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

Eliot Spitzer
Governor

Eric R. Dinallo
Superintendent

The Office of General Counsel issued the following opinion on October 18, 2007 representing the position of the New York State Insurance Department.

Re: Method of insurance fraud investigation questioned by a private investigator licensed by the Department of State

Question Presented:

Is there anything in the Insurance Law or regulations promulgated thereunder that governs the conduct of a licensed private investigator, when the private investigator is working on behalf of an insurer?

Conclusion:

No. Private investigators are licensed by the Division of Licensing of the New York State Department of State (hereinafter, "Department of State"), not the Insurance Department. Absent an allegation of wrongful conduct by a licensee of the Insurance Department, the Department of State would be the proper regulator for pursuing the inquirer’s complaint.

Facts:

The inquirer reports that as a licensed private investigator, he worked on a contract basis for a licensed private investigative agency (hereinafter, "agency"). The inquirer reports that he terminated that relationship because the agency directed him to investigate, through the use of a pretext, the medical condition and level of activity/disability of an insured claimant who was represented by an attorney. The inquirer does not report that an insurer required or had knowledge of the agency's direction to him regarding the investigation of an insured claimant. The inquirer requests that the Insurance Department's Office of General Counsel opine on whether the reported activity between he and the agency is contrary to law or ethics.

Analysis:

The Insurance Department regulates insurance fraud pursuant to Article 4 of the Insurance Law, and N.Y. Comp. Codes R. & Regs. tit. 11, Part 86 (2003) (Regulation 95). Insurance Law § 409(a) provides that an insurer writing specified minimum number of policies of certain types of insurance must implement a fraud detection, investigation and prevention plan. That provision states in pertinent part:

(a) Every insurer writing private or commercial automobile insurance, workers' compensation insurance, or individual, group or blanket accident and health insurance policies issued or issued for delivery in this state, except for insurers that write less than three thousand of such policies, issued or issued for delivery in this state annually . . . shall . . . file with the superintendent a plan for the detection, investigation and prevention of fraudulent insurance activities affecting policies issued or issued for delivery in this state . . . .

Pursuant to Insurance Law § 409(g), an insurer that is required to file a fraud prevention plan with the Superintendent "shall report to the superintendent on an annual basis . . . describing the insurer's experience, performance and cost effectiveness in implementing the plan, utilizing such forms as the superintendent may prescribe." 11 NYCRR § 86.6(d), which contains similar language, also states: "The report shall be reviewed and signed by an executive officer of the insurer responsible for the operations of the Special Investigations Unit."

Insurance Law § 409(b)(2) permits an insurer to contract with a qualified outside provider of services to implement the requirement that the insurer investigate insurance fraud. If there is such a contract, then Insurance Law § 409(b)(2) states in pertinent part that the insurer "shall provide the superintendent with a detailed [fraud prevention] plan therefor, pursuant to requirements set forth in regulation by the superintendent." 11 NYCRR § 86.6(b)(1), which implements this requirement, does not specify what precisely personnel of a qualified outside provider of services may or may not do in the course of their employment to implement an insurer's fraud prevention plan.

If the outside investigative agency were engaged in illegal activity at the direction of an insurer, with the insurer's knowledge, or in a circumstance where the insurer failed to properly oversee the situation, then the insurer may be subject to disciplinary action pursuant to the Insurance Law. The inquirer’s inquiry does not suggest that any investigatory procedures about which he asks were to be performed at the direction of, or with the knowledge of, an insurer.

Since the Insurance Department does not directly license or regulate private investigators, this agency will not, in the first instance, undertake an investigation into whether the investigative agency was acting improperly. Because the inquirer is a licensed private investigator, and because the inquirer was employed by a private investigative agency, the inquirer may wish to pursue his inquiry with the Division of Licensing of the Department of State. Article 7 of the New York General Business Law (McKinney 2004) sets forth the statutory authority for the Department of State to regulate private investigators and private investigative agencies.

For further information, you may contact Senior Attorney Robert Freedman at the New York City office.