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

David A. Paterson
Governor

Eric R. Dinallo
Superintendent

OGC Op. No. 08-10-14

The Office of General Counsel issued the following opinion on October 27, 2008, representing the position of the New York State Insurance Department.

Re: ABC, Inc. - Independent Adjuster License

Question Presented:

Must ABC, Inc. (“ABC”) and its employees who review, investigate, adjust and settle claims on behalf of XYZ Insurance Group (“XYZ”) obtain independent adjuster licenses?

Conclusion:

ABC, its authorized sublicensees and its employees who are attorneys licensed to practice in New York do not need to obtain independent adjuster licenses, because they fall within the exemptions set forth in N.Y. Ins. Law § 2101(g)(1)(A) and (H) (West, Westlaw through July 2008 amendments). However, ABC’s non-attorney employees who investigate and adjust claims on behalf of XYZ and who are not sublicensees must obtain independent adjuster licenses.

Facts:

ABC is a New York corporation whose parent company is DEF Corporation.1 ABC operates as a manager of XYZ by virtue of the XYZ Group Agreement (“group agreement”). According to ABC’s website, XYZ “is neither a single insurance company nor a corporation,” but rather “a group, or pool, of individual insurance companies which collectively functions as a worldwide insurance market for all types of aviation and aerospace accounts.” XYZ currently2 consists of A Insurance Company, LMO Corporation,3 B Insurance Company, and C Insurance Company,4 and considers itself a joint underwriting association. Furthermore, all insurance policies are issued under XYZ’s name, but list the name of each member insurer that is severally liable for the policies.

As a manager of XYZ, ABC underwrites, manages and administers XYZ’s aviation business. Specifically, ABC is responsible for developing, filing and managing policy forms; selecting business; specifying rates; binding coverages; issuing policies; arranging reinsurance; collecting premiums; and settling claims on XYZ’s behalf. With regard to settling claims, ABC processes all claims relating to XYZ business through a central claims office. This claims handling function includes review, investigation, adjustment and settlement of all claims by ABC employees under the supervision of the “Advisory Council,” which consists of individuals from each of XYZ’s member insurers. Counsel for ABC reports that only one of ABC’s employees in the central claims office is licensed as an independent adjuster, and that he voluntarily maintains his license – ABC does not require him to maintain it. Moreover, a review of ABC’s website reveals that some of the employees in the central claims office are attorneys.

Furthermore, counsel for ABC explains that as manager for the member insurers of XYZ, ABC performs exactly the same function as a home office or underwriter, and each of the member insurers of XYZ has retained ABC for this purpose. Counsel for ABC further explains that each employee within the central claims office of ABC is a salaried employee, and central claims office employees are not reimbursed for their services on a commission basis. Counsel for ABC also explains that ABC does not transact business directly with XYZ insureds, but rather through licensed producers that submit the business on behalf of their clients.

On March 25, 2008, the New York State Insurance Department’s (“Department”) Consumer Services Bureau (“CSB”) received a complaint against ABC regarding an incident that arose in Michigan. During the course of its investigation into the complaint, CSB noticed that ABC’s insurance agent’s license had lapsed on July 1, 2006. When CSB questioned ABC’s authority to conduct business in New York, ABC discovered the lapse and subsequently submitted a re-licensing application on April 8, 2008. CSB also noticed that ABC’s central claims office employees are reviewing, investigating, adjusting and settling claims on behalf of XYZ. As a result, CSB raised the question of whether ABC and its central claims office employees must obtain independent adjuster licenses pursuant to Insurance Law § 2108.

Analysis:

Insurance Law § 2102(a)(1) prohibits any person, firm, association or corporation from acting as an insurance adjuster in New York without being licensed by the Department. Furthermore, Insurance Law § 2108(a)(3) prohibits an adjuster from acting on behalf of an insurer unless licensed as an independent adjuster. Insurance Law § 2101(g)(1) defines “independent adjuster” in relevant part as:5

(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, except that such term shall not include:

(A) any officer, director or regular salaried employee of an authorized insurer or entity licensed pursuant to article forty-four of the public health law providing comprehensive health service plans (as used in this paragraph, a “health maintenance organization”), or any manager thereof, individual or corporate, or the manager, agent or general agent of any department thereof, individual or corporate, or attorney in fact of any reciprocal insurer or Lloyds underwriter, or marine underwriting office, unless acting as an auto body repair estimator as defined in subsection (j) of this section;

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(D) any officer, director or regular salaried employee of an authorized insurer that is licensed to write the kind of insurance to be adjusted, or any manager thereof, individual or corporate, when the claim to be adjusted is pursuant to a policy that is issued or administered by another insurer within the same holding company system as the authorized insurer adjusting the claim, unless acting as an auto body repair estimator as defined in subsection (j) of this section;

