OGC Op. No. 09-04-08

The Office of General Counsel issued the following opinion on April 17, 2009 representing the position of the New York State Insurance Department.

Re: Stop-Loss Insurance, Prompt Claim Settlement

Question Presented:

Are stop-loss¹ insurers subject to the prompt-pay rules of Insurance Law § 3224-a?

Conclusion:

No. Although stop-loss insurance is considered accident and health insurance, insurers that issue such policies are not subject to Insurance Law § 3224-a, but rather the general requirements of the New York Insurance Law regulating accident and health insurance policies.

Facts:

The inquirer is a third-party administrator (TPA) in New York for several self-funded benefit plans, and also is licensed as an insurance agent in New York. At least one such plan² has purchased a stop-loss policy from an insurer which is licensed in New York to write, among other kinds of insurance, accident and health insurance. The policy is administered by a Third Party Administrator (TPA).

It is asserted that the inquiring firm’s client has been owed an amount of almost $480,000 by the insurer since June 1, 2008, with respect to a dependent under the plan. The insurer contends, in defending litigation commenced by the plan, that questions of fact support its refusal to pay the stop-loss claim.

When the inquirer notified the insurer, through the TPA, of its belief that the insurer is obligated to pay claims promptly under Insurance Law § 3224-a, the TPA indicated its disagreement:

Section 3224-a concerns the payment of “health care claims.” A claim made under a stop loss policy is not a health care claim. With respect to the stop loss claims at issue, the underlying health care claims have already been paid to the health care providers. The group does not seek payment for health care services (since the policyholder corporation does not provide or receive health care services and the stop loss insurer has no liability to any health care provider or person covered under a health plan), but for alleged losses under the stop-loss policy.

The inquirer asks whether the TPA’s interpretation of Insurance Law § 3224-a is correct.

Analysis:

The inquiry asks whether stop-loss insurers are subject to the prompt-pay rules of Insurance Law § 3224-a. In April 1982, the Insurance Department issued Circular Letter 7, which provides that stop-loss insurance is not reinsurance, but rather a form of accident and health insurance that may not be placed by excess line brokers. In 1999, the Legislature confirmed that stop-loss insurance is a form of accident and health insurance by enacting Insurance Law § 4237-a. That statute reads in pertinent part as follows:

(a) An insurer authorized to do the business of accident and health insurance in this state . . . shall be authorized to issue stop-loss insurance as provided in this section.

(b) ‘Stop-loss insurance’ means an 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.

Insurance Law § 3224-a, commonly known as the “prompt-pay” law, also is relevant to your inquiry. That statute establishes requirements for the settlement of health insurance claims by insurers, and reads in pertinent part as follows:

In the processing of all health care claims submitted under contracts or agreements issued or entered into pursuant to articles thirty-two, forty-two and forty-three of this chapter and article forty-four of the public health law and all bills for health care services rendered by health care providers pursuant to such contracts or agreements, any insurer . . . shall adhere to the following standards . . .

A stop-loss insurance policy is a contract or agreement issued or entered into pursuant to Article 42 of the Insurance Law. However, in enacting Insurance Law § 3224-a, there is no indication that the Legislature intended for the statute to apply to stop-loss policies. Rather, by its terms, Insurance Law § 3224-aapplies only to policies directly providing coverage for “health care” services. Because stop-loss insurance claims are similar to disability insurance claims, which are claims under an accident and health insurance policy but not “health care claims” under Insurance Law § 3224-a (since they do not involve payment for health care treatment), a claim under a stop-loss insurance policy is not a “health care claim” for the purposes of Insurance Law § 3224-a.

An insured benefit plan that falls outside the scope of Insurance Law § 3224-a is not, however, without protection. Insurance Law § 3216(d)(1)(H), which regulates individual accident and health insurance policies, requires that payments be made immediately upon receipt of proof of loss. Further, Insurance Law § 3221(a)(12), which regulates group accident and health policies, requires payment within 60 days. Because stop-loss insurance protects a self-funded group plan, but is provided by an individual policy issued to the plan, the Department interprets the Insurance Law to allow either time period for payment of claims.

In addition, § 216.6 of 11 NYCRR Part 216 (Regulation 64) sets forth the standards for the prompt, fair, and equitable settlement of accident and health insurance claims. That regulation reads in pertinent part as follows:

(c) Within 15 business days after receipt by the insurer of a properly executed proof of loss and/or receipt of all items, statements and forms which the insurer requested from the claimant, the claimant, or the claimant's authorized representative, shall be advised in writing of the acceptance or rejection of the claim by the insurer. . . .If the insurer needs more time to determine whether the claim should be accepted or rejected, it shall so notify the claimant, or the claimant's authorized representative, within 15 business days after receipt of such proof of loss, or requested information. Such notification shall include the reasons additional time is needed for investigation. If the claim remains unsettled, . . . the insurer shall, 90 days from the date of the initial letter setting forth the need for further time to investigate, and every 90 days thereafter, send to the claimant, or the claimant's authorized representative, a letter setting forth the reasons additional time is needed for investigation. . . . .

(d) The company shall inform the claimant in writing as soon as it is determined that there was no policy in force or that it is disclaiming liability because of a breach of policy provisions by the policyholder. The insurer must also explain its specific reasons for disclaiming coverage.

(e) In any case where there is no dispute as to one or more elements of a claim, payment for such element(s) shall be made notwithstanding the existence of disputes as to other elements of the claim where such payment can be made without prejudice to either party.

(f) Every insurer shall pay any amount finally agreed upon in settlement of all or part of any claim not later than five business days from the receipt of such agreement by the insurer, or from the date of the performance by the claimant of any condition set by such agreement, whichever is later . . . .

Thus, under Regulation 64, the insurer must: inform the claimant in writing, within 15 business days, of the acceptance or rejection of the claim; keep the claimant informed every 90 days of any additional time that is needed for investigation if the claim remains unsettled; promptly inform the claimant in writing of a determination that there was no policy in force or that the insurer is disclaiming liability because the policyholder breached the policy provisions; pay those elements of the claim where there is no dispute as to the insurer’s liability when payment can be made without prejudice; and pay any finally agreed upon amount in settlement of all or part of any claim no later than 5 business days from the insurer’s receipt of the agreement, or the date of the claimant’s performance of any condition set by the agreement, whichever is later.

For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.

___________________________________________________________________________________________________________

¹ Stop-loss insurance is insurance that indemnifies a self-funded welfare plan for amounts in excess of specified loss limits. See Opinions of the Insurance Department’s Office of General Counsel dated September 20 and September 17, 2007.

² It is presumed, for the purpose of this opinion, that the plan is governed by the federal Employee Retirement Income Security Act (ERISA), 29 U.S.C. Chapter 18, and thus not subject to the New York Insurance Law.