OGC Op. No. 09-03-02
The Office of General Counsel issued the following opinion on March 2, 2009 representing the position of the New York State Insurance Department.
Re: Group medical malpractice insurance on an excess line basis
1) If an unauthorized insurer issues a policy that insures a locum tenens1 staffing company for physicians for general liability and the physicians that the company employs for their medical malpractice liability, does such a policy constitute a group medical malpractice policy within the meaning of the New York Insurance Law?
2) May an unauthorized insurer deliver to a physician in New York a certificate of insurance under a group medical malpractice insurance policy issued outside of this state?
3) Would an unauthorized insurer run afoul of the New York Insurance Law if its insured mails to a New York hospital an Acord 25 Certificate of Liability Insurance (“ACORD”) evidencing that one of the doctors with whom the hospital independently contracts is insured under a group policy issued outside of this state?
1) Yes. Because the policy is underwritten and issued on a collective basis insuring the interests of two or more physicians, the policy is a group policy under the Insurance Law and the regulations promulgated thereunder.
2) No. Where the master policy is issued outside of New York, an unauthorized insurer may not deliver to a physician in New York a certificate of insurance under a group medical malpractice insurance policy.
3) No. As long as the insurer solicited, principally negotiated, issued, and delivered the policy and the certificates thereunder outside of New York, the insurer would not violate the Insurance Law if the policyholder or a doctor insured under the policy sends to a New York hospital a copy of the ACORD certificate, which merely evidences that the doctor is so insured.
The inquirer reports that she represents ABC Insurance Company (“ABC”), an Illinois domiciled insurer that is eligible to write on an excess line basis in both New York and Massachusetts. XYZ, Inc. (“XYZ”), a locum tenens staffing company for physicians and other medical professionals operating out of Massachusetts, staffs physicians throughout the United States. ABC provides professional liability coverage to XYZ and medical malpractice insurance to its physicians through a licensed non-resident excess line agent in Massachusetts.
XYZ placed Dr. M, a New Jersey resident physician, as an independent contractor at Hospital A in New York. At the time of placement, XYZ e-mailed from Massachusetts to the New York hospital a copy of the ACORD form, showing that Dr. M is covered for acts within the course and scope of his placement with XYZ, together with a note stating that the New York policy limits includes $1.3 million per claim, and $3.9 million in the aggregate. Hospital A is listed as the certificate holder on the ACORD form, but it has no legal rights or coverage under the policy.
The inquirer asserts that because XYZ—not ABC—sent the ACORD form to the hospital, and because ABC did not deliver an actual certificate by mail or otherwise in New York, ABC does not believe that the policy is a New York policy subject to the New York excess lines law, N.Y. Ins. Law § 2130 (McKinney 2006). The inquirer further asserts that the policy under which Dr. M is covered is not a group property/casualty insurance contract within the meaning of the New York Insurance Law. Rather, the inquirer maintains that because each physician under the contract is not individually underwritten, and because the policy is delivered only to XYZ in Massachusetts, Dr. M is in fact an additional insured, not a certificate holder.
The inquiry to the Department is two-fold: 1) whether ABC has violated the Insurance Law if XYZ sent to Hospital A an ACORD certificate evidencing that insurance, which was issued outside of this state, is in place for Dr. M; and 2) whether if Dr. M were a New York resident, and a certificate of insurance were delivered to him in New York, ABC would run afoul of the Insurance Law. As to the second question, the inquirer posits that even if Dr. M were a New York resident, ABC is actually issuing in Massachusetts an individual policy to XYZ with Dr. M as an additional insured, and therefore Massachusetts law would apply, not the New York Insurance Law. Accordingly, the New York State Insurance Department’s analysis begins with an analysis of whether the policy is a group or individual policy under New York law.
During an October 29, 2008 telephone conversation, the inquirer stated to the Department’s Office of General Counsel (“OGC”) that to the best of her knowledge, Dr. M is not a voluntary attending physician at a New York hospital;2 rather, he is an independent contractor. OGC will not opine on whether the New York Public Health Law, which governs hospitals, permits a New York hospital to employ independent contractors. Therefore, the scope of this opinion is limited to construction of the Insurance Law alone.
