OGC Op. No. 10-06-02
The Office of General Counsel issued the following opinion June 3, 2010, representing the position of the New York State Insurance Department.
RE: Licensing of Third Party Administrators
May an unlicensed employee of a licensed independent adjuster investigate and adjust claims where an officer or director became a sub-licensee of the independent adjuster?
No, an unlicensed employee of a licensed independent adjuster may not investigate and adjust claims even where an officer or director has become a sub-licensee of the independent adjuster.
The inquirer reports that his employer is domiciled outside of New York, is licensed or certified as a third party administrator (TPA) in 30 states, and is authorized to do business as a foreign corporation pursuant to the New York Business Corporation Law. As part of its activities, the TPA determines benefits and, as described below, issues payments for valid claims under policies issued by authorized accident and health insurers.
He further reports that where the payment is under an amount designated by the insurer, the TPA is authorized to issue a check drawn on the insurer’s bank account. Where the payment is above that amount, the TPA is required to secure the concurrence of the insurer prior to release of the check.
In addition, he reports his understanding that the TPA would have to be licensed as an independent adjuster, and based upon conversations with individuals in the Insurance Department, believe that the TPA could accomplish this by having an officer or director pass the examination and act as a sub-licensee. He seeks confirmation of his understandings.
The inquiry is whether an unlicensed employee of a licensed independent adjuster may investigate and adjust claims where an officer or director became a sub-licensee of the independent adjuster.
N.Y. Ins. Law § 2102(a)(1) (McKinney 2006) 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), which is relevant to the inquiry, defines the term “independent adjuster” in relevant part:
[A]ny 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 an 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 . . . .
Thus, any person or other entity that exercises any discretion on behalf of an insurer in the handling of a claim, rather than engaging in strictly ministerial acts, is investigating and adjusting claims within the meaning of Insurance Law § 2101(g)(1). See Opinion of Office of General Counsel No. 07-10-09 (October 23, 2007); Opinion of Office of General Counsel No. 01-06-36 (June 29, 2001). While certain persons and entities are exempt from securing licenses as independent adjusters, based upon the information furnished, it does not appear that any exemption applies to the TPA or its employees. While the inquirer acknowledges that the TPA must be licensed as an independent adjuster, the inquirer believes that the licensing obligation may be met by the licensing of an officer or director of the TPA as a sub-licensee. However, Insurance Law §§ 2102(a)(1) and 2108(a)(3) require that the TPA and any of its directors, officers or employees engaged in investigating and adjusting claims must be licensed as independent adjusters, either individually or as a sub-license of the TPA, to act on behalf of an insurer. See Opinion of Office of General Counsel No. 06-01-22 (January 20, 2006).
Therefore, an unlicensed employee of a licensed independent adjuster may not investigate and adjust claims where an officer or director became a sub-licensee of the independent adjuster.
For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.