The May 18th agenda of the Assembly is crowded as the legislature struggles to get some work done other than the budget this session. Previously, both the Assembly and Senate Insurance Committee Agendas have been very short, with only a few bills on each. However the new Assembly agenda contains nineteen bills. Some of the legislation on that agenda is explained below:

• A10219-A Updates the established reference compendia which are used as authoritative sources for use in the determination of offlabel drugs and biological used in anti-cancer chemotherapeutic regimen. This bill is designed to keep New York up-to-date with the pace of innovation and clinical discovery and to allow beneficiaries timely access to the most appropriate treatment options in their battle against cancer. This bill is the “same as” S.7408-A which is on its third reading before the whole Senate.

• A10783 this bill places Credit Default Swaps and Credit Default Insurance Corporations under the regulatory jurisdiction of the New York Insurance Department. This bill has no counterpart in the Senate.

• A5653 would require pharmacies to charge consumers the lesser of the copayment required by a health plan and the pharmacy’s usual customary and reasonable price for that drug. When a health plan adopts a multi-tier pharmaceutical copayment structure, some consumers are required to make a copayment that actually exceeds the cost of the drug. This bill would prevent that practice which would lower copayment costs for some health plan members. A Senate same as bill remains in committee.

• A5740 would eliminate the practice of using credit information in the setting of insurance rates for automobile and homeowner’s coverage by adding a new subsection b-1 to Insurance Law Section 2402 making the practice an unfair trade practice. There is no Senate counterpart bill.

• A6570 would amend the insurance law to require that no insurer or motor vehicle repair facility may recommend or require the use of Non-OEM (Original Manufacturer Equipment Parts) crash parts that do not equal or exceed the quality of the originals. An insurer or motor vehicle repair facility that recommends or requires Non- OEM shall be liable for the lack of fit, form, finish, quality or performance of that part. There is no Senate same as bill.

• A6618-A directs the superintendent of insurance to study the feasibility of developing and implementing a liability reform plan for private landowners who provide public access to their lands for various recreational activities. This is the same as S.3823-A, which is currently being considered by the Senate Insurance Committee.

• A5794 would make the Supplemental Underinsured Motorist (SUM) Insurance limit equal to the liability limit that each insured acquires. Currently, many drivers who chose higher liability limits are unaware that they have the option to insure themselves up to the limits of their liability levels. Subsequently, when they are injured, they learn that they have not exercised the option to protect themselves above the SUM minimum level. By automatically linking liability and SUM coverage, the insured is protected to the degree that he protects the rest of the state. There is no same as for this legislation.

• A6589 amends the Excess Medical Malpractice Liability Insurance Coverage Program to lower the primary medical malpractice layer required to be eligible for the Excess Program from its currently required level of $1.3 million for each claimant/$3.9 million for all claimants to $1 million for each claimant/$3 million for all claimants. This bill would reduce the cost of primary medical malpractice premiums by approximately 6%, easing the burden on medical providers who face rapidly escalating medical malpractice premiums. This is the same as S2959 and is pending in the Senate Insurance Committee.

• A2867 permits health insurers and health maintenance organizations to offer an actuarially appropriate premium discount to covered persons that participate in a bona fide wellness program that is approved by the superintendent of insurance. The bill’s Senate counterpart is pending in the insurance committee.

• A2921 provides that a homeowner’s insurance policy contain a clear written notice that filing a claim may adversely affect their insurance premiums in the future or their ability to renew the coverage at the end of the policy period. (Same as S1099, pending in the Senate Insurance Committee) Many seasoned observers of insurance legislation have noted that despite the recent increase in activity from the Assembly and Senate Insurance Committees, little progress has been made on the so-called “big-ticket” items. Among these “big-ticket” items are nofault auto issues, with fraud in particular; medical malpractice insurance reform; title insurance reform; the interstate compact on life, annuity, disability and long term care products; and prior approval of health insurance rates . As might be expected, discussions are taking place in various offices around the capitol on each of these measures, but little with little formal legislative action to show for it. Thus, despite the progress on the more routine legislation that was described above, much of the major work on insurance legislative reform must still take place. Given the fact that we are now only about one month from the formal end of the legislative session, that work will unfortunately take place at all hours of the night in the final days of session, with little opportunity for the public to see and comment on its progress.

