PREPAID LEGAL SERVICES PLANS

        I, NEIL D. LEVIN, Superintendent of Insurance of the State of New York, pursuant to the authority granted by Sections 201, 301, 1113(a)(29), and 1116, and Article 23 of the Insurance Law and Chapter 65 of the Laws of 1998, do hereby promulgate a new Part 261 of Title 11 of the Official Compilation of Codes, Rules and Regulations of the State of New York (Regulation 161) to take effect upon publication in the State Register. A new Part 261, entitled "Prepaid Legal Services Plans", is added to Chapter XI, to read as follows:

Section 261.0 Preamble.

        (a) This Part implements, interprets, and clarifies Chapter 65 of the Laws of 1998. Prior to the enactment of Chapter 65, Section 1116 of the Insurance Law authorized insurers to offer experimental plans of prepaid legal services insurance, and except in connection with such a plan, the Insurance Law did not authorize insurers to provide legal services insurance.

        (b) Chapter 65 added a new paragraph 29 to subsection (a) of section 1113 of the Insurance Law effective April 1, 1999, to set forth a new kind of insurance entitled "Legal services insurance" (defined to mean insurance providing legal services or reimbursement of the cost of legal services) and also amended section 1116 of the Insurance Law (retitled as "Prepaid legal services plans and legal services insurance").

        (c) Section 1116(a)(3), as amended effective April 1, 1999, provides that legal services insurance may not be written except (i) in conjunction with prepaid legal services plans as authorized in section 1116, or (ii) pursuant to a regulation promulgated by the superintendent permitting legal services insurance to be written as part of a policy of liability insurance covering related risks and, provided further, that legal services for defense only coverages for commercial or other business related lawsuits or arbitration proceedings commenced against the business entity that purchased the policy is not more than an incidental part of such liability insurance. Section 1116(a)(2), as amended, provides that a prepaid legal services plan may include legal services insurance as part of the plan, provided however, not more than an incidental amount of the premium with respect to such prepaid legal services plan shall be attributable to legal services for defense only coverages for commercial or other business related lawsuits or arbitration proceedings commenced against the business entity that purchased the policy.

        (d) Examples of the types of services which may be included in a prepaid legal services plan are (i) Wills, Estate Settlements; (ii) Purchase and Sale Contract; (iii) Real Estate Transactions; (iv) Preventive Legal Service, Document Review, Letter-writing; (v) Prenuptial Agreement, Annulment, Separation, Divorce; (vi) Adoption, Guardianship, Conservatorship; (vii) Employment Contract; (viii) Defense of Civil Suit; (ix) Eviction; (x) Name Changes; (xi) Internal Revenue Service Collection Defense and Audit Protection and other tax matters; and (xii) Family Court Proceedings.

        (e) In the past, the Department has received many inquiries requesting clarification as to what kinds of prepaid legal services arrangements constitute the doing of an insurance business, thus requiring licensing as an insurer. As guidance on this issue, it is the Department's interpretation that legal services arrangements pursuant to which legal services are provided for a prepaid fee do not constitute the doing of an insurance business within the meaning of section 1101 of the Insurance Law so long as the services are not dependent upon the happening of a fortuitous event (as such term is defined in section 1101(a)(2) of the Insurance Law) in which the recipient of the services has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of such event. For example, an arrangement that, for a prepaid fee, provides that the recipient of services is entitled to a will upon request would not constitute the doing of an insurance business, so long as the arrangement is not conditioned upon the happening of a fortuitous event. Therefore, a prepaid legal services arrangement providing such limited services and being offered by an unlicensed entity would not be subject to the jurisdiction of the Insurance Department.

        (f) On the other hand, an arrangement that for a prepaid fee provides services which are dependent upon the happening of a fortuitous event in which the recipient of the services has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of such event, would constitute the doing of an insurance business, specifically legal services insurance. For example, such a prepaid legal services arrangement that provides defense coverage for a lawsuit would constitute insurance.

        (g) However, an arrangement as described in subdivision (f) of this section may provide for such services, without constituting the doing of an insurance business, if a separate fee for each such service is charged, and the fee for the service fully covers the cost of rendition of such services, including reasonable overhead, thus avoiding the assumption of a risk of loss in rendering the service. Therefore, the arrangement can provide for a prearranged discount on the services, but the provider of the services may not assume a risk of loss.

        (h) Pursuant to Chapter 65, an authorized insurer may provide noninsurance benefits pursuant to a prepaid legal services plan, so long as the insurer is licensed to write legal services insurance. An insurer, however, is not required to offer legal services insurance as part of the plan. Such prepaid legal services plans are subject to the jurisdiction of the Insurance Department because they are offered by licensed entities and regardless of whether or not they include legal services insurance as part of the plan.

