OGC Op. No. 07-10-12
The Office of General Counsel issued the following opinion on October 29, 2007 representing the position of the New York State Insurance Department.
RE: MMIP Structure and Participation
1) Is MMIP a joint underwriting association rather than an assigned risk pool under which the insurers’ participation in the association is based on the total market share of premiums?
2) What kinds of medical malpractice insurers participate in MMIP? Specifically, may risk retention groups (RRGs) not chartered in the state or captive insurers participate in MMIP?
1) MMIP is not a joint underwriting association because, as a legal matter, the liability of its members is several, but not joint. Nor is MMIP an assigned risk plan because each risk is not allocated to a particular insurer. Rather, MMIP operates as a medical malpractice insurance pool (“the pool”), which was created by all authorized insurers writing medical malpractice insurance in New York as an alternative to receiving direct assignments of eligible health care providers through MMIP. In the pool, each participating insurer is liable for each risk in an amount equal to the premiums it writes in the medical malpractice insurance market.
2) Only authorized insurers that write medical malpractice insurance in New York after June 30, 2000 must be members of MMIP. However, because RRGs are not authorized insurers, and because captive insurers are prohibited from joining compulsory organizations, neither RRGs nor captives may participate in MMIP.
The inquirer’s first question asks about the structure of MMIP. Prior to 2000, the Medical Malpractice Insurance Association (MMIA) provided medical malpractice insurance in New York pursuant to Article 55 of the Insurance Law. However, Chapter 147 of the Laws of 2000 amended Insurance Law § 5502(c) and dissolved MMIA. At the same time, New York Insurance Law § 5502(c)(2)(D) (McKinney 2007) was amended to require the Superintendent to promulgate regulations prescribing a plan for the equitable distribution of the insureds of MMIA, or to designate a single entity to provide coverage consistent with an equitable plan of distribution. That provision reads in relevant part as follows:
Prior to July first, two thousand, the superintendent shall, after a public hearing to be held not less than thirty days before such promulgation, promulgate regulations prescribing a plan for the equitable distribution to authorized medical malpractice insurers writing such coverage in the state the insureds of the association and health care practitioners and facilities which are otherwise unable to secure coverage in the voluntary market following the dissolution of the association. Such plan may also provide for, and the superintendent may designate, in lieu of the plan for the equitable distribution of policies from the association and the availability of coverages to health care practitioners and facilities, a single entity or entities to provide such coverages consistent with such a plan if the superintendent determines that such entity or entities can provide the coverages necessary to meet the purposes and objectives of an equitable plan of distribution were it to have been effectuated.
Thus, Insurance Law § 5502(C)(2)(D) mandated the Superintendent to prescribe a plan for the equitable distribution of insureds who are unable to secure coverage in the voluntary market to authorized medical malpractice insurers.
Accordingly, the Superintendent promulgated Part 430 of New York Comp. Codes R. & Reg. (“NYCRR”), tit. 11 (Regulation 170) on June 30, 2000 (on an emergency basis, and later adopted on a permanent basis effective March 7, 2001), and established the Medical Malpractice Insurance Plan (MMIP) as an assigned risk mechanism for providing medical malpractice insurance to all eligible health care providers who are unable to secure coverage in the voluntary market. That provision, which also requires all insurers authorized in New York that write medical malpractice insurance on a direct basis1 in New York after June 30, 2000 to be members of the MMIP, states:
In order to provide for this equitable distribution, this Part establishes the New York Medical Malpractice Insurance Plan, of which all insurers licensed in New York and writing medical malpractice insurance on a direct basis are required to be members. Eligible health care providers unable to obtain medical malpractice insurance in the voluntary market will be assigned to members writing the applicable class of business in the rating territory.
Significantly, 11 NYCRR § 430.7 also authorized the Superintendent to approve an alternative mechanism for allocating such medical malpractice risks.
In fact, medical malpractice insurers opted for an alternative mechanism. As a result, all authorized stock, mutual, and reciprocal insurers that write medical malpractice risks in New York, obtained the Superintendent’s approval to participate in the pool as an alternative to receiving direct assignments of eligible health care providers through MMIP. The purpose of the pool, which operates through a Plan of Operation, is to provide a market for medical malpractice insurance and incidental liability coverages in accordance with Regulation 170, Article 55 of the Insurance Law, and Insurance Law §§ 2317 (joint underwriting or joint insurance) and 2318 (risk sharing plans). The pool itself issues the policies, and each member shares the liability on several basis, and in proportion to the direct written premium the insurer has in the medical malpractice market, as of December 1st of the prior calendar year.
The inquirer’s second question asks whether RRGs or captive insurers may participate in MMIP. As noted above, Insurance Law § 5502(c)(2)(D) required that MMIA insureds be distributed to “authorized” insurers, and 11 NYCRR § 430.0(c) requires that all “licensed” insurers participate in MMIP, the successor residual market mechanism. Insurance Law § 107(a)(10) defines an “authorized insurer” as “an insurer authorized as such to do an insurance business in this state in compliance with this chapter, by reason of a license so to do issued and in force pursuant to the laws of this state or of a corporate charter granted and in force pursuant to the laws of this state, but not including any insurer herein exempted from compliance with the requirement that it obtain a license to do business.” As a practical matter, there is no distinction between the statute’s use of the term “authorized” and the regulation’s use of the word “licensed.” Indeed, the Department construes “licensed” to mean “authorized,” particularly since a regulation may not contradict its implementing legislation. In any event, an insurer that is exempt from licensing requirements imposed by law is not “authorized” or “licensed” to do business in the state.
The federal Liability Risk Retention Act (LRRA) of 1986 governs RRGs. See 15 U.S.C. §§ 3901-3906. Pursuant to 15 U.S.C. § 3902(d), an RRG need not be licensed in any state other than its domiciliary state, provided that it registers with the other state. Article 59 of the Insurance Law governs RRGs to the extent permissible under LRRA. Although the LRRA and Insurance Law § 5906(c) permit the Superintendent to require RRGs that are not chartered or licensed in this state to participate in any mechanism established for the equitable apportionment of liability insurance risks, losses, and expenses incurred on policies written through such mechanism, Insurance Law § 5502(c)(2)(D) and 11 NYCRR § 430.0(c) do not allow unauthorized insurers to participate in MMIP. Since an RRG not chartered or licensed in this state is not licensed or authorized within the meaning of Insurance Law § 107(a)(10), it may not participate in MMIP. If an RRG were so licensed or chartered in New York, it would have to participate, but at present there are no such entities.
Although captive insurers are licensed in New York, Insurance Law § 7011 expressly prohibits captive insurers from joining compulsory associations. That statute reads as follows:
No captive insurance company shall be permitted to join or contribute financially to any plan, pool, association, or guaranty or insolvency fund in this state, nor shall any captive insurance company, or its insured, or its parent or any affiliated company, or any member organization of its association, receive any benefit from any such plan, pool, association, or guaranty or insolvency fund for claims arising out of the operations of such captive insurance company.
Hence, captive insurers may not participate in the MMIP.
Lastly, we note that licensed mutual insurers and reciprocal insurers are authorized insurers, and as such, they must participate in the MMIP if they write medical malpractice insurance on a direct basis. See supra note 1.
For further information, you may contact Attorney Sapna Maloor at the New York City Office.
1 Although the Insurance Law does not define the term “direct basis,” the Department has interpreted this to mean that it does not include insurance provided on a reinsurance basis.