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(F) any adjustment bureau or association owned and maintained by insurers to adjust or investigate losses, or any regular salaried employee or manager thereof who devotes substantially all of his time to the business of such bureau or association, unless acting as an auto body repair estimator as defined in subsection (j) of this section;

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(H) any licensed attorney at law of this state;

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Thus, under the relevant provisions of Insurance Law § 2101(g)(1), any officer, director or regular salaried employee of an authorized insurer, or any individual or corporate manager thereof, who investigates and adjusts claims arising from insurance policies or contracts issued by the insurer, or any officer, director or regular salaried employee of an authorized insurer that is licensed to write the kind of insurance to be adjusted, or any individual or corporate manager thereof, when the claim to be adjusted is pursuant to a policy issued or administered by another insurer within the same holding company system as the authorized insurer adjusting the claim, need not be licensed as an independent adjuster. Moreover, any adjustment bureau or association owned and maintained by insurers to adjust or investigate losses, or any regular salaried employee or manager thereof, need not be licensed as an independent adjuster. Nor does any attorney licensed to practice in New York.

Although counsel for ABC acknowledges that ABC’s central claims office investigates and adjusts claims on behalf of XYZ,6 counsel for ABC asserts that ABC and its employees do not need to obtain independent adjuster licenses pursuant to the exemption set forth in Insurance Law § 2101(g)(1)(F). That section exempts “any adjustment bureau or association owned and maintained by insurers to adjust or investigate losses, or any regular salaried employee or manager thereof who devotes substantially all of his time to the business of such bureau or association….”

The Department previously has opined that an “adjustment bureau or association owned and maintained by insurers to adjust or investigate losses” must be owned by two or more insurers, and that the adjustment bureau or association only may adjust the claims of the owner insurers. OGC Opinion 05-01-12 (Jan. 18, 2005). Counsel for ABC claims that each of the member insurers owns and maintains its share participation in XYZ, the joint underwriting association, and that the claims personnel only are permitted to adjust claims arising from XYZ business on behalf of the member insurers of XYZ.

Counsel for ABC further asserts that ABC and XYZ commenced business in 1928 as a unit, and that ABC and XYZ were conceived of, and have operated effectively, as one entity from inception. Counsel for ABC also states that XYZ does not have employees. Rather, ABC serves as the experienced “aviation department” for the XYZ members. Counsel for ABC further states that the group agreement reflects this operational reality by providing that ABC is appointed as the manager of XYZ on an exclusive basis to conduct all aspects of XYZ Business, and only XYZ Business.

However, ABC, not XYZ, is acting as the adjustment bureau. Furthermore, ABC is not owned by two or more insurers – only DEF Corporation owns ABC – and ABC is not adjusting or investigating losses on behalf of DEF Corporation, but rather is adjusting or investigating losses on behalf of XYZ. Therefore, ABC and its employees are not exempt from obtaining independent adjuster licenses under the exemption set forth in Insurance Law § 2101(g)(1)(F).

Further, ABC and its employees are not exempt from obtaining independent adjuster licenses under the exemption set forth in Insurance Law § 2101(g)(1)(D), because ABC, which is adjusting claims on behalf of XYZ, is not an authorized insurer and is not in a holding company system with XYZ, which is issuing the policies.

Counsel for ABC also claims that ABC and its employees do not need to obtain independent adjuster licenses pursuant to the exemption set forth in Insurance Law § 2101(g)(1)(A), which exempts any officer, director or regular salaried employee of an authorized insurer, or any individual or corporate manager thereof, because ABC is the duly appointed exclusive corporate manager of XYZ, which is an authorized insurer.

§ 33.4(c) of N.Y. Comp. Codes R. & Regs. tit. 11, Part 33 (Regulation 120) (2003) prohibits a person from being a manager in New York within the meaning of Insurance Law § 2101(g)(1) unless that person is a managing general agent and licensed as an insurance agent. While the group agreement appoints ABC as manager of XYZ, ABC must be a managing general agent and licensed as an insurance agent to act as a manager within the meaning of Insurance Law § 2101(g)(1). 11 NYCRR § 33.2(c) defines “managing general agent” as any person, firm or corporation that:

(1) manages all or part of the insurance business of an insurer (including the management of a separate division, department or underwriting office);

(2) acts as an insurance agent as defined in section 2101(a) of the Insurance Law7 for such insurer, whether known as a managing general agent, manager, or other similar term, or acts as an insurance broker as defined in section 2101(c) of the Insurance Law;8 and

(3) with or without the authority, either separately or together with affiliates, produces, directly or indirectly, and accepts or rejects risks on behalf of the insurer (underwrites) an amount of gross direct written premium equal to or more than five percent of the policyholder surplus as reported in the last annual statement of the insurer in any one quarter or year together with one or more of the following activities related to the business produced:

(i) Adjusts or pays claims in excess of $25,000, or

(ii) Negotiates reinsurance on behalf of the insurer.

