The Office of General Counsel issued the following opinion on June 24, 2005, representing the position of the New York State Insurance Department.
Re: Independent Adjuster Licensing
Requirements Request for Reconsideration of Opinion.
This is in response to a request for the Department to reconsider its opinion dated April 13, 2004 by Robert Freedman of this Office. In that letter, we concluded that Brokerage, Inc. (BI) and/or its employees that engage in the activities described therein are required to be licensed as independent adjusters. Mr. Freedman was limiting his opinion to the sample agreement provided by BI.
As specified in the letter, BI:
...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 [BI] 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.
In his letter, Mr. Freedman noted: "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.
By letter dated June 16, 2004, the following was written in disagreement with Mr. Freedman's letter:
The clear requirements of an independent adjuster are that (1) The company performs adjusting activity (2) on behalf of an insurer (3) in New York. BI concedes that it does business within New York. However, the business that BI does not constitute adjusting activity, nor is it on behalf of an insurer, whether in New York or in any other jurisdiction. Your characterization of BI's operational scope and discretionary ability is flawed. BI fails to meet two of the three requirements required in New York to be deemed an independent adjuster.
It is clear that it is the Plans Administrator who is vested with the discretion to make the final decision regarding whether a plan will pay a claim to an employee, as even you note in your analysis. BI does not play an active role in this decision making process, nor is it authorized to. Section 3.5 of the Agreement clearly states that it is the Administrator who has the "sole and final discretion and authority as to the final denial or payment of a claim on appeal." BI merely acts as a bookkeeping service, holding money in its accounts and paying it out according to a carefully specified plan, from which BI is not allowed to deviate. BI does not make discretionary decisions and does not have the authority to stray from the letter of the plan. A TPA with the specifically enumerated duties and authorities that BI possesses, simply put, does not adjust claims, nor does it, under the letter of the plan, have the authority to do so.
In addressing Section 3.6 of the Agreement, the following was stated:
Section 3.6 of the agreement, which indemnifies and holds harmless the TPA [BI] from lawsuits brought by individuals who might include BI in lawsuits when the benefit plan is not funded by the company where the individual is employed .Section 3.6 does not relate to any decisions or choices that BI makes; instead the section is a safeguard for the company against lawsuits that improperly include BI.
With respect to Section 3.2, the following was provided:
Again, the section is clear that where there is discretion to deny a claim, that discretion lies with the Plan Administrator and not BI. A TPA such as BI reviews a claim to see if the claim is covered under the specific mechanisms of the plan. This is the "due investigation and verification" that you refer to. The section is clear in that if the facts of the claim entitle a person to coverage under the plan, then BI will provide the proper payment, and if the plan does not provide for such payment, then no payment will be made. All payments are authorized by either the specifics of the plan, or by the Plan Administrator. §3.2 is clear that when an individuals claim is denied, it is the Plan Administrator who is appealed to, not the TPA. This is because BI does not have discretion to approve or deny claims of their own volition. BI is not an independent adjuster, it is more accurately classified as a bookkeeping service.
The position was also taken that BI does not act on behalf of the insurer since its been argued that the employee welfare benefit plan is not an insurer. It was stated that BI "contracts with a corporation or other business to enter into a written health plan."
In a letter dated July 20, 2004, Joan Siegel of this office wrote to request further clarification. She wrote:
On page 2 of your letter you state that "Section 3.5 of the Agreement clearly states that it is the Administrator who has sole and final discretion and authority as to the final denial or payment of a claim on appeal." Please explain the significance of the language in Section 3.2 of the Agreement that "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." What does BI do when it assists in the review?
In the next paragraph you describe the purpose for Section 3.6 of the Agreement as "protecting BI in lawsuits when the benefit plan is not funded by the company where the individual is employed." Please explain how that is supported by the actual language in the Agreement which is "The Administrator and Plan Sponsor shall hold harmless and indemnify the Contractor for any decision as to ineligibility, non-coverage, or non-payment of benefits."
In the next paragraph you state that "All payments are authorized by either the specifics of the plan or by the Plan Administrator." Please provide a description of the entire claims review and paying process that clearly delineates each party's responsibilities in this process.
On page 3 of your letter you state that "The Contractor [BI] contracts with a corporation or other business to enter into a written health plan." Please explain what this means and provide an example that describes the functions of the parties involved and the interaction among them. Additionally, I do not understand the significance of the last paragraph on that page in relation to your facts.
