September 24, 2009
SUBSCRIPTION MEMBERSHIP AMBULANCE SERVICE
By: Janet L. Kaminski Leduc, Senior Legislative Attorney
You asked if any New England or Tri-State area states exempt nonprofit, volunteer ambulance companies offering subscription memberships for its ambulance service from insurer licensure and reserve requirements. You also asked why automobile clubs can operate roadside assistance on a membership basis in Connecticut without being exempted from insurance law requirements.
The question relates to a Rhode Island company serving Connecticut residents that charges a $35 annual subscription fee in exchange for ambulance service, for which the company promises to accept the member's insurance coverage as payment in full (i.e., without charging a copayment or otherwise balance billing the member). The company in question apparently stopped issuing memberships in Connecticut because it determined that its service conflicts with Connecticut insurance laws.
To respond to your question, we reviewed the laws of Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont. Vermont appears to be the only state that provides an exception from state insurance laws for ambulance services. The other states' laws generally (1) define what it means to transact insurance, (2) require a license or certificate of authority from the insurance commissioner, and (3) impose penalties for violating the unauthorized insurer statutes.
In Connecticut, automobile clubs are permitted to operate towing and roadside assistance programs on a subscription membership basis through explicit authority granted under the motor vehicle statutes.
The Connecticut Insurance Department reviewed the situation in question and concurred that the company's subscription arrangement constitutes insurance under CGS § 38a-1(10), according to Ms. Debra Korta, spokesperson for the department. Korta noted, “Additionally, there may be problems under the unfair trade practices act, specifically, 20-7f(5). Further, if an entity is conducting the business of insurance without a license, there would also be violations of the unauthorized insurance act—38a-271.”
The department concludes that an entity offering a benefit as described would need to be licensed as an insurer and would be subject to state insurance laws, including financial requirements for capital and surplus described in CGS § 38a-72.
Connecticut law defines “insurance” as:
any agreement to pay a sum of money, provide services or any other thing of value on the happening of a particular event or contingency or to provide indemnity for loss in respect to a specified subject by specified perils in return for a consideration. In any contract of insurance, an insured shall have an interest which is subject to a risk of loss through destruction or impairment of that interest, which risk is assumed by the insurer and such assumption shall be part of a general scheme to distribute losses among a large group of persons bearing similar risks in return for a ratable contribution or other consideration (CGS § 38a-1(10)).
Connecticut Unfair Trade Practices Act
With respect to a Connecticut unfair trade practices act (CUTPA) violation, the department appears to refer to CGS § 20-7f(a)(5), which defines “copayment or deductible” in relation to unfair billing practices as “the portion of a charge for services covered by a managed care plan that, under the plan's terms, it is the obligation of the enrollee to pay.”
By law, it is an unfair trade practice for any health care provider to request payment from an enrollee, other than a copayment or deductible, for medical services covered under a managed care plan (CGS § 20-7f(b)).
CUTPA prohibits businesses from engaging in unfair and deceptive acts or practices. It allows the consumer protection commissioner to issue regulations defining what constitutes an unfair trade practice, investigate complaints, issue cease and desist orders, order restitution in cases involving less than $5,000, enter into consent agreements, ask the attorney general to seek injunctive relief, and accept voluntary statements of compliance. It also allows individuals to sue. Courts may issue restraining orders; award actual and punitive damages, costs, and reasonable attorneys fees; and impose civil penalties of up to $5,000 for willful violations and $25,000 for violation of a restraining order.
Unauthorized Insurance Act
The Connecticut unauthorized insurance act defines “insurer” as all corporations, associations, partnerships, and individuals engaged as principals in the business of insurance and interinsurance exchanges, mutual benefit societies, and health care centers (e.g., HMOs) (CGS § 38a-271).