11 NYCRR § 33.2(a) defines “insurer” as:

an authorized insurer as defined in section 107(a)(10) of the Insurance Law, and, for purposes of this Part, shall also include every group, association or other organization of insurance companies that engages in joint underwriting or joint reinsurance in accordance with section 2317(a) of the Insurance Law. (Emphasis added.)

In the situation set forth here, ABC manages the business of XYZ and acts as an insurance agent for XYZ as defined in Insurance Law § 2101(a). Furthermore, counsel for ABC confirmed that ABC meets the requirements of 11 NYCRR § 33.2(c)(3). Thus, ABC meets the definition of a “managing general agent.”9 However, since ABC’s insurance agent license lapsed, and its re-licensing application is pending, ABC can be a manager for the purposes of Insurance Law § 2101(g)(1) only if the Department approves ABC’s re-licensing application. If the Department grants ABC an insurance agent’s license, then ABC and its authorized sublicensees would not need to obtain independent adjuster licenses, because they would fall within the exemption set forth in Insurance Law § 2101(g)(1)(A).10

However, as a general matter, ABC’s employees who are not sublicensees are not exempt from obtaining independent adjuster licenses, because the exemption set forth in Insurance Law § 2101(g)(1)(A) is for employees of an authorized insurer, and not for employees of a manager. OGC Opinion 01-06-33 (June 26, 2001). Nevertheless, Insurance Law § 2101(g)(1)(H) exempts “any licensed attorney at law of this state” from obtaining an independent adjuster license. A review of ABC’s website reveals that some of ABC’s employees in the central claims office are attorneys. Therefore, ABC employees who are also attorneys licensed to practice in New York need not obtain independent adjuster licenses, because they fall within the exemption set forth in Insurance Law § 2101(g)(1)(H). All other non-attorney ABC employees who investigate and adjust claims on behalf of XYZ and who are not sublicensees must obtain independent adjuster licenses.

The Department directed counsel for ABC to set forth in writing the steps that ABC and its employees have taken, or intend to take, to bring themselves into full legal compliance consistent with the conclusions set forth herein within ten days of receipt of this letter.

For further information, you may contact Attorney Joana Lucashuk at the New York City office.

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1 DEF Corporation, a subsidiary of HIJ, Inc., is a holding company for global reinsurance and related operations. It owns LMO Corporation and holds a controlling interest in PQR. Together, DEF and PQR conduct business as STU.

2 XYZ’s member insurers have changed over the years.

3 DEF Corporation owns LMO Corporation.

4 C Insurance Company, which is not a New York-authorized insurer, does not engage in joint underwriting in New York as part of XYZ. Rather, D Insurance Company, an associate member of XYZ, is the New York-authorized insurer that engages in joint underwriting as part of XYZ in place of C Insurance Company.

5 The other exceptions set forth in Insurance Law § 2101(g)(1) have no bearing on the present inquiry.

6 ABC’s central claims office not only investigates and adjusts claims on behalf of XYZ, but also reviews and settles claims. While settling claims is considered “investigating and adjusting” for purposes of Insurance Law § 2101(g)(1), reviewing claims may not be considered “investigating and adjusting” if it is strictly a ministerial task that does not require the exercise of insurer-conferred discretionary authority. See OGC Opinion 08-07-24 (July 29, 2008).

7 Insurance Law § 2101(a) defines “insurance agent” in relevant part as:

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, other than as a licensed insurance broker….

8 Insurance Law § 2101(c) defines “insurance broker” in pertinent part as:

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….

9 Although there is no managing general agent license, a managing general agent must be registered with the Department as such. OGC Opinion 06-01-23 (Jan. 23, 2006). Under 11 NYCRR § 33.3, a managing general agent is registered with the Department when the insurer for whom the managing general agent is acting files the form prescribed by the Superintendent. Id. This form is available on the Department’s website at http://www.ins.state.ny.us/r_finala/2003/pdf/reg120pz.pdf. Since all insurance policies are issued under XYZ’s name, but each member insurer is severally liable for the policies, each member insurer must file the prescribed form. Furthermore, ABC and XYZ must comply with all of the provisions of Regulation 120, including the required contract provisions set forth in 11 NYCRR § 33.5, and the insurers’ duties set forth in 11 NYCRR § 33.6.

10 Since a corporate entity only may operate through its licensed sublicensees, the sublicensees would be able to adjust claims as well.