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

David A. Paterson
Governor

James J. Wrynn
Superintendent

OGC Op. No. 10-12-02

The Office of General Counsel issued the following opinion on December 3, 2010, representing the position of the New York State Insurance Department.

Re: Second Medical Opinion Service Offered by a Life Insurer

Question Presented:

May an authorized life insurer offer, in conjunction with an individual life insurance policy, and for no separately identifiable charge, a service that provides a second medical opinion based upon a review of an insured’s medical records when the insured is diagnosed with a certain serious or life-threatening condition without violating N.Y. Ins. Law § 4224(c) (McKinney Supp. 2010)?

Conclusion:

A service that provides a second medical opinion based upon a review of an insured’s medical records when the insured is diagnosed with a certain serious or life-threatening condition constitutes a limited health insurance benefit; therefore, the insurer must be licensed to write accident and health insurance and the life insurance policy must specify this limited health insurance benefit in order to comport with Insurance Law § 4224(c).

Facts:

The inquirer reports that he is an attorney who represents an insurer authorized to write life insurance in New York that would like to enter into an agreement with an entity that offers second medical opinions based upon a review of the medical records of an insured diagnosed with a certain serious or life threatening medical condition. For the purposes of this opinion, the Department assumes that the insurer is authorized to write accident and health insurance in New York.

The inquirer further reports that the insurer will offer this service in conjunction with all new individual life insurance policies issued in New York. 1 Specifically, the inquirer reports that if an insured is diagnosed with a qualifying medical condition, the insured or the insured’s physician may request a medical record review from the entity with which the insurer entered into an agreement. Upon receipt of the request, the entity will collect the medical records and identify several medical centers that are available to review the insured’s medical records. The medical center that the entity selects will review the insured’s medical records and provide a second medical opinion to the insured or the insured’s physician.

The inquirer reports that the selected medical center will base its medical opinion solely on a review of the insured’s medical records, and that the medical center will not provide any care or treatment. The inquirer further reports that the insurer will pay the entity a fixed amount per policy, per year, to provide the service, and that the insurer will offer the service for no separately identifiable charge.

Further, the inquirer reports that his client previously filed with the Life Bureau of the Insurance Department (the “Department”) a policy rider that would offer this service. However, in a letter dated May 5, 2010, a senior insurance attorney in the Life Bureau sent a letter to the inquirer’s firm stating that he was closing the file without further review, because during his initial review of the file, the senior insurance attorney found it be incomplete, to contain policy forms that do not comply with statutory and regulatory requirements, and to contain so many errors and omissions that it would require an inordinate amount of time to review the filing fully. The inquirer’s client has since decided that the service is probably better characterized as a non-insurance service offered outside of a life insurance policy and as a result, did not resubmit a revised policy rider for the Life Bureau’s approval.

Nevertheless, the inquirer states that he wishes to confirm that offering this service does not violate Insurance Law § 4224(c).

Analysis:

As a general matter, an insurer may not provide or offer to provide an insured or potential insured with any special benefit or discount, including any rebate from the insurance premium, or any service or other incentive in conjunction with the sale of insurance, that is not specified in the insurance policy or contract, or vice versa. Insurance Law § 4224(c) applies to life insurance, accident and health insurance, and annuities, and states that:

Except as permitted by section three thousand two hundred thirty-nine of this chapter, 2 no such life insurance company and no such savings and insurance bank and no officer, agent, solicitor or representative thereof and no such insurer doing in this state the business of accident and health insurance and no officer, agent, solicitor or representative thereof, and no licensed insurance broker and no employee or other representative of any such insurer, agent or broker, shall pay, allow or give, or offer to pay, allow or give, directly or indirectly, as an inducement to any person to insure, or shall give, sell or purchase, or offer to give, sell or purchase, as such inducement, or interdependent with any policy of life insurance or annuity contract or policy of accident and health insurance, any stocks, bonds, or other securities, or any dividends or profits accruing or to accrue thereon, or any valuable consideration or inducement whatever not specified in such policy or contract; nor shall any person in this state knowingly receive as such inducement, any rebate of premium or policy fee or any special favor or advantage in the dividends or other benefits to accrue on any such policy or contract, or knowingly receive any paid employment or contract for services of any kind, or any valuable consideration or inducement whatever which is not specified in such policy or contract. 3

Therefore, as a general matter, an insurer may not give or offer to give any person any valuable consideration or inducement not specified in the insurance policy or contract.