I. The policy that ABC issued is a group policy under New York law
Contrary to the inquirer’s assertion, the policy that ABC issued to XYZ is a group property/casualty insurance policy under New York law. Prior to 1986, insurers could not write group property/casualty insurance (including medical malpractice, which is a type of property/casualty insurance) in New York. In 1986, the Legislature enacted Insurance Law § 3435, which authorizes group property/casualty insurance only in a limited number of instances, such as where the members of the group are public entities or not-for-profit organizations.3 The rules governing the issuance of group policies are set forth in N. Y. Comp. Codes R. & Regs. (“NYCRR”) tit. 11, Part 153 (1995) (Regulation 135).
11 NYCRR § 153.1(g)(1) defines a group policy as a “policy underwritten and issued on a collective basis of: (i) property/casualty insurance insuring the interests of two or more persons or entities.” Thus, if a policy is underwritten and issued on a collective basis insuring the interests of two or more persons or entities, then the policy is a group policy.
However, 11 NYCRR § 153.1(g)(2 provides an exception for certain policies that are individually issued to a first-named insured, and an additional insured. That provision states:
Where an insurer elects to issue a single policy with a first-named insured and additional insureds, such policy shall not be considered a "group policy” in regard to the following:
(i) corporations or other entities under common control as defined in section 107(a)(16) of the Insurance Law, with regard to their related interests;
(ii) franchisors and their franchisees, with regard to their related interests;
(iii) members of a partnership or joint venture, with regard to their related interests;
(iv) family members, but only for purposes of policies subject to section 3425 of the Insurance Law; or
(v) shared interests, provided that such shared interests exist among all additional insureds, and only to the extent of such shared interests.
11 NYCRR § 153.1(s) defines “shared interests” with regard to liability insurance. That provision states:
Shared interests means:
(2) for liability insurance, ownership or control of an additional insured's operations and activities such that, if damages arise from such operations or activities, the first named insured and all insureds may be jointly liable.
Therefore, a single policy issued with named additional insureds is not considered a group policy if all the insureds have shared interests, provided that the shared interest exists among all the additional insureds, and only to the extent of the shared interests.
The exception has no application here. At the time that ABC delivered the policy in question, it did not know Dr. M’s identity, but rather underwrote his risk on a collective basis with the risk of other doctors that XYZ places. Further, each doctor insured through XYZ is an independent contractor; they have no shared interests in the operations or activities of each other. Thus, if one doctor were sued for medical malpractice, no other doctors would be jointly liable. Accordingly, the policy falls squarely within the definition of a group policy set forth in 11 NYCRR Pt. 135, and Dr. M is a certificate holder under the group policy.
II. Delivering in New York a certificate of insurance under a group policy issued outside of this state constitutes “doing an insurance business” in this state.
Turning to the question of whether ABC runs afoul of the Insurance Law if it delivers to Dr. M, with whom the hospital independently contracts, a certificate under a group policy that is issued in Massachusetts, Insurance Law § 1101(b)(1)(A) is relevant. That provision states:
(b)(1) Except as provided in paragraph two, three or three-a of this subsection, any of the following acts in this state, effected by mail from outside this state or otherwise, by any person, firm, association, corporation or joint-stock company shall constitute doing an insurance business in this state and shall constitute doing business in the state within the meaning of section three hundred two of the civil practice law and rules:
(A) making, or proposing to make, as insurer, any insurance contract, including either issuance or delivery of a policy or contract of insurance to a resident of this state or to any firm, association, or corporation authorized to do business herein, or solicitation of applications for any such policies or contracts.
Therefore, a person, firm, association, corporation, or joint-stock company that makes, or proposes to make, any insurance contract does “an insurance business” within the meaning of the Insurance Law. To do an insurance business, the individual or entity must be licensed, or exempt from licensing. See Insurance Law § 1102.