When there was no response to Ms. Siegel's letter, this office wrote again on Sept. 15, 2004 to advise that, unless we receive a response within ten days of the date of the letter, we would assume that the request for a review of the opinion had been withdrawn. This office received a response on Sept. 20, 2004, stating that the request had not been withdrawn, and on Sept. 22, 2004, this office received a response to Ms. Siegels letter.
In response to Ms. Siegel's question regarding Section 3.2, the following was provided:
Section 3.2 of the Agreement... states in part "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." BI assists the Plan Sponsor and/or Plan Administrator in understanding the terms of the Plan and explains to the Plan Sponsor/Administrator some of the technical provisions of the Plan after which in accordance with Section 3.5 "the Plan Administrator shall have the sole and final discretion and authority as to the final denial or payment of a claim on appeal." BI does not exercise any discretion in whether a payment should or should not be made. Where the terms of the Plan are clear that the claims processor should pay the claim, then one of BI's claims processors will pay that claim. Where it is not clear, the final authority rests with the Plan Sponsor/Plan Administrator.
In response to Ms. Siegel's question regarding Section 3.6, the following was provided:
Section 3.6 of the Agreement... states "The Administrator and Plan Sponsor shall hold harmless and indemnify the Contractor for any decision as to ineligibility, non-coverage or non-payment of benefits". This is a paragraph that protects BI (the Contractor) from an incorrect payment or incorrect non-payment of benefits, or an erroneous decision as to ineligibility or non-coverage which is based upon the information incorrectly provided by the Plan Administrator/Plan Sponsor to the Contractor.
Examples of the following were given to this office: situations where BI was not provided with the names of new covered employees by the Administrator/Plan Sponsor and therefore BI denied payment for that employee and where inaccurate information pertaining to the eligibility of the employee was provided to BI by the Administrator/Plan Sponsor.
With respect to the requested description of the claims process, it was stated that:
Each day, numerous medical bills are received from numerous medical providers in connection with the numerous Plans in which BI provides the bookkeeping and claims paying process. These claims are processed by the employees of BI who evaluate the medical claim to determine whether it is clearly covered under the Plan. A routine medical bill which is clearly covered under the Plan is then paid by BI from the funds that are provided by the client to BI for the payment of claims. In the event there is a question as to whether or not this medical bill is covered under the plan, BI then consults with the Plan Administrator/Plan Sponsor who authorizes BI to submit the information to a third party claims evaluator to assist the Plan Sponsor/Administrator in making a final decision as to whether or not the claim is covered under the Plan. BI outsources the medical information Plan and Agreement for an outside expert to assist the Plan Sponsor/Administrator in making the final decision.
In the latter part of December, the matter was further discussed with this office, and this office requested that it be provided with BIs licensing status in New York. By letter dated January 11, 2005, it was indicated that BI, its president, and one of its employees are licensed in New York as life and health insurance agents.
To dispose quickly of one issue, in the initial letter to this office the matter of why BI was not acting as an insurer without a license was discussed. Since the Department has never indicated that it believes this to be an issue, we need not address it further.
With respect to the argument that BI is not acting on behalf of an insurer, it remains the Departments position that a person that adjusts claims on behalf of an exempt insurer is required to be licensed as an independent adjuster. The term "independent adjuster" is defined in N.Y. Ins. Law § 2101(g)(1) (McKinney Supp. 2005) to mean:
...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...
The term "insurer" as used in the above definition includes any entity that is exempt from licensing as an insurer. In this case, once the employer establishes a self-funded employee welfare benefit Plan, the employer is contractually bound to provide accident and health benefits to the employees. This contract meets the definition of doing an insurance business pursuant to N.Y. Ins. Law § 1101 (McKinney Supp. 2005) because the Plan is providing 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. It is therefore an exempt insurer. The exemption from licensing does not extend to persons that adjust on behalf of such a Plan. Accordingly, a person adjusting on behalf of a self-funded employee welfare benefit Plan is required to be licensed as an independent adjuster.
We have reviewed the facts and considered all presented arguments; however, we remain of the opinion that BI and its employees are acting as independent adjusters and therefore must be appropriately licensed. Specifically, the Department continues to have concerns with the language of Section 3.2 of the Agreement, as discussed above. Although BI may not have final authority to approve a claim where a denial has been appealed, the question of whether one is acting as an adjuster is not determined by approval authority. It has been acknowledged that the employees evaluate the claims and, where there are questions of coverage, consult with, and explain the coverage to, the insurer. Such activities are not merely ministerial actions that would not require licensing. Further, Section 3.6 implies that BI has discretion in making the determinations. Therefore BI and its employees that are engaged in the activities must become licensed as adjusters unless BI revises the agreement and its procedures.
For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.