        (i) Additionally, attorneys who arrange to provide the services described in subdivision (f) of this section on a capitated fee basis, would also violate Insurance Law Section 1102, whether or not the arrangement was offered by an authorized insurer pursuant to Insurance Law Section 1116.

        (j) Chapter 65 does not change the state of the law in regard to what constitutes the doing of an insurance business.

        (k) Section 1116(h), as amended, provides that the superintendent shall promulgate such regulations that are necessary to implement the provisions of section 1116. This Part applies to prepaid legal services plans, and Part 262 of this Title (Regulation 162) applies to legal services insurance written as part of a liability insurance policy and also sets forth additional requirements for legal services insurance written pursuant to a prepaid legal services plan. Furthermore, the superintendent is directed to promulgate such rules and regulations as are necessary to implement the provisions of Chapter 65 on or before April 1, 1999. Chapter 65 provides that the new paragraph 29 of section 1113(a) of the Insurance Law and various conforming amendments implementing new paragraph 29 shall take effect April 1, 1999 and shall expire and be deemed repealed on April 1, 2003. Section 1116(c), as amended, provides that contracts issued in connection with a prepaid legal services plan may be issued on a group basis subject to regulations promulgated by the superintendent. Chapter 65 also provides that the relevant provisions shall apply to all contracts executed on or before April 1, 2003 until the expiration of such contracts or until April 1, 2007, whichever shall occur first.

Section 261.1 Definitions.

        For purposes of this Part, the following definitions shall apply:

        (a) "Access plan" means an arrangement for the providing of legal services on a prepaid fee basis, where such services are not dependent upon the happening of a fortuitous event in which the recipient of the services has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of such event; except that an access plan may agree to provide such services in the event a separate fee for each such service is charged, and the fee for the service fully covers the cost of rendition, including reasonable overhead.

        (b) "Attorney retainer agreement" means an agreement by an individual, corporation, or other business entity to pay in advance a fee to an attorney, admitted to practice in the jurisdiction where the services are to be rendered, in order to retain or secure the right of access to the services of an attorney and for such services as may be provided in the future and disbursements related thereto, provided there is a provision for an accounting of the value of such retainer and any services provided.

        (c) "Certificate" means any evidence of insurance coverage, or rider or endorsement thereto, issued to a group member under a group policy.

        (d) "Family member" means a person, related to the insured by blood, marriage, adoption, dependency or operation of law, who resides in the same household (including a ward or foster child) or who is a dependent child away at school.

        (e) "Fortuitous event" has the meaning ascribed in section 1101(a)(2) of the Insurance Law.

        (f) "Group member" means a person or entity to whom a policy or certificate has been issued in connection with a group policy.

        (g) "Group master policy" means a group policy issued to a group master policyholder and under which certificates are issued to group members, but does not include such certificates.

        (h) "Group master policyholder" means the person or entity to whom a group master policy is issued.

        (i) "Insured" means the person or entity covered under an individual policy, a group member under a group policy, or a family member, if family coverage is provided under the policy or certificate.

        (j) "Issue" includes issue for delivery.

        (k) "Mass merchandising plan" means a method of marketing individually issued policies to persons through an employer, association, organization, or other entity, with reasonably anticipated economies of acquisition or administration.

        (l) "Policy" means a contract issued in connection with a prepaid legal services plan, including legal services insurance issued pursuant to such a plan.

        (m) "Prepaid legal services plan" means an access plan as defined in subdivision (a) of this section, provided by an authorized insurer, and may also include legal services insurance.

Section 261.2 Applicability.

        (a) This Part shall apply to any prepaid legal services plan policy or certificate issued or delivered in this State, or issued or delivered by an authorized insurer on risks or operations in this State, on or after April 1, 1999.

        (b) Provided that the transaction does not violate section 1102 of the Insurance Law, this Part shall not apply to:
        (1) An attorney retainer agreement as defined in section 261.1(b) of this Part;
        (2) A referral service as authorized by Judiciary Law Section 498;
        (3) The furnishing of legal assistance by a labor union or other employee organization to its members in matters relating to employment;
        (4) An employee welfare benefit plan to the extent that state laws are preempted by the Employee Retirement Income Security Act of 1974, 29 U.S.C. 1144; or
        (5) An access plan as defined in section 261.1(a) of this Part, unless provided by an authorized insurer.

Section 261.3 Prepaid legal services plan policy and certificate provisions.