Furthermore, under Insurance Law § 1101, a certificate of insurance under a group policy is considered a “policy or contract of insurance.” See also 11 NYCRR § 153.1(m) (defining a policy to include a contract). To be sure, under Insurance Law § 1101(b)(2)(B), certificates for certain group life, group annuity, group accident and health, or blanket accident and health policies may be issued or delivered in this state without constituting the doing of an insurance business. However, nowhere does the Insurance Law make a similar exception for group property/casualty certificates.
Therefore, the fact that the group policy to XYZ was issued in Massachusetts has no bearing on the analysis if the certificate to Dr. M is delivered in New York. The Department has consistently interpreted the provisions of the Insurance Law to apply to each certificate under a group property/casualty insurance policy as if the certificate were a separate policy of insurance, except where the law expressly provides otherwise. See 11 NYCRR § 153.1(a); see also OGC Opinion dated September 16, 2005; OGC Opinion dated August 12, 2003; OGC Opinion dated January 2, 2002.
Under Insurance Law § 1101(b)(2), the only possible relevant exception under the circumstances presented is the excess line exception set forth in Insurance Law § 1101(b)(2)(F). That statute provides that transactions authorized by Insurance Law § 2105, which addresses excess lines brokers, if effected by mail from outside of this state by an unauthorized foreign or alien insurer duly licensed to transact the business of insurance in and by the laws of its domicile, shall not constitute the doing of an insurance business. See also OGC Opinion dated August 12, 2003 (noting that the prohibition against doing an unauthorized insurance business in this state applies to each certificate of insurance issued in New York, but that in the case of an authorized excess line insurer, the excess line laws apply to the placement of coverage for each New York member).
Although ABC is generally eligible to write on an excess line basis in New York, it may not write this group medical malpractice insurance policy on an excess line basis, because excess line polices may only be written on a group basis if the group is a type permitted by the New York Insurance Law and the regulations promulgated thereunder. See 11 NYCRR Pt. 153; see also, OGC Opinion dated August 12, 2003 (noting that 11 NYCRR Pt. 153 applies to all policies issued on a group basis, whether the insurer is authorized or not) As a general matter, group property/casualty insurance is not permitted in New York, except where specifically provided under the Insurance Law. See 11 NYCRR Pt. 153 (Regulation 135). For example, Insurance Law § 3435 allows group property/casualty insurance with respect to certain public entities, and not-for-profit corporations may qualify as a group for the purposes of procuring property/casualty insurance. In addition, Article 59 of the Insurance Law permits group insurance with respect to purchasing groups lawfully formed under the federal Liability Risk Retention Act, 15 U.S.C. 3901. And there are other limited provisions in the Insurance Law that permit group property/casualty insurance, but none is applicable here. Therefore, because the group that ABC covers does not qualify as a permissible group, ABC may not provide the coverage to such a group on an excess line basis.
In sum, because ABC is not an authorized property/casualty insurer in this state, it may not deliver the certificate to Dr. M in New York unless it is licensed as an insurer pursuant to Insurance Law § 1102.
III. The ACORD certificate is for informational purposes only, and the mere delivery of the ACORD form under the circumstances described would not violate the Insurance Law.
Lastly, the inquirer asks about delivery of the ACORD certificate. That certificate of insurance is a commercially created document that the insurance industry uses to summarize information about a person or entity’s insurance coverage. The form itself states:
This certificate is issued as a matter of information only and confers no rights upon the certificate holder. This certificate does not amend, extend or alter the coverage afforded by the policies below.
In other words, the ACORD certificate is not an insurance contract. See Circular Letter 15 (1997); Circular Letter 8 (1995); see also OGC opinions dated February 15, 2006; December 4, 2002; and September 8, 2000. However, if the certificate were to contain any amendments, extensions, or alterations to the coverage afforded by the policy, then it would have to be filed as a policy form with the Department pursuant to Insurance Law § 2307.
