The office of General Counsel issued the following informal opinion on June 5, 2002, representing the position of the New York State Insurance Department.

Re: Follow-up to Fertility Warranty Agreement Opinion

Questions Presented:

1) If no premium is charged for the proposed Fertility Warranty agreement, and no discount is given to insureds on the drugs or the infertility treatments, would the marketing and sale of the Fertility Warranty agreement in New York State still constitute the doing of an insurance business in New York under the Insurance Law?

2) If the proposed Fertility Warranty agreement was altered to provide to the insured reimbursement of a portion, or all, of the expenses incurred for the infertility treatments, could the revised Fertility Warranty agreement be sold in New York State?

3) If the proposed Fertility Warranty agreement is applied for and issued to a resident of New York State in a state other than New York, would the insurer thereby be doing of an insurance business in New York?

Conclusions:

1) Yes. The sale of the proposed Fertility Warranty agreement would still constitute the doing of an insurance business in New York under the Insurance Law. Under N.Y. Ins. Law § 1101 (McKinney 2000) the definition of "insurance contract" and the concept of "doing an insurance business" is not dependent upon whether there is separate or direct consideration for the agreement.

2) No. Even if the proposed Fertility Warranty agreement is altered as suggested the benefit thereunder would still be conditioned upon the failure of the treatment to work. As such, it would still be insurance of a type which may not be written in New York by an authorized insurer, as being against public policy.

3) If the Fertility Warranty agreement is marketed, applied for, issued and delivered to the insured wholly outside of New York State, the sale of the proposed Fertility Warranty agreement would not constitute the doing of an insurance business in New York State even though the insured is a New York resident. However, if the insurer were to issue or deliver a Fertility Warranty agreement to a New York resident in New York State, whether effected by mail from outside the state or otherwise, such an act by the insurer would constitute the doing of an insurance business in New York State under N.Y. Ins. Law § 1101(b)(1)(A) (McKinney Supp. 2002).

Facts:

The basic features of the proposed Fertility Warranty agreement are as follows. Patients treated within the FIF physician’s network would be given the opportunity to purchase a Fertility Warranty agreement issued by an insurance company. The insurance company is licensed to do an insurance business in the State of New York. Under the proposed Fertility Warranty agreement, the insurance company would pay a benefit to qualifying patients should the infertility treatment be unsuccessful and a pregnancy not occur.

The Department previously concluded that the proposed Fertility Warranty agreement constitutes an insurance contract and that the insurer issuing it in New York State is thereby doing an insurance business within the meaning of the New York Insurance Law. Further, we concluded that while the proposed Fertility Warranty agreement constitutes accident and health insurance, it is of a type which may not be written in New York by an authorized insurer because it is conditioned on the failure of a treatment to work and, as such, is against public policy.

The Inquirer asked whether the Department would reconsider certain elements of the position taken in our previous response if the following alterations are made: no premium is charged or discount for drugs or infertility treatments be given; if the benefit under the Fertility Warranty agreement is changed from a lump sum payment towards the cost of the drugs to a full or partial reimbursement for the costs of the treatment; and if the Fertility Warranty agreement is sold in a state other than New York to a New York resident.

Analysis:

Although the treatment of infertility involves many factors, including the proper evaluation and diagnosis of the patient by a physician and a proper drug treatment protocol, this does not cause us to change our position that the Fertility Warranty agreement is not a warranty.

The Fertility Warranty agreement, unlike a warranty, does not relate to the nature or efficiency of either the drugs used in the protocol nor the nature or efficiency of the services of the treating physician. Even if the drugs work as they were intended to, i.e., to increase the frequency of ovulation, and even if the physician exercises superior expertise in rendering services to the patient, the patient may nevertheless not achieve a pregnancy by the end of the period of infertility treatment. Indeed, this is precisely why the proposed Fertility Warranty agreement is an insurance contract. It is triggered by the happening (or failure to happen) of a fortuitous event, one which is to a substantial extent beyond the control of the parties. Thus, it remains our conclusion that the proposed Fertility Warranty agreement is an insurance contract and that its sale in New York State to a New York resident constitutes the doing of an insurance business in New York State under the N.Y. Ins. Law.

