OGC Opinion No. 06-09-19

The Office of General Counsel issued the following opinion on September 27, 2006, representing the position of the New York State Insurance Department.

RE: Reinsurance Intermediary & Insurance Adjuster Licensing

Question Presented:

1. Given the facts below, must the assuming authorized insurer or its employees obtain a reinsurance intermediary license in order to reinsure a ceding authorized insurer's New York book of business?

2. Given the facts below, must the assuming authorized insurer or its employees obtain an insurance adjuster's license in order to adjust claims under the policies so assumed?

Conclusion:

1. No, N.Y. Ins. Law § 2101(f)(2) excludes from the statutory definition of "reinsurance intermediary" regular salaried officers, employees or attorneys in fact of an authorized insurer or of an underwriting office of such insurer while acting in their capacity as such in discharging the duties of their employment or appointment.

2. Yes, the assuming insurer must obtain an independent adjuster's license pursuant to N.Y. Ins. Law § 2101(g)(1) in order to adjust claims under the policies so assumed. None of the exemptions contained in subparagraphs (A)-(H) of that provision apply.

Facts:

The assuming insurer is a Delaware-domiciled property/casualty insurer licensed to write insurance in all 50 states, including accident and health insurance. The assuming insurer is primarily involved in reinsurance and currently does not write a substantial amount of insurance on a direct basis. The assuming insurer is potentially acquiring a book of directly written business from a New York domiciled ceding insurer, a life insurance company that is licensed to write accident and health insurance.

Under the terms of the proposed transaction, the assuming insurer would assume 100% of the ceding insurer's health related insurance business under a quota share reinsurance agreement and would administer the business through an administrative services agreement. In the course of administering this business, the assuming insurer will be adjusting claims under the policies. The assuming insurer believes that when the insureds renew their coverage under the acquired direct policies, they will likely enter directly into renewal and/or new policies with the assuming insurer.

The assuming insurer and the ceding insurer are separate business entities and have no relationship to each other. No shareholder or holding company owns or has a common controlling interest in them.

Analysis:

1. Reinsurance Intermediary

N.Y. Ins. Law § 2101(f) (McKinney 2006) defines "reinsurance intermediary" to mean:

[A]ny person, firm, association or corporation who acts as broker in soliciting, negotiating or selling any reinsurance contract or binder, or acts as an agent in accepting any reinsurance contract or binder on behalf of an insurer, except that such term does not include:

(1) licensed attorneys at law of this state acting in their professional capacity as such;

(2) regular salaried officers, employees or attorneys in fact of an authorized insurer or of an underwriting office of such insurer while acting in their capacity as such in discharging the duties of their employment or appointment;

(3) licensed insurance agents acting within the scope of their agency authority in the placement or acceptance of reinsurance on risks produced or managed by such agents; or

(4) licensed insurance brokers, in the placement of reinsurance on risks produced by such brokers.

N.Y. Ins. Law § 2102 states as follows:

(c) Unless licensed as a reinsurance intermediary, no person, firm, association or corporation shall in this state act as a reinsurance intermediary or use any other designation or title which is likely to mislead the public or hold himself or itself out in any manner as a reinsurance intermediary.

A reinsurance intermediary acts either as a broker to a ceding insurer or as an agent to an assuming insurer. In this case, an assuming insurer is not acting as either an agent or broker and therefore would not be considered a reinsurance intermediary under the Insurance Law. Consequently, the assuming insurer does not need to obtain a reinsurance intermediary license. Although the inquirer identified only the assuming and ceding insurers as parties to this reinsurance transaction, any party who does act as agent or broker in this transaction would be required to obtain a reinsurance intermediary license unless subject to one of the exceptions quoted above.

2. Independent Adjuster

N.Y. Ins. Law Section 2101(g) (McKinney 2006) states in pertinent part:

(g) In this article, "adjuster" means any "independent adjuster" or "public adjuster" as defined below:

(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, or any manager thereof, individual or corporate, or the manager, agent or general agent of any department thereof, individual or corporate, or attorney in fact of any reciprocal insurer of Lloyds underwriter, or marine underwriting office, unless acting as an auto body repair estimator as defined in subsection (j) of this section;

(B) any officer, director or regular salaried employee of an insurer authorized to write accident and health insurance, a corporation licensed under article forty-three of this chapter (collectively, as used in this paragraph, a "health insurer") or a health maintenance organization, or any manager thereof, individual or corporate, when the claim to be adjusted is issued or administered by another health insurer or health maintenance organization within the same holding company system as the health insurer or health maintenance organization adjusting the claim;

(C) any officer, director or regular salaried employee of an article fifteen holding company or a controlled person within such holding company system providing administrative services within that holding company, or any manager thereof, individual or corporate, when the claim to be adjusted is submitted for payment under a health benefit plan that is issued or administered by a health insurer or health maintenance organization within that same holding company system;

(D) any adjustment bureau or association owned and maintained by insurers to adjust or investigate losses, or any regular salaried employee or manager thereof who devotes substantially all of his time to the business of such bureau or association, unless acting as an auto body repair estimator as defined in subsection (j) of this section;

(E) any licensed agent of an authorized insurer who adjusts losses for such insurer solely under policies issued through his or its agency, provided the agent receives no compensation for such services in excess of fifty dollars per loss adjusted;

(F) any licensed attorney at law of this state;

(G) any average adjuster or adjuster of maritime losses;

(H) any agent or other representative of an insurer authorized to issue life and annuity contracts, provided he receives no compensation for such services.

N.Y. Ins. Law § 2108(a) (McKinney 2006) states in pertinent part:

(3) No adjuster shall act on behalf of an insurer unless licensed as an independent adjuster, and no adjuster shall act on behalf of an insured unless licensed as a public adjuster.

None of these licensing exemptions are applicable in relation to the assuming insurer's adjusting of claims under these policies. The licensing exemption for an officer, director, or employee of an authorized insurer only applies to the adjustment of a claim under a policy issued by the same insurer. Thus, the exemption is not applicable to an authorized insurer that adjusts claims on behalf of other authorized insurers. The fact that the insurer is reinsuring the business that it is adjusting does not change the requirement for an adjuster's license. Office of General Counsel Opinion No. 00-04-03. Consequently, the assuming insurer does not qualify for this exemption. However, if the insureds elect to renew or purchase new policies with the assuming insurer, the assuming insurer would then be adjusting its own policies and would not need to obtain an adjuster's license.

None of the remaining exemptions apply to this inquiry. Most notably, subparagraphs (B) and (C) both provide broader exemptions that include the officers, directors and regularly salaried employees of affiliated health insurers. However, neither exemption applies to this transaction, because the assuming insurer and the ceding insurer are not within the same holding company system.

Consequently, the assuming insurer and each of its employees engaged in adjusting must obtain independent adjusters’ licenses because none of the exemptions specified in Sections 2101(g)(1)(A)-(H) apply.

This opinion is limited to a discussion of licensing requirements under New York's Insurance Law and does not express any opinion as to obligations arising under any other law or regulation.

For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.