Nonetheless, it is business as usual here in Albany. More to come…

The Insurance Department’s General Counsel Issues Several New Opinions

The Office of General Counsel recently issued several opinions of note: Prelicensing Course Exemption for Work Experience OGC Op. No. 10-01-01

In this opinion, the General Counsel concluded that an applicant’s work experience qualified him for a property casualty broker license in lieu of taking the 90- hour prelicensing course. The applicant’s duties pertained to underwriting information from insureds and transmitting data to the insurers, analyzing losses, estimating exposures, preparing loss summaries, etc.

Insurance Law §2104(c)(1)(A)-(C) prescribes the requirements for an individual who wishes to apply for a property/ casualty insurance broker license. The applicant must be of the age of eighteen years or over, must have completed a course approved by the Superintendent consisting of no less than ninety hours, and must have been employed by either an insurance company, agent, or broker for a minimum of one year during the three years preceding the date of application. The employment with an insurance company, agent, or broker may qualify the applicant in lieu of the ninety- hour course so long as the duties were “relating to the underwriting or adjusting of losses” within a branch of insurance including fire, marine, liability and workers’ compensation, and fidelity and surety.

The Department opined that although an applicant has the ability to apply their work experience in lieu of the ninety-hour course, it may be helpful to prepare for the examination required to determine competency by taking the 90 hour course.

Insurer use of fictitious name when adjusting claims on behalf of other insurers

OGC Op. No. 10-01-02

The facts of this Opinion are as follows; ABC is a life insurer licensed in New York and adjusted its own long-term health care claims and those of two other insurers. ABC applied for an Independent Adjuster’s license for the other two insurer’s claims and was denied based upon the use of the applicant’s actual name. ABC tells the Department that it uses the names of the insureds and inquires as to whether they should continue to use the insured’s names or use a fictitious name.

No Adjuster may act on behalf of an insurer unless licensed as an independent adjuster. An Independent Adjuster is defined as “any person, firm, association or corporation who…acts in this state on behalf of an insurer in the work of investigation and adjusting claims arising under insurance contracts issued by [that] insurer.”

Use of a fictitious name when performing duties of an ‘Independent Adjuster’ is permissible by the Department’s Licensing Bureau. Under Insurance Law §2102(f), any name not the licensee’s legal name shall be used on a license when conducting business as an ‘Independent Adjuster’ without the prior approval of the Superintendent. An insurer should avoid use of its actual name when adjusting claims of another insurer as an ‘Independent Adjuster.’ So as not to deceive or mislead the insured’s or public on the actual role of the insurers, the Department’s Licensing Bureau will require an insurer to create a fictitious name as a “Doing Business As” (DBA). Under Gen. Bus. Law (“GBL”) §130, a person may not use any name other than their designated name unless they file the new name and obtain approval from the Secretary of State. Therefore, use of the other insurer’s name, even with the insurer’s permission, is impermissible.

Therefore, while conducting business as an ‘Independent Adjuster’ one must refrain from deceiving and misleading the insured and public as to who is actually conducting the adjusting. Thus, ABC must use a fictitious name unless it makes it clear to the claimant during all communication and on its letterhead that it is adjusting on behalf of the other insurer.

Partial insurance agency ownership by auto club subsidiary

OGC Op. No. 10-01-03

In this Opinion, XYZ, automobile and wanted to form a for-profit that would purchase 50% interest in an insurance agency. The Agency would sell exclusively to members of the club but membership dues and status would not be affected by whether a person purchases insurance or not. The insurance agency would also sub-lease the mailing list, office space, staff, and equipment for a flat fee in advance.