        (a) Every policy and certificate shall be subject to the filing and approval requirements of Article 23 of the Insurance Law and shall not qualify as a special risk pursuant to Part 16 of this Title (Regulation 86).

        (b) Every policy and certificate shall be written in a readable and understandable manner in accordance with Section 3102 of the Insurance Law.

        (c) Every policy and certificate shall contain the provisions specified in section 1116 of the Insurance Law and shall be subject to the requirements of that section.

        (d) (1) Every policy and certificate shall contain a detailed list and description of the legal services to be supplied or the legal matters for which expenses are to be covered or reimbursed and any limits on the amounts covered or reimbursed.
        (2) Every policy and certificate shall indicate the name of the insurer and the full address of its principal place of business, the telephone number of the place where services can be requested, and the full address and telephone number of the place where the insured may file a claim.
        (3) Every policy and certificate shall contain a provision that nothing in the plan shall be construed to limit the right of an insured to retain any attorney admitted to practice in the state where the legal service is being provided. The policy shall state that compensation by the plan for attorneys not participating in the plan shall be subject to the schedule of benefits and fee structure set forth in the applicable contract. The policy shall not prohibit an attorney who is not participating in the plan from charging a fee for services provided in excess of the schedule of benefits or fee structure set forth in the applicable contract.
        (4) Every policy and certificate shall provide a procedure for prompt resolution of grievances concerning benefits.
        (5) Every policy and certificate shall provide that nothing in the plan shall be construed to prevent an insured from making a complaint to the appropriate Appellate Division or other body designated by the Appellate Division to investigate complaints in accordance with Judiciary Law Section 90, or to the appropriate disciplinary body in the state where the legal service is being provided.

        (e)(1) Every policy and certificate shall state that coverage shall be provided for costs incurred during the policy term and shall exclude services rendered prior to the effective date of the insured's coverage.
        (2) Coverage of services ongoing at the time that coverage terminates shall be provided for an additional 90 days, except that in regard to legal services insurance coverage provided under the plan, the policy shall provide coverage in accordance with the provisions of Part 262 of this Title (Regulation 162).

        (f) The insured shall not be indemnified for a greater sum than that of the costs actually incurred.

        (g) A prepaid legal services plan may include legal services insurance as part of the plan, in accordance with the provisions of Part 262 of this Title (Regulation 162).

        (h)(1) A policy or certificate may contain a coordination of benefits (COB) provision. If a policy or certificate includes a COB provision it must comply with this subdivision. A policy or certificate that does not include a COB provision shall be considered to be primary and may not take the benefits of another policy into account when it determines its benefits, except as provided in paragraph (5) of this subdivision.
        (2) For the purposes of this subdivision the term "benefits" shall mean the schedule of benefits and the fee structure required pursuant to subdivision (d) of this section."
        (3) Order of benefit determination rule. The benefits of a policy which covers the insured as a group member are primary and determined before those of a policy which covers the insured as an individual or as a family member, which are secondary. In all other circumstances, the benefits of the policy which covered the insured longer are determined before those of the policy which covered the insured for the shorter time.
        (4) A secondary policy may reduce either the benefits it must pay or the services it must provide by the amount of benefits paid or the services provided by all policies to which it is secondary."
        (5) No policy may contain a provision that its benefits are excess or always secondary to a policy unless such policy is designed to supplement either an existing prepaid legal services plan policy, as provided in this Part, or an existing liability insurance policy that includes legal services insurance as a part thereof, written pursuant to Part 262 of this Title (Regulation 162).

        (i)(1) An individual policy may also provide coverage for a family member.
        (2) A group policy may also provide coverage for a family member under a certificate issued to a group member.

Section 261.4 Attorney compensation.

        No insurer shall compensate an attorney on a capitated fee basis in connection with a prepaid legal services plan.

Section 261.5 Prepaid legal services plans; group basis.

