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

Andrew M. Cuomo
Governor

James J. Wrynn
Superintendent

OGC Op. No. 11-02-04

The Office of General Counsel issued the following opinion on February 7, 2011 representing the position of the New York State Insurance Department.

Re: Statutory Disability Benefits- - Extension of Coverage

Question Presented:

May an accident and health insurer make payments under a statutory disability benefits policy to an employer in recognition of the additional expenses incurred by the employer on account of employees’ absence from work because of disability?

Conclusion:

No. The addition of such coverage would violate Insurance Law § 4235(e), and may also violate the Workers’ Compensation Law.

Facts:

According to the records of the Insurance Department, ABC Life Insurance Company of America (ABC) is licensed to transact life insurance, annuity, and accident and health insurance business, as defined in N.Y. Ins. Law § 1113(a)(1), (2), and (3) (McKinney 2010). The inquirer reports that ABC’s primary business is the issuance of policies to employers to enable them to comply with the requirements of Workers’ Compensation Law (WCL) Article 9, and that it does not issue individual disability income insurance policies. 1

The inquirer further reports that some insurance producers have suggested that ABC issue a complement to the statutory disability benefits policy indemnifying employers for the addition cost incurred by said employers for hiring a temporary replacement. As described by the inquirer, “the employee would collect a benefit and the employer would receive the same amount under the same policy.”

While the inquirer recognizes that the concept would have to comply with WCL Article 9, and be vetted by the Disability Benefits Bureau of the Workers’ Compensation Board (WCB), the inquirer first seeks the views of the Insurance Department, which would have to approve the policy language.

Analysis:

In addition to benefits provided under WCL Article 2 for industrial accidents and illness, WCL Article 9 requires employers to provide specified benefits for non-work related absences. WCL § 203 sets forth those employees entitled to benefits:

Employees in employment of a covered employer for four or more consecutive weeks and employees in employment during the work period usual to and available during such four or more consecutive weeks in any trade or business in which they are regularly employed and in which hiring from day to day of such employees is the usual employment practice shall be eligible for disability benefits as provided in section two hundred four.

In addition to the minimum benefits mandated by WCL § 204, the Insurance Department has approved policies providing greater benefits to the employee, as authorized by WCL § 225(4).

Insurance Law § 4235(e), which regulates group accident and health insurance policies, including those issued in compliance with WCL Article 9, is relevant to the inquiry, and provides in pertinent part:

The benefits payable under the policy shall be payable to the employee or other insured member of the group or to some beneficiary or beneficiaries designated by him, other than the employer . . . . Payment so made shall discharge the insurer's obligation with respect to the amount of insurance so paid.

Thus, an insurer is prohibited under the Insurance Law from paying benefits to the employer.

It is also suggested that the inquirer consult WCL § 20-8(1), which also appears to bar payment to the employer. The inquirer may wish to contact the WCB for an interpretation of that section.

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

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1 Pursuant to Insurance Law § 1113(a)(3)(i), accident and health insurance includes providing disability benefits pursuant to WCL Article 9.