The law specifies that “any of the following acts effected in this state by mail or otherwise is defined to be doing an insurance business in” Connecticut:
1. making or proposing to make, as an insurer, an insurance contract;
2. making or proposing to make, as guarantor or surety, any contract of guaranty or suretyship as a vocation and not merely incidental to any other legitimate business or activity of the guarantor or surety;
3. taking or receiving any application for insurance;
4. receiving or collecting any premium, commission, membership fees, assessments, dues or other consideration for any insurance or any part thereof;
5. issuing or delivering contracts of insurance to Connecticut residents or to people authorized to do business in this state;
6. directly or indirectly acting as an agent for or otherwise representing or aiding on behalf of another any person or insurer in (a) soliciting, negotiating, procuring, or effecting insurance; (b) disseminating information about coverage or rates; (c) forwarding applications; (d) delivering policies or contracts; (e) inspecting risks; (f) filing rates; (g) investigating or adjusting claims or losses; (h) transacting matters after a contract takes effect, or (i) representing or assisting a person or insurer in transacting insurance with respect to residents in Connecticut;
7. doing or proposing to do any insurance business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of the general statutes relating to insurance; and
8. any other transactions of business in this state by an insurer.
An unlicensed insurer who does any unauthorized act of an insurance business as set forth in § 38a-271 is subject to a fine of up to $50,000. In addition to any other penalty allowed by law, a person or insurer violating the unauthorized insurance chapter of law is subject to a $2,500 fine for the first offense and an additional $2,500 for each month or fraction thereof during which the violation continues (CGS § 38a-278)
In Connecticut, automobile clubs are permitted to operate towing and roadside assistance programs on a subscription membership basis through explicit authority granted under the motor vehicle statutes. If one also sells insurance as defined in Connecticut law, the company would also have to be a licensed insurer in compliance with state insurance requirements. For example, AAA sells insurance through its affiliate, AAA Life Insurance Company, which is a licensed insurer domiciled in Michigan and authorized to transact life, accident, and health insurance in Connecticut.
With respect to towing and roadside assistance, the law authorizes the motor vehicles commissioner to license automobile clubs if they maintain financial security of at least $10,000 for the benefit of members in case it fails to perform its contract (CGS § 14-67). The law reads as follows:
Sec. 14-67. Qualifications of licensee; bond; fees. Solicitation of service contracts. (a) No person, firm, association or corporation operating as an automobile club or automobile association shall perform, or offer to perform, in this state for a stipulated fee covering a certain period, any service relating to the protection and assistance of automobile owners or drivers, other than insurance, without being licensed therefor by the commissioner.
(b) If the commissioner is of the opinion that the applicant is reliable, entitled to confidence and of sufficient financial responsibility, such applicant shall be granted a license to perform such service in this state. The license shall expire annually on the last day of June and such license may be renewed as long as the commissioner regards such licensee as reliable, entitled to confidence and of sufficient financial responsibility.
(c) No license shall be granted under the provisions of this section unless the applicant deposits the sum of $10,000 in cash or securities of a market value in said amount in this state and approved by the commissioner, or in lieu thereof a surety bond in like amount of a company legally authorized to do business in this state. Such bond shall be in favor of and for the protection, use and benefit of all members of such club or association and of all persons whose applications for such membership have been accepted and who have secured a judgment against such licensee for failure to perform its contract and which, after 30 days, remains unsatisfied, but in no event shall any judgment recovered against any such licensee be satisfied under such bond for more than one hundred dollars in any one action.
(d) The commissioner shall grant such a license if he has been satisfied that the provisions of this section have been complied with and he may, after a hearing and for cause, revoke such a license; and, if the licensee is aggrieved either by the commissioner's refusal to grant a license or his revocation of it, he may appeal from the commissioner's decision in accordance with the provisions of section 4-183.
(e) The fee for each such license or the renewal thereof shall be $31, payable to the commissioner. On and after January 1, 2005, such fee shall be $250.
(f) No person shall solicit or aid in the solicitation of another person to purchase automobile club or automobile association service from any person, firm, association or corporation which is not licensed under this section.
(g) No person shall, orally or in writing, misrepresent the terms, benefits or provisions of any automobile club or automobile association service contract issued or to be issued by any person, firm, association or corporation.
