreements with employers, employee groups, individuals or other groups, nor does [employer’s] agreement with insurers include any provisions for [employer] to administer payment to insured members.

3) [Employer] will not administer or have direct access to funds in the fiduciary bank account in which insurance premiums are deposited.

4) [Employer] [does] not contract with, collect premiums from or make final coverage decisions for individuals or employer groups.

5) [Employer] is not involved in setting premium rates, underwriting or application of underwriting requirements.

6) [Employer] does not collect funds on behalf of insurers. [Employer] contracts with insurers on a fee-for-service basis to provide access to [employer’s] network, and for administrative services related to assisting in assurance of quality, cost effective radiology services.

Analysis:

The New York Insurance Law does not provide for the licensing of "third party administrators" as so denominated. However, a person or entity that engages in activities that require licensing, such as, for example, acting as an insurer, agent, broker, or adjuster, must obtain the appropriate license from the Insurance Department.

N.Y. Ins. Law §§ 1101 (McKinney Supp. 2004) defines "doing an insurance business," in relevant part, as follows:

(b) (1) Except as provided in paragraph two, three or three-a of this subsection, any of the following acts in this state, effected by mail from outside this state or otherwise, by any person, firm, association, corporation or joint-stock company shall constitute doing an insurance business in this state and shall constitute doing business in the state within the meaning of section three hundred two of the civil practice law and rules:

(A) making, or proposing to make, as insurer, any insurance contract, including either issuance or delivery of a policy or contract of insurance to a resident of this state or to any firm, association, or corporation authorized to do business herein, or solicitation of applications for any such policies or contracts;

(B) making, or proposing to make, as warrantor, guarantor or surety, any contract of warranty, guaranty or suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the warrantor, guarantor or surety;

(C) collecting any premium, membership fee, assessment or other consideration for any policy or contract of insurance;

(D) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this chapter;

(E) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this chapter.

N.Y. Ins. Law § 1102 (McKinney 2000) requires anyone doing an insurance business to be licensed.

N.Y. Ins. Law § 2101 (McKinney 2000), as amended by Chapter 687 of the Laws of New York 2003, defines the terms "insurance agent," "insurance broker," and "adjuster," in relevant part, as follows:

(a) In this article, "insurance agent" means any authorized or acknowledged agent of an insurer, fraternal benefit society or health maintenance organization issued a certificate of authority pursuant to article forty-four of the public health law, and any sub-agent or other representative of such an agent, who acts as such in the solicitation of, negotiation for, or sale of, an insurance, health maintenance organization or annuity contract . . . .

* * * *

(c) In this article, "insurance broker" means any person, firm, association or corporation who or which for any compensation, commission or other thing of value acts or aids in any manner in soliciting, negotiating or selling, any insurance or annuity contract or in placing risks or taking out insurance, on behalf of an insured other than himself, herself or itself or on behalf of any licensed insurance broker . . . .

* * * *

(g) In this article, "adjuster" means any "independent adjuster" or "public adjuster" as defined below:

(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 . . . .

* * * *

(2) "Public adjuster" means any person, firm, association or corporation who, or which, for money, commission or any other thing of value, acts or aids in any manner on behalf of an insured in negotiating for, or effecting, the settlement of a claim or claims for loss or damage to property of the insured in this state caused by, or resulting from, any of the risks as enumerated in paragraphs four, five, six, seven, eight, nine and ten and subparagraphs (B) and (C) of paragraph twenty of subsection (a) of section one thousand one hundred thirteen of this chapter, not including loss or damage to persons under subparagraph (B) of paragraph twenty of subsection (a) of such section or who, or which, advertises for, or solicits employment as an adjuster of such claims, and shall also include any person who, for money, commission or any other thing of value, solicits, investigates, or adjusts such claims on behalf of any such public adjuster

N.Y. Ins. Law § 2102 (McKinney 2000) requires insurance agents, brokers and adjusters, among others, to be licensed.

The activities that described in the inquiry, and as stated herein, do not appear to fall within the categories of activities that require licensing under the N.Y. Insurance Law. However, the inquired did not describe the payment arrangements made with the radiology providers and whether payment is made on a fee-for-service basis or on a capitated basis.

The Department has consistently opined that if an entity agrees to provide unlimited services that are based upon the happening of a fortuitous event, such as illness, injury, etc., for a flat fee, or some similar arrangement ("capitated basis"), the entity would be doing an insurance business in violation of N.Y. Ins. Law §§ 1101 and 1102. The Department has also opined that a party may not agree to provide services dependent upon fortuitous events for an additional fee-per-service when such fee is so heavily discounted that the fee does not cover the cost of the rendition of the services (eg., cost of labor, material, and reasonable overhead expenses). The radiology providers may discount their fees, but the fees must cover all costs associated with the rendition of the services provided, and must be paid on a per service basis.

For further information you may contact Associate Attorney Sally Geisel at the New York City Office.