OGC Opinion No. 03-04-28
The Office of General Counsel issued the following opinion on April 22, 2003, representing the position of the New York State Insurance Department.
Re: Licensing requirement for processing health insurance claims
1) Must a corporation that enters into an agreement with an insurance company authorized to do an insurance business in New York to provide accounting, record-keeping and claims adjustment services to the insurance company in connection with health insurance benefits that are offered under fully-insured employee benefit plans that the insurance company insures, be licensed in New York State?
2) Through which individuals may the corporation act in its capacity as an independent adjuster in New York?
1) Yes, in order to perform claims services involving the administration and settling of health insurance claims on behalf of an insurance company authorized to conduct an insurance business in New York, the corporation and each of its employees who perform adjusting services in New York must be licensed as independent adjusters in New York under N.Y. Ins. Law § 2108 (McKinney 2000).
2) A corporation that is licensed as an independent adjuster may only act as such in New York through those officers and directors who are named as sub-licensees in its New York independent adjuster's license and employees who are licensed as independent adjusters in New York. The corporation must have at least one sub-licensee under its New York independent adjuster's license.
A Third Party Administrator ("TPA") is negotiating with an insurance company to, "perform third party administration duties for life/health products on its behalf." Specifically, the TPA would handle health insurance claims on behalf of the insurance company authorized to conduct an insurance business in New York, in accordance with the employee benefit plan that the insurer has established. The TPA will not be soliciting insurance on behalf of the insurance company.
Under the agreement being negotiated with an insurance company which is licensed to do an insurance business in New York, the TPA would perform specified work for the insurance company in connection with fully-insured employee benefit plans for which it provides insurance. The TPA would do the work described from its own offices outside of New York. The TPA is a corporation which is independent of the insurance company involved in the described negotiations and it does not currently hold any insurance license in New York.
The TPA would provide accounting services to the insurance company in regard to the employee benefit plans, maintain the records and perhaps mail out the premium bills for the insurance under the employee benefit plans. The TPA would also be given the authority by the insurance company to negotiate and settle health insurance claims and make payment thereon. Insureds would be directed by the insurance company to file their claims directly with the TPA and could contact the TPA either by telephone or on the Internet. In handling and resolving the insurance claims the TPA will act in accordance with the terms of the insurance company's benefit plan. In its claims handling capacity the TPA would also maintain the fiduciary account for the insurance company out of which insurance claims payments would be made. When it adjusts a claim and determines payment is due, the TPA would draw a check in the insurance company's name upon the fiduciary account made payable to the insured and send it to the insured.
The term "third party administrator" is not defined in the New York Insurance Law. There is no licensing or registration requirement for third party administrators in New York. However, this does not necessarily mean that those doing the work of third party administration in New York need not be licensed in New York. In order to determine whether or not they must be licensed in New York consideration must be given to the functions that the person is performing as to such insurance policies.
N.Y. Ins. Law § 2102(a)(1) (McKinney 2000) provides, in pertinent part, that:
(a)(1) No person, firm, association or corporation shall act as an...insurance adjuster in this state without having authority to do so by virtue of a license issued and in force pursuant to the provisions of this chapter.
The TPA's activities involving accounting and record-keeping for the insurance company as to its employee benefit plans, including the billing of premiums, is unrelated to the claims functions and as such are merely ministerial in nature. Since the TPA would not be soliciting insurance on behalf of the insurer, without more, the mere fact that the TPA will be performing record-keeping, accounting, and collection of premiums services on behalf of the insurance company does not require its licensing as an agent or otherwise under the New York Insurance Law.
However, the statutory definition of an independent adjuster contained in N.Y. Ins. Law § 2101(g)(1) (McKinney 2000) provides, as follows:
(1) The term 'independent adjuster' means any person, firm, association or corporation who, or which, for money, commission or any other thing of value, acts in this state on behalf of an insurer in the work of investigating and adjusting claims arising under insurance contracts issued by such insurer and who performs such duties required by such insurer as are incidental to such claims and also includes any person who for compensation or anything of value investigates and adjusts claims on behalf of any independent adjuster, except that such term shall not include:...
None of the statutory exceptions which follow in Subparagraphs (A)-(F) of the foregoing statutory provision apply to the TPA.
In determining what constitutes "investigating and adjusting of claims" under § 2101, this Department considers whether the duties performed in the handling of a claim requires the exercise of discretionary authority conferred by the insurer, as opposed to the performance of strictly ministerial tasks. The work the TPA proposes to perform on behalf of the insurance company will involve the processing and payment of health insurance claims of employees who reside or work in New York, under health insurance policies issued in New York State to fund insured employee benefit plans. The claims work to be performed by the TPA involves its receipt of the claim, processing, analysis, determination of the claim and drawing and sending the payment to the insured on behalf of the insurance company. The checks are drawn by the TPA on the insurance company's account over which the TPA has check writing authority. The foregoing claims work involves the exercise of discretionary authority by the TPA and thus constitutes insurance adjusting. N.Y. Ins. Law § 2108(a)(3) (McKinney 2000) specifies that no adjuster may act on behalf of an insurer unless it is licensed as an independent adjuster. Since the claims handling activities which the TPA will engage in require the exercise of discretionary authority conferred by the insurance company, the TPA and its employees who will perform adjusting activities for the insurance company, are required to be licensed in New York as independent adjusters pursuant to N.Y. Ins. Law § 2108 (McKinney 2000).
The fact that the TPA and its employees would be doing the adjusting work in locations outside of this State, does not alter the fact that the TPA, and its employees, must be licensed as independent adjusters in New York. Adjusting in New York includes communications to New York by mail, telephone, and the Internet. Since the TPA will be adjusting insurance claims that come to it by mail, telephone or other means of communication from an insured in New York, both the TPA and its employees who are performing the adjusting work must be licensed as independent adjusters in New York. The relevant factor is not the New York residency of the claimant, but, rather, the adjuster's contact with New York.
As a corporation, the TPA would become licensed in New York to act as an independent adjuster, through its sub-licensees. It could name as sub-licensees only persons who are over eighteen years of age and who are officers or directors of the TPA, the corporate licensee. Each sub-licensee must be qualified to obtain a license as an independent adjuster themselves. Each employee who is adjusting claims must also be licensed as an independent adjuster.
For further information you may contact Associate Attorney Barbara A. Kluger at the New York City Office.