However, an insurer may provide services not specified in the insurance policy or contract to an insured or potential insured without violating the anti-rebating and inducement provisions of Insurance Law § 4224(c) if:

1. the service directly relates to the sale or servicing of the policy or contract or provides general information about insurance or risk reduction; and

2. the insurer or insurance producer provides the service in a fair and nondiscriminatory manner to like insureds or potential insureds.

See Circular Letter No. 9 (2009).

Thus, the first question that arises is whether a service that provides a second medical opinion based upon a review of an insured’s medical records when the insured is diagnosed with a certain serious or life-threatening condition directly relates to the sale or servicing of an individual life insurance policy or provides general information about insurance or risk reduction. The inquirer asserts that the service bears a direct relation to the life insurance policy because the insurer is providing the service to insureds diagnosed with certain serious or life-threatening conditions that may lead to death and the payment of benefits under the life insurance policy. The inquirer further asserts that the service is intended to serve a cost-containment function for the insurer by helping to prolong life and reduce the benefits payable under the life insurance policy.

A service that provides a second medical opinion based upon a review of an insured’s medical records when the insured is diagnosed with a certain serious or life-threatening condition does not directly relate to the sale or servicing of a life insurance policy or provide general information about insurance or risk reduction. Rather, this service is a limited health insurance benefit. Therefore, the insurer must be licensed to write accident and health insurance and the life insurance policy must specify this limited health insurance benefit in order to comport with Insurance Law § 4224(c).

However, even if the life insurance policy specifies the second medical opinion service and makes it available to all like insureds, the Department still may find the arrangement unacceptable if the policy or the insurer’s activities run afoul of any other relevant provisions of the Insurance Law. Thus, in reviewing policy forms, the Department must determine that the goods or services offered in the policy have a legitimate nexus to the insurance coverage provided under the policy and are necessarily or properly incidental to the insurer’s insurance business. See Ins. Law §§ 1113(a) and 4205 and Circular Letter No. 9 (2009).

Specifically, Insurance Law § 1714(a) sets forth authority to conduct certain business directly instead of through a subsidiary, and states that:

A domestic life insurance company may, if it maintains books and records that separately account for such business, engage directly in (i) any business, to the extent necessarily or properly incidental to the insurer's business, including rendering investment advice, investment management services and services related to the functions involved in the operation of an insurance business, and (ii) any other business to the extent approved by the superintendent.

Thus, a domestic life insurer may engage directly in any business if the business is necessarily or properly incidental to the life insurer’s business, including rendering investment advice, investment management services and services related to the functions involved in the operation of an insurance business, and any other business if approved by the Superintendent.

In the situation presented here, the inquirer’s client would not be rendering investment advice, investment management services, or services related to the functions involved in the operation of the inquirer’s client’s life insurance business. As stated previously, it appears that the inquirer’s client instead would be offering a limited health insurance benefit. Further, in the May 5, 2010 letter to the inquirer’s office, the senior insurance attorney in the Life Bureau noted that one of the reasons that the Life Bureau was closing the file without further review was due to the fact that the inquirer’s client “has not sufficiently demonstrated that the proposed second opinion service has such a nexus to the insurance product being offered.” Thus, the inquirer’s client must sufficiently demonstrate that the second medical opinion service has a legitimate nexus to the life insurance policy and is necessarily or properly incidental to the insurer’s life insurance business before it may offer the second medical opinion service.

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

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1 The Department assumes that this second medical opinion service applies to an individual who is diagnosed with a certain serious or life threatening medical condition after the individual has purchased the life insurance policy.

2 Insurance Law § 3239 applies to wellness programs.

3 Insurance Law § 2324(a) sets forth similar language with regard to property/casualty insurance.