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

George E. Pataki
Governor

Howard Mills
Superintendent

The Office of General Counsel issued the following opinion on November 2, 2006 representing the position of the New York State Insurance Department.

Re: Third Party Administrators

Questions Presented:

1. Must a third party administrator ("TPA") operating from outside New York State, which administers fully-insured and self-funded health plans, be licensed as an independent adjuster in order to adjust claims for New York residents on behalf of various plan sponsors/employers who are not domiciled in New York?

2. If the TPA obtains an independent adjuster license, would it cover all employees adjusting claims or are individual licenses required for such employees?

3. Must a TPA who processes and pays health claims on behalf of the plan administrator for the self-funded health plan or the insurer for the fully-insured health plan, but refers the claim to the plan administrator or the insurer if there is any question on a claim, be licensed as an independent adjuster?

Conclusions:

1. Yes, a TPA that adjusts claims for New York insureds, including under self-funded health plans, must become licensed as an independent adjuster, regardless of the TPA’s office being outside New York State.

2. Individual independent adjuster licenses are required for employees of a TPA whose functions include adjusting claims within the meaning of N.Y. Ins. Law § 2101(g)(1) (McKinney 2006).

3. The Department would need further information in order to determine if a TPA’s activities would require an independent adjuster’s license, but processing the claim and determining whether to pay the initial claim would constitute adjusting, inasmuch as it involves the exercise of discretionary authority, and would require that a TPA be licensed as an independent adjuster.

Facts:

The inquirer works for a company that is a third party administrator ("TPA"), located outside of New York State, which administers fully-insured and self-funded health plans. The plans’ sponsors/employers are not domiciled in New York, but certain insured individuals in the plans reside in New York.

The TPA processes and pays claims on behalf of the plan administrator or insurer, but it pays claims based on either the plan administrator or insurer’s basic criteria of what should be covered. If a payment is in question, the decision is made either by the plan administrator for the self-funded health plan or the insurer for the fully-insured health plan as to whether the claims should be paid.

Analysis:

The New York State Insurance Law does not specifically define "third party administrator" and does not regulate activities of TPAs as such. However, any person or entity that engages in activities in New York that would require licensing (e.g., acting as an adjuster) must obtain the appropriate license from the New York Insurance Department. Conducting adjusting activities with a person in New York by e-mail, telephone, or mail would constitute doing business in New York, regardless of whether the claimant was a New York resident.

Under the Insurance Law, an independent adjuster is a person who adjusts losses on behalf of an insurer (as compared to a public adjuster, who acts on behalf of the insured).

N.Y. Ins. Law § 2101(g)(1) (McKinney 2006) defines independent adjuster 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 § 2102(a)(1) (McKinney 2006) of the Insurance Law provides that no one may act in this state as an independent adjuster without a license. N.Y. Ins. Law § 2108(a)(3) (McKinney 2006) requires that no adjuster may act on behalf of an insurer unless he/she is licensed as an independent adjuster.

The term "insurer" encompasses any entity that is doing an insurance business, as defined in N.Y. Ins. Law § 1101 (McKinney 2006), regardless of whether such entity must be licensed by this Department. Accordingly, the Department has consistently held that licensing is required for adjusting activities on behalf of an exempt insurer, such as a self-funded Employee Retirement Income Security Act ("ERISA") plan.

Since individuals are encompassed within the definition in N.Y. Ins. Law § 2101(g), any individual in a company engaging in adjusting would require an independent adjuster’s license. The New York Insurance Law under Section 2101(g) provides a number of limited exclusions to the requirement that a person must obtain an independent adjuster license in order to adjust claims, but none of the exclusions apply to the facts presented.

Both a company and any of its employees engaged in adjusting must be licensed as independent adjusters in order to adjust claims in this state for any insurer. The fact that the company is located outside of New York State is inconsequential if the company is adjusting claims, whether by mail, telephone or other means of communication, and the insured or other claimant is in New York.

Further, N.Y. Ins. Law § 2108(c) (McKinney 2006), regarding the licensing of adjusters, states as follows:

(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.

Only officers and directors of the firm may be named as sub-licensees, and every corporation must have at least one sub-licensee. The firm may 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.

In determining what constitutes "investigating and adjusting of claims" under Section 2101 of the Insurance Law, the Department considers whether the duties performed in the handling of a claim require the exercise of discretionary authority conferred by the insurer, as opposed to the performance of strictly ministerial tasks. As expressed in prior opinions, available on the Department’s website, discretionary acts include: reviewing and processing claims; authorizing payments; issuing and signing checks (after making the unilateral determination to issue such checks); handling inquiries from insureds; evaluating the merits of a loss; and making recommendations to the insurer. Tasks such as data processing, on the other hand, are considered ministerial in nature.

The Department would need further information concerning the specific activities of a company in order to determine whether a company would need to become licensed as an independent adjuster.

For further information you may contact Senior Attorney Elizabeth Barrett at the New York City Office.