        (a) A policy or certificate of a prepaid legal services plan may be issued or delivered on a group basis only if the group conforms to one of the following descriptions:
        (1) A policy issued to an employer or to a trustee or trustees of a fund established by an employer, which employer or trustee or trustees shall be deemed the policyholder, covering employees of such employer, and covering all of such employees or all of any class or classes thereof, including retired employees, determined by conditions pertaining to the employment. The premium for the policy shall be paid by the policyholder, either wholly from the employer’s funds, or from funds contributed by the covered employees, or from funds contributed jointly by the employer and employees. A policy on which no part of the premium is to be derived from funds contributed by the covered employees specifically for their coverage must cover all eligible employees. If all or part of the premium is to be derived from funds contributed by the covered employees, then such employees shall have the right to decline coverage under the policy.
        (2) A policy issued to a trustee or trustees of a fund established by, or participated in, by the employer members of a trade association, which trustees shall be deemed the policyholder for the sole benefit of the employees of such employers. The policy shall conform to the following requirements:
            (i) The policy may be issued only if the association has been in existence for at least two years and was formed principally for purposes other than obtaining insurance.
            (ii) The persons eligible for coverage under the policy shall be all of the employees of the participating employers, or all of any class or classes thereof determined by conditions pertaining to their employment.
            (iii) The premium for the policy shall be paid by the trustee or trustees either from funds contributed wholly by the employers or wholly by the employees, or funds contributed jointly by the employers and the employees. A policy on which no part of the premium so payable is to be derived from funds contributed by the covered employees specifically for their coverage must insure all eligible employees. If all or part of the premium is to be derived from funds contributed by the covered employees, then such employees shall have the right to decline coverage under the policy.
        (3) A policy issued to a labor union, or to a duly organized association of civil service employees, which shall be deemed the policyholder, covering members of such union and covering all of such members or of any class or classes thereof determined by conditions pertaining to their employment or membership in the union or both. A policy on which no part of the premium is to be derived from funds contributed by the covered members specifically for their coverage must cover all eligible members. If all or part of the premium is to be derived from funds contributed by the covered members, then such members shall have the right to decline coverage under the policy.
        (4) A policy issued to a trustee or trustees of a fund established, or participated in, by two or more employers or by one or more labor unions, or by one or more employers and one or more labor unions, which trustee or trustees shall be deemed the policyholder, to cover employees of the employers or members of the unions for the benefit of persons other than the employers or the unions, subject to the following requirements:
            (i) The persons eligible for coverage shall be all of the employees of the employers or all of the members of the unions, or all of any class or classes thereof determined by conditions pertaining to their employment, or to membership in the unions, or to both.
            (ii) The premium for the policy shall be paid by the trustee or trustees either wholly from funds contributed by the employer or employers of the covered person or by the union or unions, or by both, or jointly from such funds and funds contributed by the covered persons specifically for their coverage or from contributions by the covered persons. A policy on which no part of the premium so payable is to be derived from funds contributed by the covered persons specifically for their coverage must cover all eligible persons. If all or part of the premium is to be derived from funds contributed by the covered persons, then such persons shall have the right to decline coverage under the policy.
            (iii) With respect to a policy issued to a trustee or trustees of a fund established by one or more labor unions, or by one or more employers and one or more labor unions, the insurer shall obtain a written certification that a reasonable number of comparative bids have been obtained from different insurers and that such bids have been considered by the trustees before making a decision concerning which bid to accept. The certification shall state that such decision was made at a trustees’ meeting held on a date certain, and a copy of the minutes of such meeting shall be attached to such certification.
        (5) A policy issued to an association, or to a trustee or trustees of a fund established, created or maintained for the benefit of members of one or more associations, all of whose eligible members have the same profession, trade or occupation, which association or associations have been organized and maintained in good faith for purposes principally other than that of obtaining coverage and have been in active existence for at least two years. The policy shall cover members, or employees of members, of such association or associations for the benefit of persons other than employers and the association or associations, or any officials, representatives, trustees or agents thereof. The members or employees eligible for the coverage under the policy shall be all the members, or all the members and their employees, or all of any class or classes thereof determined by conditions pertaining to their employment or to association membership or both.
        (6) A policy issued to a continuing care retirement community operating under a certificate of authority issued pursuant to article forty-six of the public health law which insures the residents of the community.
        (7) A policy covering persons employed under 32 U.S.C. § 709, members of the national guard on full-time training duty under title 32 of the United States Code, or on active duty or active duty for training under title 10 of the United States Code, under the full-time manning program, issued to the adjutant general, who shall be deemed the policyholder, or to a trustee or trustees of a fund established, created, or maintained for the benefit of such individuals covered, which trustee or trustees shall be deemed the policyholder, the premium of which is to be paid by the individuals covered either directly or by deduction from wages or salary.

        (b)(1) Except as provided in paragraph 2 of this subdivision, coverage under a group prepaid legal services policy shall be based upon a plan precluding individual selection either by the insureds or by the policyholder.
        (2) A group recognized pursuant to paragraph 2, 4, or 5 of subdivision (a) of this section, may permit a number of selections by the policyholder, if the selections offered utilize consistent plans of coverage so that the resulting plans of coverage are reasonable.
        (3) Any policy issued under subdivision (a) of this section may permit a limited number of selections by the group members if the selections offered utilize consistent plans of coverage for individual group members so that the resulting plans of coverage are reasonable.