The Inquirer asked whether such would be the case even if no premium is charged for the proposed Fertility Warranty agreement, and no discount for the drugs or fertility treatments are given to insureds. What constitutes the doing an insurance business in New York is not conditioned upon the charging of a separate or direct premium, or the giving of any other kind of consideration, for the insurance contract. Neither N.Y. Ins. Law §§ 1101(b)(1) nor 1101 (a)(1)(McKinney Supp. 2002) require, as a condition for the making of an insurance contract or the doing of an insurance business, that money or other remuneration change hands between the insured and the insurer. Further, as to the foregoing point, N.Y. Ins. Law § 1101(b)(4) (McKinney Supp. 2002) provides, as follows:

Accordingly, we conclude that the fact that no separate premium is charged and no discount is given to the insured by the insurer for the issuance of the proposed Fertility Warranty agreement, as long as there exists some other consideration for the agreement, does not alter the conclusion that the sale of the Fertility Warranty in New York would still constitute the doing of an insurance business in New York.

Should the proposed Fertility Warranty agreement be altered, as proposed, to make the benefit payable thereunder the reimbursement of a portion, or all, of the costs of the infertility treatment to the patient in the event that a pregnancy is not achieved, the Fertility Warranty agreement would still constitute accident and health insurance, but of a type that may not be written in New York State because this type of coverage is against public policy. Although the Department would no longer be concerned that the policy provides for the payment of minimal insurance benefits, the amended Fertility Warranty would be providing a benefit for the same event, the consequences of medical treatment, not the treatment itself. As such, it remains against public policy.

The inquirer questioned whether New York law would be applicable should the proposed Fertility Warranty agreement be sold out-of-state to a New York resident. The answer would depend upon all of the facts involving its marketing, sale and issuance. Specifically, it depends upon whether any act involving the foregoing matters take place in New York State, by mail or otherwise. For purposes of this aspect of the analysis, it does not matter where the infertility treatments are administered, but rather whether the insurer acts in New York State.

If any acts of an unauthorized insurer (an insurer not licensed to do an insurance business in New York State) in the making or proposing to make the Fertility Warranty agreement, including either the issuance or delivery of the Fertility Warranty agreement to a New York resident, takes place in New York State, whether effected by mail from outside the state or otherwise, such act constitutes the doing of an insurance business in New York State under N.Y. Ins. Law § 1101(b)(1)(A) (McKinney Supp. 2002). For example, if the insurer were to mail a Fertility Warranty agreement from out-of-state to a New York resident insured to a New York State address, this would constitute the doing of an insurance business in New York.

Notwithstanding the foregoing, under N.Y. Ins. Law subparagraph (E) of § 1101(b)(2) (McKinney Supp. 2002) subsequent acts or transactions by an unauthorized foreign or alien insurer licensed to transact an insurance business in its state of domicile would not constitute the doing of an insurance business in this state if the underlying insurance contract was principally negotiated, issued and delivered outside of New York State. The statute provides as follows:

If, on the other hand, none of the acts of the insurer as to the Fertility Warranty agreements occur in New York, then such acts of the insurer would not constitute the doing of an insurance business in New York. Thus, for example, if the Fertility Warranty agreement is advertised, solicited, applied for, issued and delivered to the insured wholly outside of New York State, the sale of the proposed Fertility Warranty agreement would not constitute the doing of an insurance business in New York State even if the insured is a New York resident.

In addition, a new law has recently been enacted in New York affecting infertility coverage which amends § 3221 and § 4303 of the New York Insurance Law. The law becomes effective on September 1, 2002 and applies to all affected policies and contracts issued, renewed or modified on or after such date.

For further information you may contact Associate Attorney Barbara A. Kluger at the New York City Office.