The Office of General Counsel issued the following opinion on March 28, 2003, representing the position of the New York State Insurance Department.
RE: Association Membership Benefits
May membership into the ABC Association be offered for sale in New York?
Certain of the benefits provided by ABC Association would violate the New York Insurance Law if offered for sale in New York. Thus, the program may not be offered for sale in New York, as discussed below under the heading "Analysis."
CBA Inc. markets the benefit packages sold by ABC Association (ABC), a not-for-profit association. ABC sells three types of membership packages: the platinum package at a cost of $89 per month, the gold package at a cost of $46 per month, and the bronze package at a cost of $29.99 per month. The membership fees are payable annually. There is no discriminatory criterion for admission. Based on the information provided by CBA Inc. and ABC, the membership packages provide discounts on a variety of services and products, such as dental, medical, eyecare, legal, mediation, financial and education services, and movies, shopping, groceries and magazines. The difference in the pricing of the three packages is based on the types and number of benefits provided thereunder. The platinum package provides additional benefits that are not included in the other two packages, namely, accidental death and dismemberment insurance, group dental expense, and vision services coverage. Excepting these additional benefits, the platinum package and the gold package provide the same benefits. Such additional services and benefits are provided under blanket insurance policies that were stated as being underwritten by one or more New York authorized insurers. (For the purpose of this opinion, it is assumed that such insurers are authorized, and that the policies are issued and delivered to ABC outside of New York.) It is CBA Inc. and ABCs position that because such benefits are provided under blanket insurance policies issued to ABC, platinum package members are not provided insurance benefits. ABC plans to have their benefits packages solicited and sold by licensed insurance brokers and agents in New York.
Certain of the benefits provided by ABC would be in violation of the New York Insurance Law if offered for sale in this state. Accordingly, the program may not be offered for sale in this state, as discussed below.
Benefits Covered by Blanket Insurance Policies
ABCs platinum package provides accidental death and dismemberment insurance, group dental expense, and vision services coverage. These benefits are covered under what appear to be blanket accident and health insurance policies that are presumably underwritten by one or more New York authorized insurers.
N.Y. Ins. Law § 4237 (McKinney 2000) specifies the types of groups ("true-groups") for which a blanket accident and health insurance policy may be delivered or issued for delivery in New York. A policy issued to a group other than one of those specified is considered to be a "non-true" group. The members of ABC do not fit within any of the groups specified in N.Y. Ins. Law § 4237. Thus, they constitute a "non-true" group.
Non-true group accident and health insurance policies may not be delivered or issued for delivery in New York. However, N.Y. Ins. Law § 4237 does not prohibit an authorized insurer from delivering a non-true group accident and health insurance policy to the group policyholder (which is ABC in this instance) outside of this state, even though it covers some members in this state. Licensees of this Department, including the issuing insurer, agent, or broker, are prohibited from soliciting or enrolling members, whether inside or outside this state. However, the Department does not object to solicitation or enrollment by mail from the policyholder from outside this state provided that the policyholder does not receive compensation for such activity, and the insurance coverage provided is not otherwise prohibited by the Insurance Law or any other law.
It was stated that the pricing differential between the gold and platinum packages is due specifically to the insurance coverages that are provided under the platinum package. If the additional membership fee of $43 is more than the cost of the insurance that ABC pays to the insurers for covering the member, then ABC is being compensated for soliciting and enrolling the member. Thus, ABC would be acting as an insurance broker or agent, for which it must be licensed in New York, as would CBA Inc.
Furthermore, N.Y. Ins. Law § 4224(d)(1) (McKinney Supp. 2003), subject to certain exceptions that do not apply in this instance, prohibits the sale of life, annuity, and accident and health insurance that is made "as an inducement to, or interdependent with, the purchase by the public of any goods, securities, commodities, housing, services, or subscriptions to periodicals." Each such insurance coverage may only be offered on an optional basis for a separate, additional charge. ABC does not offer a member the option to choose which insurance benefits it wishes to purchase; a member must purchase all four insurance benefits provided under the platinum package. Thus, ABC may not solicit or sell the platinum package membership to New York residents.
Air Ambulance Service
ABC offers access to, as part of its membership, emergency air ambulance transport. The description of this benefit was stated as: "XYZFlite is available at no charge to members when a medical situation requires transfer to a specialized hospital or medical facility. XYZFlite must be contacted in advance to coordinate the arrangements for a safe and appropriate transfer."
N.Y. Ins. Law § 1101(a)(1) and (2) (McKinney Supp. 2003) states:
(a) In this article:
(1) "Insurance contract" means 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.
(2) "Fortuitous event" means 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.
A member would call upon XYZFlight to provide air ambulance transport based upon an occurrence (an illness or injury) that would be, or would be assumed by the parties to be, beyond the control of ABC or its members. Thus, the need for air ambulance transport constitutes a fortuitous event, and the agreement to provide such benefit constitutes an insurance contract.
However, the making of an insurance contract constitutes doing an insurance business, for which a license is required. N.Y. Ins. Law §§ 1101(b)(1)(A) and 1102 (McKinney 2000 and Supp. 2003). ABC is not authorized to conduct an insurance business. Thus, New York residents may not be solicited or enrolled for membership into ABC.
Additionally, any one acting on behalf of ABC in soliciting or enrolling New York members would be acting in violation of N.Y. Ins. Law § 2117 (McKinney Supp. 2003).
Based on the information that provided, ABC provides access to the following additional benefits under its membership plans for a discounted fee: medical care, dental care, hearing aids, and legal and mediation services. The plans also provide access to shopping discounts, movie theater discounts, grocery coupons, and discounted magazine subscriptions.
A plan may provide access to a service that is dependent upon the happening of a fortuitous event without constituting an insurance contract if a fee is charged for each time the service is provided. The fee charged must fully cover the cost of the rendition of the service provided, and must include a reasonable amount for the cost of overhead.
New York residents may be solicited or enrolled for those additional benefits that are dependent upon fortuitous events (such as the medical care, dental care, and legal services) so long as the discounted fees charged by the service providers cover the cost of the rendition of each such service provided, as well as a reasonable amount for overhead.
Access to services offered under the ABC membership plans that are not dependent upon the happening of a fortuitous event (such as the drafting of a will, or a consultation to determine if a legal problem exists under the legal services benefit) do not constitute insurance and may be offered on an unlimited basis.
Please note that this response is limited to the interpretation of the New York Insurance Law. We do not herein interpret any other laws that may otherwise prohibit the memberships sold by, or the activities of, CBA Inc. or ABC.
For further information you may contact Associate Attorney Sally Geisel at the New York City Office.