(h) Any person, firm, association or corporation which violates any provision of this section shall be fined not more than $100 or imprisoned not more than 30 days or both.
We were unable to determine where in Rhode Island statutes an exemption from insurer licensure and reserve requirements exists for a nonprofit, volunteer ambulance companies offering subscription memberships for ambulance service, such as the company in question. As a result, we contacted the Rhode Island Department of Business Regulation, Insurance Division. After explaining the situation, Ms. Elizabeth Kelleher Dwyer, Esq., replied on the division's behalf, saying:
The Rhode Island Department has not been contacted by Westerly Ambulance or anyone else concerning Westerly Ambulance to request our opinion as to whether or not this arrangement constitutes insurance. If contacted we would likely give the same answer as the Connecticut Department - that the contract does constitute insurance. Our concern would be that since Westerly is not an insurer there would not be any funds set aside to pay the benefits due to consumers who enter into these contracts. We do not currently have any laws to address such situations short of licensure as an insurer.
Unauthorized Insurance Business
Under Rhode Island law and with limited exception, it is illegal to transact insurance business without a certificate of compliance from the insurance commissioner (R.I. Gen Laws § 27-16-1.2). Exceptions to the requirement include, among others, transactions in Rhode Island involving:
1. group life, group sickness and accident, or blanket sickness and accident insurance or group annuities where the master policy was lawfully issued and delivered in and pursuant to the laws of a state in which the insurer is authorized to do insurance business, to a group organized for purposes other than the procurement of insurance, and where the policyholder is domiciled and
2. life insurance, health insurance, or annuities provided to nonprofit educational, religious, or charitable institutions for the benefit of the institutions and individuals engaged in the service of the institutions, provided the company complying with the following requirements:
a. pay an annual registration fee of five hundred dollars ($ 500);
b. file a copy of any policy or contract form issued to Rhode Island residents with the insurance commissioner, and each policy and contract form must contain on its front and declaration page in at least 12 point type a specified disclosure statement that the insurer is an unlicensed registered insurer that is not a member of the state guaranty association;
c. file a copy of its annual statement with the insurance commissioner and any other financial material that he or she may request; and
d. appoint the insurance commissioner as its agent to receive service of legal process issued against it in Rhode Island.
The law lists the acts that constitute transacting insurance. The list is substantially the same as in Connecticut (see above), including (1) making or proposing to make an insurance contract and (2) receiving or collecting any premium, commission, membership fees, assessments, dues, or other consideration for insurance.
Any unauthorized insurer who transacts any unauthorized act of an insurance business as set forth in §§ 27-16-1.1 to 27-16-2.6 may be fined up to $ 10,000 (R.I. Gen. Laws § 27-16-2.2).
Maine law defines an “authorized insurer” as one to whom the insurance superintendent issued a certificate of authority to transact insurance in the state. An “unauthorized insurer” is one not so authorized (Me. Rev. Stat. Ann. tit. 24-A, § 8).
“Transacting insurance” includes, whether by mail or any other means, (1) solicitation or inducement, (2) negotiations, (3) effectuation of a contract of insurance, and (4) transaction of matters subsequent to effectuation and arising out of such a contract (Me. Rev. Stat. Ann. tit. 24-A, § 9).
Any insurer, and any officer, director, agent, representative, or employee of an insurer, who is convicted of willfully authorizing, negotiating, making, or issuing any insurance contract in violation of Maine's law, is subject to a fine up to $5,000, imprisonment up to two years, or both (Me. Rev. Stat. Ann. tit. 24-A, § 404).
Massachusetts law defines a “contract of insurance” as “an agreement by which one party for a consideration promises to pay money or its equivalent, or to do an act valuable to the insured, upon the destruction, loss or injury of something in which the other party has an interest” (Mass. Gen. Laws ch. 175, § 2).
It is illegal to make a contract of insurance or to negotiate, solicit, sell, or aid in the transaction of such contracts except as authorized by law (Mass. Gen. Laws ch. 175, § 3).