Pursuant to Insurance Law § 2103(i)(1)(C), the Superintendent of Insurance may refuse to issue, suspend or revoke a license if the applicant will be receiving commissions that will amount to more than ten percent of its aggregate net commission for placement of insurance on property or risks for insureds who own more than fifty percent of the shares of the insurance agent. However, under the plan proposed here, the subsidiary of the automobile club would own only fifty percent of the shares of the agency. Further, the risks insured upon, on which commissions are earned, are of members of the club, not the club itself. Therefore, the ten percent limitation requirement does not apply to those commissions.

Although the automobile club may indirectly receive the benefit of dividends paid to its subsidiary by the insurance agency without contravening the anti-rebating provisions of Insurance Law § 2324, because any benefit that inures to the automobile club is indeterminate and non-quantifiable, the marketing and sale of insurance only to club members constitutes a benefit to members that is an inducement to purchase insurance, which is prohibited by Insurance Law § 2324. However, a mass merchandising plan policy marketed on a quasi-group basis may provide insurance only to members of the automobile club.

Insurance Law § 2115 does not prohibit the insurance agency from subleasing a mailing list, office space, staff and equipment for a flat fee, provided that unlicensed persons do not discuss specific insurance policy terms and conditions, or share commissions.

An agent or broker may market a “quasi-group” wherein participants are engaged in similar activities or network by mass merchandizing. Under mass merchandizing an insurance agent or broker is permitted to provide underwritten insurance policies. 11 NYCRR 153.1(j).

An unlicensed entity may make referrals of insured’s to insurance companies so long as they do not discuss any policy conditions or terms with the insureds and the compensation provided to the unlicensed entity is not contingent on subsequent purchase of insurance by insured. Insurance Law §2115(a)(1). Subletting a mailing list does not constitute a referral for purposes of this section. Although, sub-letting office space, staff, and equipment will be permitted so long as the payment is from ordinary dividends declared in the ordinary course of business, not from commissions.

“Principally headquartered”

OGC Op. No. 10-01-04

The inquirer asks whether an insurer may use the location of the first-named on a policy in determining if a corporate insured with multiple-affiliated corporations located in various states is principally headquartered in New York and whether such a policy form is subject to the Insurance Law.

Although Insurance law does not directly define where the insured is “principally headquartered,” Insurance Law §3426(b), (c), (e), (g) requires where there is multiple-affiliated corporations with various locations, pertinent documents such as cancellation, nonrenewal, and other notices be sent to the firstnamed insured on the policy. Thus, for purposes of Insurance Law use of the location of the first-named insured is sufficient for the determination of the “principal headquarters.” In situations where there is a single policy that covers multiple-affiliated insureds there are exceptions and will not be considered a “group policy” therefore permitting the use of the location of the first-named insured to determine where the insured is principally headquartered. Insurance Law §3426(1)(1).

Any New York Issued policies that cover multiple-affiliated corporate entities with operations in New York but is principally headquartered outside of New York will remain subject to the form filing requirements and regulations of the Insurance Law.

Terminated agent and Section 3425 OGC Op. No. 10-01-05

The inquirer reports the following as facts applicable to the inquiry: (1) the policy is a personal lines insurance policy, specifically, a homeowners’ policy, (2) the agent is terminated in the first year of a three-year required policy period, (3) the insured specifically requests to continue the policy through the terminated agent until the conclusion of the three-year required policy period, (4) the policy is not cancelled or non-renewed, (5) Insurance Law § 3425(j)(2) is not otherwise applicable, and (6) the insurer pays the agent “the insurer’s prevailing commission rate” of 20% for each year of the policy, and the agent’s contract or other agreement with the insurer does not provide for greater or different compensation. The inquirer asks OGC whether the insurer must pay the agent the remaining two years of commission.

With respect to a personal lines insurance policy, if an insurer terminates its contract with an agent during the policy’s first year, and the insured specifically requests to continue the policy through the terminated agent until the conclusion of the three-year required policy period, the insurer must offer to continue the policy through the terminated agent for any remaining part of the three-year required policy period, and absent any agreement to the contrary, pay the agent the prevailing commission rate.