The Office of General Counsel issued the following opinion on May 30, 2007 representing the position of the New York State Insurance Department.
RE: Group Health Insurance, Eligible Group
Is the organization described below entitled to an exemption from the Insurance Law’s otherwise applicable licensing requirements?
No. The organization in question does not qualify for the exemption from applicable licensing requirements because it is not primarily a charitable organization and does not otherwise qualify for any other exemption under the Insurance Law.
The inquirer reports that his law firm represents an organization composed of individuals who have direct financial responsibility in the construction industry or who are employed by entities that have capital invested in the construction industry. These individuals include chief financial officers, and subordinate payroll and accounting employees of their respective employers. Individuals engaged in other businesses also may join as associate members, but they are not entitled to insurance benefits such as health coverage.
The inquirer indicates that the organization was formed for the purpose of uniting individuals who have financial responsibility in the construction industry; providing a forum for members to meet and exchange ideas; and coordinating programs dedicated to elevating the standards of financial management in the construction industry. To these ends, the organization publishes topical newsletters and articles, promotes educational programs, promotes networking for its members, and disseminates news information in electronic form.
The inquirer further notes that the organization is incorporated under the New York Not-For-Profit Corporation Law (McKinney 2005 and 2007 Supplement), and is exempt from federal taxes pursuant to Internal Revenue Code § 501(c)(6) (West 2003). For these reasons, you assert that the organization is “charitable” in nature.
The inquirer states that the organization wishes to establish a trust for the purpose of endorsing a health plan member affinity program. Under this plan, health benefits will initially be provided by the organization on a self-funded basis, and excess claims will be covered by a stop-loss policy1. As the organization grows, it is anticipated that the stop-loss coverage will be phased out. You ask whether, under this scenario, the organization will qualify for an exemption under Insurance Law § 4522(a)(3), which provides an exemption from otherwise applicable licensing requirements for organizations that are of a “religious, charitable, benevolent or fraternal character.”
New York Insurance Law § 1101 is relevant to the inquiry. It defines “doing an insurance business” as follows:
(1) ‘Insurance contract’ means any agreement or other transaction whereby one party, the ‘insurer’, is obligated to confer benefit of pecuniary value upon another party, the ‘insured’ or ‘beneficiary’, dependent upon the happening of a fortuitous event in which the insured or beneficiary has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of such event.
(2) ‘Fortuitous event’ means any occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party.
The provision of health benefits by an organization to its members clearly constitutes the doing of an insurance business because the need for medical care is a fortuitous event that adversely affects the organization’s member. New York Insurance Law § 1102 requires that any person doing an insurance business must obtain a license from the Insurance Department.
New York Insurance Law § 4522, however, provides an exception from the general requirements set forth in Insurance Law §§ 1101 & 1102.2 It provides in pertinent part:
(a) Except as provided in subsection (b) hereof the following societies, corporations, unincorporated associations, and other organizations shall be exempt from the provisions of this chapter requiring the obtaining of a license to do an insurance business and from all other requirements of this chapter except those provided in subsections (c) and (d) hereof . . .
(3) Organizations of a religious, charitable, benevolent or fraternal character, which are not organized or maintained primarily for the purpose of providing insurance benefits, and which have not more than fifteen hundred members who are or may be entitled to any insurance benefits unless the organization obligates itself to pay a death benefit of more than five hundred dollars on the death of any one member, or disability benefits of more than three hundred fifty dollars to any one person in any one year, or both. . . .
. . .
(c) The superintendent may require from any organization claiming exemption under subsection (a) hereof, by examination in accordance with section three hundred ten of this chapter, or otherwise, such information as will enable him to determine whether such organization is exempt under this section.
(d) No organization of the kinds hereinbefore specified which obligates itself to pay life insurance or accident or health or disability insurance benefits to its members shall make, issue or deliver in this state any certificate or other written evidence of such obligation unless the same shall have conspicuously printed on the first page thereof in bold-faced type not smaller than ten point the following statement: ‘This organization does not operate under the supervision of the New York State Insurance Department.’
While New York law may have utilized an expansive definition of “charitable” for certain purposes, i.e. cooperative distributors of agricultural products, Attinson v. Consumer-Farmer Milk Coop, 197 Misc. 336, 94 N.Y.S. 2d 891 (Sup. Ct N.Y. 1950), and chambers of commerce, Corporation of Chamber of Commerce of New York v. Bennett, 142 Misc. 513, 257 N.Y.S. 2 (Sup. Ct. NY 1932), there is no indication in the legislative history of New York Insurance Law § 4522 that the Legislature intended to encompass an entity such as the organization the firm represents. In fact, Insurance Law § 4522(a)(4) provides an exemption from licensing for:
[o]rganizations which limit their membership to persons engaged in one or more occupations in the same or similar lines of business and which, together with their legal predecessors or affiliated bodies continuously paid or provided for the payment of death or disability benefits to their members for a period of not less than fifteen years prior to January first, nineteen hundred forty.
The organization the law firm represents is most analogous to the organizations referenced in Insurance Law § 4522(a)(4) because it is composed of individuals in the same occupation. But because the statute limits such exemption to organizations that had been in existence and paying benefits for a period of at least 15 years before the 1939 recodification of the New York Insurance Law, the organization here cannot come within the scope of the statutory exemption from licensing.
Moreover, Insurance Law § 4522(a)(3) is not applicable because the organization represented by the firm is not of a “charitable” nature. The Internal Revenue Service has determined that the organization should be exempt from taxes in accordance with Internal Revenue Code § 501(c)(6), which essentially describes trade associations. But the Internal Revenue Code provision dealing with charitable and educational entities is found in § 501(c)(3).
In sum, because the organization the law firm represents fails to come within any exemption from the licensing requirements set forth in Insurance Law § 4522 from the licensing requirements imposed by the New York Insurance Law, such organization may not provide the intended coverage without securing an appropriate license from the Department to do business as an insurer.
For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.
1 New York Insurance Law § 4237-a(b) McKinney 2007) defines “Stop-loss insurance” as follows: “[A]n insurance policy whereby the insurer agrees to pay claims or indemnify an employer for losses incurred under a self-insured employee benefit plan in excess of specified loss limits for individual claims and/or for all claims combined, or any similar arrangement”.
2 The Federal Employee Retirement Income Security Act (ERISA), 29 U.S.C.A. § 1144(a) (West 2003), also provides an exception for self-funded employee welfare benefit plans operated by employers and labor unions. This Opinion, which construes only the New York Insurance Law, takes no position as to whether any EERISA exception applies here.