New Hampshire law defines “transacting business” as including, “in addition to its usual interpretation, advertising locally in any foreign jurisdiction in which an insurer is not licensed or circularizing in any such jurisdiction without regard for the source of such circularization whenever such advertising locally or such circularization is for the purpose of solicitation of insurance business” (N.H. Rev. Stat. Ann. § 402:55).
The law lists the acts that constitute transacting insurance. The list is substantially the same as in Connecticut (see above), including (1) making or proposing to make an insurance contract and (2) receiving or collecting any premium, commission, membership fees, assessments, dues, or other consideration for insurance (N.H. Rev. Stat. Ann. § 406-B:2).
An unlicensed insurer who does any unauthorized act of an insurance business as set forth in § 406-B:2 is subject to a fine of up to $10,000. In addition to any other penalty allowed by law, a person or insurer violating the unauthorized insurance chapter of law is subject to a $500 fine for the first offense and an additional $500 for each month or fraction thereof during which the violation continues (N.H. Rev. Stat. Ann. § 406-B:12).
In New Jersey, an unauthorized insurer does not hold a current certificate of authority from the insurance commissioner authorizing the company to act as an insurer (N.J. Stat. Ann. § 17B:17-11).
The law defines “health insurance” as a contract or agreement whereby an insurer is obligated to pay or allow a benefit of pecuniary value with respect to bodily injury, disablement, sickness, or accidental death or any related expense, including expenses incurred to prevent sickness (N.J. Stat. Ann. § 17B:17-4).
With limited exception, it is illegal to transact insurance in New Jersey unless specifically authorized. Transacting insurance means to (1) solicit, negotiate, or effect an insurance contract of any kind; (2) sign, deliver, or transmit, by mail or otherwise, any policy or annuity contract; (3) receive any premium, commission, fee, or other payment; or (4) maintain or operate any office in the state for the transacting the business of insurance. The law makes it a misdemeanor to transact insurance illegally (N.J. Stat. Ann. § 17B:17-13).
New York law defines an “insurance contract” as an agreement or other transaction whereby one party, the insurer, is obligated to confer a benefit of pecuniary value on another party, the beneficiary, dependent on the occurrence of an event that is beyond either's control (N.Y. [Ins.] Law § 1101(a)).
No person or organization is allowed to transact insurance in New York without a license to do business from the insurance superintendent (N.Y. [Ins.] Law § 1102). New York exempts fraternal benefit societies and similar organizations from the licensing requirement, but the exemptions do not appear to include the type of organization and arrangement in question (N.Y. [Ins.] Law §§ 1108 and 4522).
The law lists the acts that constitute transacting insurance. The list is substantially the same as in Connecticut (see above), including (1) making or proposing to make an insurance contract and (2) receiving or collecting any premium, membership fees, assessments, or other consideration for insurance (N.Y. [Ins.] Law § 1101(b)(1)).
Further, “the fact that no profit is derived from the making of insurance contracts, agreements, or transactions, or that no separate or direct consideration is received therefore, shall not be deemed conclusively to show that the making thereof does not constitute the doing of an insurance business” (N.Y. [Ins.] Law § 1101(b)(4)).
Vermont law defines various types of insurance, including health insurance, which is insurance against bodily injury, disablement, or accidental death and any related expense (Vt. Stat. Ann. tit. 8, § 3301(a)(2)). But the law explicitly excludes from “the regulation of the business of insurance…activities engaged in by ambulance services and first responder services for which they are licensed by the board of health” (Vt. Stat. Ann. tit. 8 § 3301(e)).
Vermont's ambulance licensing law also imposes a duty on a person to pay for ambulance service:
A person who receives emergency medical treatment from an ambulance or first responder service or transportation by an ambulance service shall be liable in contract to the person providing such services for the reasonable and necessary cost of the services, whether or not he has agreed or consented to such liability (Vt. Stat. Ann. tit. 24 § 2685).