Specifically, the inquirer asks whether ABC runs afoul of the Insurance Law if XYZ were to send an ACORD certificate to Hospital A as evidence that Dr. M is covered under a group policy issued in Massachusetts. The inquirer asserts that merely sending a certificate of insurance under a group policy that was lawfully issued in another jurisdiction as evidence of insurance is permissible, and to that end, the inquirer relies on an OGC opinion dated January 2, 2002. That opinion states:
The exemption in section 1101(b)(2)(E) applies to subsequent transactions effected by mail after the policy has been negotiated, issued and delivered outside of New York. In the instant case, assuming that the policies in question are negotiated, issued and delivered outside of New York and the insurer is authorized to do an insurance business in its place of domicile, it would not have to be licensed in New York to perform subsequent transactions by mail.
As noted above, in order to do an insurance business, an individual or entity must be licensed, or exempt from licensing. See Insurance Law § 1102. However, Insurance Law § 1101(b)(2)(E) states in pertinent part that transactions with respect to policies that are principally negotiated, issued, or delivered outside of this state if affected by mail from outside this state by an unauthorized foreign or alien insurer duly licensed to transact an insurance business in and by the laws of its domicile does not constitute “doing an insurance business.” Put another way, an unauthorized insurer may not solicit insurance in this state at all. But transactions by mail with respect to policies that are principally negotiated, issued, or delivered outside of this state are permitted.4 However, Insurance Law § 1101(b)(2) still limits the transactions to kinds of insurance that are authorized to be done in this state.
Here, the ACORD certificate simply advises that Hospital A is the certificate holder, XYZ is the insured, and Dr. M is covered for medical malpractice under XYZ’s policy. It is issued for information purposes only, and confers no additional rights to the hospital. Therefore, even though the policy would be a group policy under New York law, the mere delivery of the ACORD form under the circumstances described would not violate the Insurance Law.
Further, providing evidence of coverage fits squarely within the sort of transaction that the Insurance Law permits with respect to a policy and the certificates thereunder that an unauthorized insurer has principally negotiated, issued, and delivered outside of this state. In this instance, XYZ (the insured), sent the hospital (the certificate holder under the ACORD certificate who has no coverage under the actual policy) an e-mail evidencing that Dr. M is insured. As long as ABC solicited, principally negotiated, issued, and delivered the policy and the certificates outside of New York, there is no violation of the Insurance Law simply because ABC’s insured sent to a New York hospital a copy of the insurance certificate as evidence that a doctor is covered under the policy.
For further information you may contact Senior Attorney Sapna Maloor at the New York City office.
1 A medical practitioner who temporarily takes the place of another. See Miriam Webster’s Medical Desk Dictionary 448 (1996).
2 Chapter 50 of the Laws of 2008 amends Chapter 266 of the Laws of 1986, and permits the Superintendent of Insurance and the Commissioner of Health to purchase an excess liability policy, or policies, or reimburse a hospital for the same, for certain voluntary attending physicians (VAPs) that have a minimum of $1.3 million coverage per claim, and $ 3.9 million coverage in the aggregate with an authorized insurer. Because the state provides this “free” layer of excess coverage, most New York hospitals, in order to satisfy the eligibility criteria for that coverage, require that their VAPs maintain the minimum level of primary medical malpractice coverage with an authorized insurer. Since Dr. M is neither a voluntary attending physician, nor insured by an authorized insurer, it does not appear that Dr. M is eligible for the “free” excess program.
3 There are other ways that group property/casualty insurance may be issued in this state. For example, N.Y. Ins. Law Article 59 (McKinney 2000), which implements the federal Liability Risk Retention Act of 1986, 15 U.S.C. §§ 3901, et. seq. ("L.R.R.A"), permits the formation of purchasing groups as a vehicle for obtaining commercial liability insurance coverage. Since neither XYZ nor its physicians have formed a purchasing group, those statutes have no application here.
4 The Department has construed the word "mail" in N.Y. Ins. Law § 1101(b)(2) (McKinney 2000) to include e-mail. See Office of General Counsel Opinion (“OGC”) dated April 26, 2001.