        (c) A group policy shall cover all persons without evidence of insurability, provided that coverage is elected during an initial period of eligibility of at least 30 days. Rules may be established limiting future enrollment to specified time periods. An insurer shall establish minimum participation requirements that afford adequate protection against anti-selection where all or part of the premiums are derived from funds contributed by the covered group members specifically for their coverage.

        (d) A certificate issued to a group member under a group master policy shall contain all material terms and conditions affecting an insured, unless the group master policy is incorporated by reference and a copy of the master policy accompanies the certificate.

        (e) Except as specifically permitted under subdivision (a) of this section, no insurer shall provide coverage in regard to a group policy that:
        (1) requires the purchase of insurance as a condition of group membership or
        (2) imposes any penalty upon a group member if insurance is not purchased.

        (f) Except as specifically permitted under subdivision (a) of this section, no insurer shall provide coverage in regard to a group policy if:
        (1) the purchase of any good or service from the group is a condition of purchasing insurance by a group member; or
        (2) the purchase of insurance by a group member is a condition of purchasing any good or service from the group.

        (g) No group policy, master policy or certificate shall be subject to a group or sub-group aggregate group policy limit of any kind at any time, and any policy limit applicable to an insured shall:
        (1) be separate and apart from any limit to which any other insured under the group policy may be subject; and
        (2) operate unaffected by the experience of any other insured or the overall experience of the group itself.

        (h) Except as provided for in this Part, a group policy under this Part shall be subject to the provisions of sections 153.3(f) and (g), 153.4(b), 153.5, 153.6, and 153.7(a), (b), (d) and (e) of Part 153 of this Title (Regulation 135) as those provisions relate to group insurance.

 Section 261.6 Prepaid legal services plans; mass merchandising basis.

        (a) In addition to marketing to individuals, individual prepaid legal services plan policies may be issued through a mass merchandising program where the program is marketed to:
        (1) cardholders of a credit card, charge card or payment card which can be used to buy goods or services, and such card is issued by a bank, retailer or other issuer of such cards; or
        (2) depositors, account holders or members of a bank, savings and loan association, credit union, mutual fund, money market fund, stock broker or other similar financial institution regulated by state or federal law, that has agreed to facilitate such coverage from an insurer to such persons; or
        (3) a policy issued to an association or the trustee or trustees of a trust established, or participated in, by one or more associations, to cover association members, where each association shall have:

(i) Been organized and maintained in good faith for purposes principally other than that of obtaining insurance;
(ii) Been in active existence for at least two years; and
(iii) A constitution and by-laws which provide that:

(a) The association hold regular meetings not less than annually to further the purposes of the association.
(b) The association collect dues or solicit contributions from members; and
(c) The members have voting privileges and representation on the governing board and committees.

        (4) any of the groups specified in Section 261.5 of this Part.

        (b) No insurer shall provide coverage in regard to a mass merchandising plan policy if:
        (1) it is a condition of employment or membership in an association, organization, or other entity that an employee or member must purchase insurance pursuant to the plan; or
        (2) any penalty is imposed upon an employee or member if insurance is not purchased.

        (c) No insurer shall provide coverage in regard to a mass merchandising plan policy if:
        (1) the purchase of any good or service is a condition of purchasing insurance available under the plan; or
        (2) the purchase of insurance available under the plan is a condition of purchasing any good or service.

        (d) A mass merchandising program under this Part shall be subject to the provisions of sections 153.3(f) and (g), 153.5, 153.6, and 153.7(a), (b), (d) and (e) of Part 153 of this Title (Regulation 135) as those provisions relate to mass merchandising.

Section 261.7 Applicability of article 21.

        Nothing in this Part in connection with group or mass merchandising policies shall be interpreted as exempting any person from the applicable licensing requirements of Insurance Law Article 21.

Section 261.8 License applications.

        The superintendent may process and issue an application for a certificate of authority or to amend a certificate of authority to write legal services insurance prior to the April 1, 1999 effective date of section 1113(a)(29) in order to enable insurers to commence writing legal services insurance and prepaid legal services plans on a timely basis.

        I, Neil D. Levin, Superintendent of Insurance of the State of New York, do hereby certify that the foregoing is the new 11 NYCRR 261 (Regulation 161), promulgated by me on March 1, 2000, pursuant to the authority granted by Sections 201, 301, 1113(a)(29), and 1116, and Article 23 of the Insurance Law and Chapter 65 of the Laws of 1998, to take effect upon publication in the State Register.

        Pursuant to the provisions of the State Administrative Procedure Act, prior notice of the proposed amendment was published in the State Register on December 1, 1999. No other publication or prior notice is required by statute.