Sec. 261.0. Preamble

(a) This Part implements, interprets, and clarifies chapter 65 of the Laws of 1998, as amended by chapter 28 of the Laws of 2003. Prior to the enactment of chapter 65, section 1116 of the Insurance Law authorized insurers to offer experimental plans of prepaid legal services insurance, and except in connection with such a plan, the Insurance Law did not authorize insurers to provide legal services insurance.

(b) Chapter 65 added a new paragraph (29) to subsection (a) of section 1113 of the Insurance Law effective April 1, 1999, to set forth a new kind of insurance entitled legal services insurance (defined to mean insurance providing legal services or reimbursement of the cost of legal services) and also amended section 1116 of the Insurance Law (retitled as prepaid legal services plans and legal services insurance).

(c) Section 1116(a)(3), as amended effective April 1, 1999, provides that legal services insurance may not be written except:

(1) in conjunction with prepaid legal services plans as authorized in section 1116; or

(2) pursuant to a regulation promulgated by the superintendent permitting legal services insurance to be written as part of a policy of liability insurance covering related risks and, provided further, that legal services for defense only coverages for commercial or other business related lawsuits or arbitration proceedings commenced against the business entity that purchased the policy is not more than an incidental part of such liability insurance.

Section 1116(a)(2), as amended, provides that a prepaid legal services plan may include legal services insurance as part of the plan, provided however, not more than an incidental amount of the premium with respect to such prepaid legal services plan shall be attributable to legal services for defense only coverages for commercial or other business related lawsuits or arbitration proceedings commenced against the business entity that purchased the policy.

(d) Examples of the types of services which may be included in a prepaid legal services plan are:

(1) wills, estate settlements;

(2) purchase and sale contract;

(3) real estate transactions;

(4) preventive legal service, document review, letter-writing;

(5) prenuptial agreement, annulment, separation, divorce;

(6) adoption, guardianship, conservatorship;

(7) employment contract;

(8) defense of civil suit;

(9) eviction;

(10) name changes;

(11) Internal Revenue Service collection defense and audit protection and other tax matters; and

(12) family court proceedings.

(e) In the past, the department has received many inquiries requesting clarification as to what kinds of prepaid legal services arrangements constitute the doing of an insurance business, thus requiring licensing as an insurer. As guidance on this issue, it is the department's interpretation that legal services arrangements pursuant to which legal services are provided for a prepaid fee do not constitute the doing of an insurance business within the meaning of section 1101 of the Insurance Law so long as the services are not dependent upon the happening of a fortuitous event (as such term is defined in section 1101[a][2] of the Insurance Law) in which the recipient of the services has, or is expected to have at the time of such happening, a material interest that will be adversely affected by the happening of such event. For example, an arrangement that, for a prepaid fee, provides that the recipient of services is entitled to a will upon request would not constitute the doing of an insurance business, so long as the arrangement is not conditioned upon the happening of a fortuitous event. Therefore, a prepaid legal services arrangement providing such limited services and being offered by an unlicensed entity would not be subject to the jurisdiction of the Department of Financial Services.

(f) On the other hand, an arrangement that for a prepaid fee provides services which are dependent upon the happening of a fortuitous event in which the recipient of the services has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of such event, would constitute the doing of an insurance business, specifically legal services insurance. For example, such a prepaid legal services arrangement that provides defense coverage for a lawsuit would constitute insurance.

(g) However, an arrangement as described in subdivision (f) of this section may provide for such services, without constituting the doing of an insurance business, if a separate fee for each such service is charged, and the fee for the service fully covers the cost of rendition of such services, including reasonable overhead, thus avoiding the assumption of a risk of loss in rendering the service. Therefore, the arrangement can provide for a prearranged discount on the services, but the provider of the services may not assume a risk of loss.

(h) Pursuant to chapter 65 of the Laws of 1998, an authorized insurer may provide noninsurance benefits pursuant to a prepaid legal services plan, so long as the insurer is licensed to write legal services insurance. An insurer, however, is not required to offer legal services insurance as part of the plan. Such prepaid legal services plans are subject to the jurisdiction of the Department of Financial Services because they are offered by licensed entities and regardless of whether or not they include legal services insurance as part of the plan.

(i) Additionally, attorneys who arrange to provide the services described in subdivision (f) of this section on a capitated fee basis, would also violate Insurance Law, section 1102, whether or not the arrangement was offered by an authorized insurer pursuant to Insurance Law, section 1116.

(j) Chapter 65 does not change the state of the law in regard to what constitutes the doing of an insurance business.

(k) Section 1116(h), as amended, provides that the superintendent shall promulgate such regulations that are necessary to implement the provisions of section 1116. This Part applies to prepaid legal services plans, and Part 262 of this Title (Regulation 162) applies to legal services insurance written as part of a liability insurance policy and also sets forth additional requirements for legal services insurance written pursuant to a prepaid legal services plan. Furthermore, the superintendent is directed to promulgate such rules and regulations as are necessary to implement the provisions of chapter 65 on or before April 1, 1999. Chapter 65 of the Laws of 1998, as amended by chapter 28 of the Laws of 2003, provides that the new paragraph (29) of section 1113(a) of the Insurance Law and various conforming amendments implementing new paragraph (29) shall take effect April 1, 1999. Section 1116(c), as amended, provides that contracts issued in connection with a prepaid legal services plan may be issued on a group basis subject to regulations promulgated by the superintendent.