Re: Third Party Administrator Licensing as an Independent Adjuster in the Context of ERISA Self-Funded Employee Welfare Benefit Plans
Must the Third Party Administrator ("TPA") and/or its employees be licensed as an independent adjuster under N.Y. Ins. Law § 2108 (McKinney 2000 & Supp. 2004), because of their decisions in New York State regarding whether an ERISA Employee Welfare Benefit Plan ("Plan") should make payments of accident and health benefits and, if so the amount of such payments?
Yes. The TPA and/or its employees that act in New York State pursuant to the proposed activity must be licensed as independent adjusters.
The TPA is a Pennsylvania corporation and has indirectly contracted with at least one Self-Funded Employee Welfare Benefit Plan in New York State. This opinion is limited to an analysis of the New York State Insurance Law ("Insurance Law") and the regulations promulgated thereunder.
Based upon the sample agreement (the "Agreement"), the Employer would contract with the Plan to provide accident and health benefits to Employees. A Plan Administrator ("Administrator") and the TPA would act as intermediaries between the Plan and the Employer to reach decisions regarding: (1) whether there would be coverage of the Employee for accident and health benefits and, if so, the amount of coverage, and (2) an appeal by an Employee who disagrees with a coverage decision.
Based upon the Agreement, it is not clear whether the TPA would act in New York State solely in its corporate capacity--i.e., through its officers and/or directors. The initial inquiry referred to individual independent adjuster licensing. Thus, when this opinion refers to the "TPA Contractor," it means that the TPA Contractor proposes to act in New York State in its corporate capacity and/or through its employees.
For the purpose of this opinion the Agreement will be the sole basis to determine whether the Administrator and/or TPA Contractor adjust accident and health claims made by Employees to the Plan.
A representative of the TPA stated that the TPA Contractor is licensed as a non-resident insurance agent. Pursuant to Section 2.5 of the Agreement, the TPA Contractor may obtain insurance for the Plan, presumably stop-loss insurance.
An independent adjuster is defined by N.Y. Ins. Law § 2101(g)(1) (McKinney 2000), as amended by 2003 N.Y. Laws 692:
(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:
(A) any officer, director, or regular salaried employee of an authorized insurer . . . .
Since an ERISA Employee Welfare Benefit Plan is not an authorized insurer, subparagraph (A) would not apply to the Plan. Further, none of the other exceptions contained in Section 2101(g)(1) would apply to the Plan.
This analysis will focus on three elements that must be established to define an independent adjuster: (1) adjusting activity (2) on behalf of an insurer (3) in New York State.
Section 2.9 of the Agreement states:
The foregoing provisions not withstanding, the responsibility and authority of [TPA] Contractor shall not include final decision for denial of benefits to an employee or dependent. The Plan Administrator retains responsibility and authority concerning denial of benefits for, and/or denial of claims by, eligible employees or dependents.
Section 3.5 of the Agreement states:
[TPA] Contractor shall assist the Plan Administrator in establishing a claims appeal procedure for handling disputes regarding claims for benefits or the payment of benefits, in accordance with the Plan and ERISA. It is understood that the Plan Administrator shall have sole and final discretion and authority as to the final denial or payment of a claim on appeal.
Although Sections 2.9 and 3.5 state that only the Administrator makes the final decision regarding whether the Plan will pay a claim to the Employee, other provisions of the Agreement provide that the TPA will adjust claims.
Section 3.6 of the Agreement states:
The Administrator and Plan Sponsor [Employer] shall hold harmless and indemnify the [TPA] Contractor for any decision as to ineligibility, non-coverage, or non-payment of benefits.
It would not be necessary to indemnify and hold harmless the TPA Contractor if it merely made recommendations regarding payment of claims.
Further, Section 3.2 of the Agreement provides the TPA Contractor with authority to adjust claims. Section 3.2 states:
3.2 The Contractor shall accept any application for benefits made in the appropriate manner, and after due investigation and verification of the statements contained in the application, make a recommendation to the Plan Administrator regarding the eligibility of the Covered Person for benefits. If the facts, as stated in such application or determined upon investigation by the Contractor, entitle the Covered Person to receive benefits from the Plan, the Contractor shall forthwith provide the proper payment made payable to the Covered Person. If the Contractor finds that the Covered Person is not entitled to benefits under the Plan, the Contractor shall not make payment. If a Covered Person whose claim has been denied requests a review of such denial, or of the amount paid, Contractor shall assist the Plan Sponsor and/or Plan Administrator in conducting said review in accordance with the terms of the Plan or the Summary Plan Description.
Once the Employer establishes the Plan, the Employer is contractually bound to provide the benefits to the Employees. This contract meets the definition of doing an insurance business pursuant to N.Y. Ins. Law § 1101 (McKinney Supp. 2004) because there is a benefit of pecuniary value to the Employees regarding accident and health benefits dependent upon the happening of a fortuitous event. Pursuant to ERISA 29 U.S.C.A. § 1144 (West 1999), a self-funded employee welfare benefit Plan is exempt from licensing by New York State. Thus, a self-funded employee welfare benefit Plan is an exempt insurer. Accordingly, the TPA Contractor adjusts on behalf of the Plan, which is an exempt insurer.
The TPA Contractor's adjusting on behalf of the (exempt insurer) Plan would be activity in New York State. Bases for doing business in New York State include communications in New York State by telephone, mail, internet, and e-mail.
Although the Plan, as an exempt insurer, need not comply with the licensing requirements of the Insurance Law, there is no comparable exemption from licensing for an independent adjuster.
N.Y. Ins. Law § 2102(a)(1), as amended by 2003 N.Y. Laws 687, states in pertinent part: "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." N.Y. Ins. Law § 2108(a)(3) (McKinney Supp. 2004) states in pertinent part: "No adjuster shall act on behalf of an insurer unless licensed as an independent adjuster . . . ."
Therefore, the TPA must be licensed as an independent adjuster pursuant to N.Y. Ins. Law § 2108 (McKinney 2000 & Supp. 2004).
Pursuant to N.Y. Ins. Law § 2108(c)(2) (McKinney Supp. 2004), any license issued to an independent adjuster corporation may name only the officers and directors as sub-licensees. In addition, each named sub-licensee (officer or director) must be qualified to obtain a license as an independent adjuster. Although an employee of the independent adjuster corporation may not be listed as a sub-licensee by the corporation, such employee may engage in adjusting of claims if he or she is licensed individually as an independent adjuster.
N.Y. Ins. Law § 2108(a)(2) (McKinney Supp. 2004) states: "The superintendent may prescribe the types of independent adjusters" licenses according to the kind or kinds of insurance claims which the licensee is to be authorized to investigate and adjust." The type of independent adjuster license required for the TPA corporation Contractor and/or any of its employees that would provide adjusting services for the Plan in New York State is set forth by N.Y. Comp. Codes R. & Regs. tit. 11, § 26.3(i) (2000) (Regulation 25): "Independent adjuster, accident and health. The independent adjuster, accident and health, shall have authority to investigate and adjust all claims arising under policies of accident and health insurance."
In conclusion, the TPA and/or any of its employees that would adjust accident and health claims of the Employees to the Plan in New York State must become licensed as an Independent adjuster, accident and health.
While not the subject of the inquiry, the Administrator would be adjusting claims on behalf of the Plan in New York State and would have to be licensed as an Independent adjuster, accident and health.
For further information you may contact Senior Attorney Robert Freedman at the New York City Office.