The office of General Counsel issued the following informal opinion on January 20, 2006, representing the position of the New York Insurance Department.
Re: Independent Adjuster License
1) Is Company X required to obtain an insurance adjuster license to conduct the activities described in the facts below?
2) If an insurance adjuster licensed is required, what kind of insurance adjuster licensed must be obtained?
3) Must all of the employees of Company X (including both U.S. and overseas employees) involved in the activities described in the facts presented be individually licensed?
4) If individual licenses are required, does the New York State Insurance Department issue insurance adjuster licenses to residents of foreign countries who adjust health and dental claims outside of the United States?
1) Yes, Company X is required to obtain an insurance adjuster license to conduct the activities described in the facts below.
2) An independent insurance adjuster license is required.
3) Yes, all employees of Company (including both U.S. and overseas employees) involved in the activities described in the facts presented must be individually licensed.
4) Yes, as long as the applicant meets all New York licensing requirements.
Company X is a wholly owned subsidiary of a corporation domiciled in India. Company Y is a New York authorized health and dental insurer that is not affiliated with Company X. Company Y and Company X are contemplating entering into an agreement whereby Company X would process claims on behalf of Company Y utilizing the following work process:
1. An electronic image of a claim is transmitted to Company X in India;
2. Company X employees process the claim using a system and software provided by Company Y;
3. Company X will make a decision on claims by following the work flow diagrams and decision making trees prepared and approved by Company Y;
4. The employees of Company X that process the claims will be trained by Company Y;
5. The claims processed by Company X employees will be routinely monitored by Company Y and audited at regular intervals.
6. When the claim processing is completed, Company Y will issue claims payment checks from their U.S. office.
7. Currently, Company Y is adjudicating a large number of claims for New York residents using their own employees within their office.
The term "third party administrator" is not defined by the New York Insurance Law and, as such, there are no licensing or registration requirements for third party administrators under the New York Insurance Law. However, any person or entity, including a third party administrator, that performs the functions that require licensing, such as adjusting, must be licensed accordingly.
N.Y. Ins. Law § 2102(a)(1) (West, WESTLAW through L.2003, c. 687 legislation) provides in pertinent part:
No person, firm, association or corporation shall act as an insurance producer 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.
N.Y. Ins. Law § 2101(g)(1) (West, WESTLAW through L.2004, c. 385 legislation) defines the term independent adjuster, in pertinent part, as follows:
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.
N.Y. Ins. Law § 2108(c)(West, WESTLAW through L.2003, c. 164 legislation), regarding the licensing of adjusters, reads as follows:
(c)(1) The superintendent may issue an independent adjuster's license or a public adjuster's license to any person, firm, association or corporation, hereinafter designated as licensee, who, or which, is trustworthy and competent to act as an adjuster in such manner as to safeguard the interests of the people of this state and who, or which, has complied with the prerequisites herein prescribed.
(2) A license issued to a corporation may name as sub-licensees only the officers and directors of such corporation, and a license issued to a firm or association may name as sub-licensees only the individual members of such firm or association. Each sub-licensee named as such in the license issued to a firm, association or corporation must be qualified to obtain a license as an independent adjuster or as a public adjuster, as the case may be, and for each such sub-licensee a fee must be paid at the times and at the rate hereinafter specified. Each such sub-licensee shall be authorized, pursuant to such license, to act as an independent adjuster or as a public adjuster, as the case may be, only on behalf of the licensee.
(3) Every individual applicant for a license under this section and every proposed sub-licensee shall be eighteen years of age or over at the time of the issuance of such license.
Although the New York Insurance Law does provide a number of limited exceptions to the requirement for an independent adjuster license, none of them appear to apply to the facts that have been presented in this inquiry. Thus, in accordance with the above, entities like Company X that investigate and adjust claims on behalf of insurers must be licensed as independent adjusters. Additionally, under section 2101(g)(1), licensing as an independent adjuster would also be required to investigate and adjust claims on behalf of an independent adjuster.
In determining what constitutes "investigating and adjusting of claims" under section 2101, the New York State Insurance Department considers whether the duties performed in the handling of a claim requires the exercise of discretionary authority conferred by the insurer, as opposed to the performance of strictly ministerial tasks. Past opinions have held that activities such as reviewing and processing claims, authorizing payments, issuing and signing checks (after making the determination to issue the check), handling inquiries from insureds, evaluating the merits of a loss, and making recommendations to the insurer are all discretionary acts, while acts such as data processing are ministerial in nature.
In the facts presented in this inquiry, the activities of the employees of Company X described will require the exercise of discretionary authority conferred by the insurer, Company Y, and the employees of Company X would be investigating and adjusting claims within the purview of section 2101(g)(1). The fact that the work will be performed by a corporation that is located outside of New York is not dispositive, since adjusting in New York includes communications to New York by mail, telephone, the internet, etc.
Further, the employees of a corporation would be adjusting claims. Under these circumstances, Company X itself and its individual employees who adjust claims would each have to obtain separate independent adjuster licenses. As stated above, only officers and directors of the corporation can be named as sub-licensees, and every corporation must have at lease one sub-licensee. The corporation may also utilize employees who are not officers or directors to adjust claims so long as the employee is individually licensed and is supervised by the sub-licensee.
Consequently, Company X and each of its employees adjusting claims must become licensed as an independent adjuster in New York pursuant to N.Y. Ins. Law Article 21.
N.Y. Ins. Law § 2108 does not impose a residency requirement on independent adjuster licensees. Therefore, as long as applicants meet all New York licensing requirements, the New York State Insurance Department will issue insurance adjuster licenses to residents of foreign countries adjusting health and dental claims outside of the United States. If Company X and its employees wish to become licensed as independent adjusters, they should contact the New York State Insurance Department Licensing Bureau.
For further information you may contact Special Counsel Athan Shinas at the Albany Office.