The office of General Counsel issued the following informal opinion on April 14, 2000, representing the position of the New York State Insurance Department.
Fraternal Society Licensing Status
Questions Presented:
1. Does the Medical Assistance Program ( the "MAP"), as described by the Society come within the definition of an insurance contract under N.Y. Ins. Law § 1101(a)(1) (McKinney 1985)?
2. Does the Society have to be licensed pursuant to N.Y. Ins. Law § 1102(a) (McKinney 1985)?
Conclusion:
1. Yes. The MAP, as described, falls within the definition of an insurance contract under N.Y. Ins. Law § 1101(a)(1) (McKinney 1985).
2. Maybe. The Society has to be licensed pursuant to N.Y. Ins. Law § 1102(a) (McKinney 1985) unless it falls within one of the exemptions contained in N.Y. Ins. Law § 4522(a) (McKinney 1985).
Facts:
The Society is a registered not-for-profit American religious organization incorporated in the United States with under 500 voluntary members (no one is compensated to procure members). Persons join the Society by subscribing according to their financial ability on an annual basis. This can be done either as a donation or as an advance that will be invested; the interest earned on the investment will be kept by the Society and the principal will be returned to the member. Those who cannot afford to subscribe can still be members of the Society.
Once a person is a member of the Society, the member can participate in the MAP by making an additional payment, again according to financial ability, with those who cannot afford to subscribe still being permitted to participate. Members can also subscribe to the MAP but not use the benefits, either because they have their own health insurance coverage or have other means to cover any expenses incurred. There is a network of medical providers and a hospital that have agreed to participate in the MAP and have registered their discounted fees with the Society and have committed to accepting the discounted fees as payment. Each provider makes an independent decision regarding the amount of the discount. However, in each case, the discounted fee covers the cost of rendition of the service. A listing of the network providers is given to participants in the MAP.
When a participating member uses the services of the network provider, the network provider calls the Society to verify that the person is a participating member. After services are rendered, if the member has the means to do so, the member will pay the provider the discounted fee. If not, the provider will submit the bill to the Society and the Society will pay the provider on behalf of the participant, according to need. If a participating member chooses to go to a non-network provider, the Society will pay the non-network provider the discounted fee that it would pay a network provider and the member will remain responsible for the difference.
Finally, there is no written or oral contract between the Society and the providers that confirms any obligation. Providers are free to discontinue their services. There is no contract between the Society and the MAP participants. Providers are paid on behalf of participants according to need. Determination to pay is made by a member's committee as the committee thinks fit, according to circumstances. There is no recourse against the Society if payment is not made. The Society does, however, recognize that it has a spiritual and moral obligation to do so.
Analysis:
N.Y. Ins. Law § 1101 (a)(1) (McKinney 1985) defines an "insurance contract" as:
any agreement or other transaction whereby one party, the "insurer", is obligated to confer benefit of pecuniary value upon another party, the "insured" or "beneficiary", dependent upon the happening of a fortuitous event in which the insured or beneficiary 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.
N.Y. Ins. Law § 1101(a)(2) (McKinney 1985) defines a "fortuitous event: as:
any occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party.
The MAP contains each of the required elements of an insurance contract, as that term is defined in the statute. Additionally, the benefits available under the program are triggered by the occurrence of a fortuitous event. The Society will make payment to the physician upon the occurrence of a fortuitous event, i.e.,the participant having to visit the physician. This occurrence is, to a substantial extent, beyond the control of either the Society or the participant.
The only way the MAP would fall outside of the definition of an insurance contract is if the Society were not obligated to pay each time that a participant or the physician treating the participant requests payment. However, this "non-obligation" could not be based upon specific conditions because, absent these conditions, the Society would be obligated to pay. The brochure entitled "Member Guidelines" describes the MAP, establishes the Societys obligation to pay, and explains how payment will be determined. Moreover, the Society recognizes a spiritual and moral obligation to pay according the participants needs. Therefore, it appears that the only condition upon which the Society can premise its non-payment is the participants lack of need for financial assistance. Absent this circumstance, the Society appears to be obligated to pay and consequently, pursuant to N.Y. Ins. Law § 1101(b)(1) (McKinney 1985 & Supp. 1999 2000), it is doing an insurance business.
N.Y. Ins. Law § 1102(a) (McKinney 1985) requires that any person, firm, association, corporation or joint-stock company doing an insurance business in New York be licensed pursuant to the provisions of the N.Y. Ins. Law (McKinney 1985 & Supp. 1999 2000). However, a number of organizations are exempt from the licensing provisions of the N.Y. Ins. Law (McKinney 1985 & Supp. 1999 2000). N.Y. Ins. Law § 1108(b) (McKinney 1985) provides an exemption for "[A]ny fraternal benefit society, membership corporation or other organization exempted under the provisions of article forty-five of this chapter, to the extent therein stated." N.Y. Ins. Law § 4522(a)(3) (McKinney 1985) exempts:
Organizations of a religious, charitable, benevolent or fraternal character, which are not organized or maintained primarily for the purpose of providing insurance benefits, and which have not more than fifteen hundred members who are or may be entitled to any insurance benefits unless the organization obligates itself to pay a death benefit of more than five hundred dollars on the death of any one member, or disability benefits of more than three hundred fifty dollars to any one person in any one year, or both.
Before the Department can determine whether a Society meets the requirements for an exemption, detailed information must be submitted to the Department including a copy of the Societys articles of incorporation, constitution and bylaws, together with a description of its actual method of operation. Upon receipt, the Department will review the material and advise the Society whether it qualifies as an exempt organization under N.Y. Ins. Law § 4522(a) (McKinney 1985).
For further information you may contact Associate Attorney Joan Siegel at the New York City Office.