N.Y. Insurance Law § 4301: Organization of corporation; purposes; board of directors

§ 4301. Organization of corporation; purposes; board of directors. (a)

A corporation may be organized under the not-for-profit corporation law,

and a consumers' cooperative stock corporation may be organized under

article two of the cooperative corporations law, for the purpose of

furnishing medical expense indemnity, dental expense indemnity, hospital

service, or health service or, upon compliance with the applicable

provisions of subsection (h) of this section, both medical expense

indemnity and hospital service, to persons who become covered under

contracts with such corporations.

(b) (1) Medical expense indemnity shall consist of reimbursement for:

(A) medical care provided through licensed physicians,

(B) dental care provided through licensed dentists,

(C) optometric care provided through licensed optometrists,

(D) podiatrical care provided through licensed podiatrists,

(E) chiropractic care provided through licensed chiropractors,

(F) psychiatric or psychological services provided through physicians,

psychiatrists or certified and registered psychologists,

(G) physical and occupational therapy care provided through licensed

physical and occupational therapists upon the prescription of a

physician,

(H) nursing service,

(I) speech-language pathology or audiology services provided through

licensed speech-language pathologists or audiologists, provided however,

that nothing contained herein shall be construed to prohibit a contract

from requiring said service from being performed pursuant to a medical

order or similar or related service of a physician, in which case

coverage need not be provided for any tests, evaluations or diagnoses if

such tests, evaluations or diagnoses have already been provided by or

through a physician within twelve months of the referral or order from

the physician. However, nothing herein shall be construed as preventing

a corporation from covering more than one test or evaluation provided by

a speech-language pathologist or audiologist within a twelve-month

period where such tests or evaluations is ordered by a physician as

medically necessary. Nor shall anything herein be construed as

prohibiting the limitation of such services, where covered, to specified

settings other than offices, such as hospitals or to services provided

by such professionals as part of a home care agency's services,

(J) necessary appliances, drugs, medicines and supplies, and

(K) bio-analytical or clinical laboratory examinations and reports

thereof reported to a physician, osteopath, dentist, optometrist,

podiatrist, chiropractor or physical therapist made by any privately

operated bioanalytical or clinical laboratory.

(2) It is not mandatory that a contract issued by a medical expense

indemnity corporation provide for and offer all of the services

hereinabove described, but when any service is provided which can be

performed by more than one of the practitioners hereinbefore referred

to, benefits under the contract shall be provided regardless of which

practitioner performed the service, provided that the performance of

such service was within the scope of the license of such practitioner.

Unless such contract shall otherwise provide there shall be no

reimbursement for ophthalmic materials, lenses, spectacles, eyeglasses,

and/or appurtenances thereto.

(3) Every medical expense indemnity corporation shall be open to the

participation of licensed physicians, podiatrists, chiropractors,

optometrists, physical and occupational therapists, speech-language

pathologists, audiologists, and dentists, certified and registered

psychologists without discrimination against schools of medical

practice, podiatry practice, chiropractic practice, optometric practice,

physical and occupational therapy practice, dental practice,

speech-language pathology practice (subject to the permitted limitations

of paragraph one of this subsection), audiology practice (subject to the

permitted limitations of paragraph one of this subsection), and

psychological training as defined in the education law.

(c) Dental expense indemnity shall consist of reimbursement for dental

care provided through licensed dentists and of furnishing necessary

appliances, drugs, medicines, and supplies, prosthetic appliances,

orthodontic appliances, precious metal and ceramic restorations.

(d) (1) Hospital service shall consist of in-patient hospital care and

out-patient hospital care when such hospital care is provided through a

hospital which is maintained by the state or any of its political

subdivisions, or maintained by a corporation organized for hospital

purposes under the laws of this state, or such other hospitals as shall

be designated by the state department of health, and hospitals of other

states subject to the supervision of such other state, convalescent care

provided by any convalescent institution, or nursing care provided by

any nursing home.

(2) A hospital service corporation may also provide reimbursement for

expenses incurred outside of the hospital, convalescent institution or

nursing home, for nursing service, necessary appliances, drugs,

medicines, supplies, and any other services which would have been

available in the hospital, convalescent institution or nursing home

(excluding physicians' services), whether or not provided through a

hospital, convalescent institution or nursing home.

(3) A hospital service corporation may also furnish reimbursement for

ambulance service expenses.

(e) (1) Health service, as used in this article, shall consist of the

types of services referred to in this section.

(2) A health service corporation, in any hospital, facility or center

directly operated by it may provide hospital or medical care to persons

other than persons covered under contracts issued by such corporation.

(3) A health service corporation may:

(A) exercise all of the powers of a medical expense indemnity, dental

expense indemnity and hospital service corporation;

(B) organize, manage and promote a health maintenance organization as

such term is defined in article forty-four of the public health law;

(C) contract or otherwise act jointly with a hospital corporation

organized under article twenty-eight of the public health law, a

hospital service corporation organized pursuant to this article, a

health maintenance organization possessing a certificate of authority

pursuant to article forty-four of the public health law, a professional

service corporation organized under article fifteen of the business

corporation law, a university faculty practice corporation organized

under section fourteen hundred twelve of the not-for-profit corporation

law or a partnership for the purpose of organizing, managing and

promoting such prepaid comprehensive health services plan;

(D) contract or otherwise act jointly with an insurance company,

authorized to do an accident and health insurance business in this

state, for the purpose of organizing, managing and promoting such a

health maintenance organization.

(4) A health service corporation engaged in providing medical care

through medical groups, hospital services and dental care, may include

as a component of its rate a sum of five per centum of such rate to be

used for the purchase or construction of facilities for the conduct of

its business, and for the implementation of its program, or for making

loans for the purposes of implementing the program of such corporation.

(5) To encourage the development in this state of health maintenance

organizations as such term is defined in article forty-four of the

public health law, the superintendent may modify any requirement

applicable to health service corporations and other corporations

organized under this article to permit such corporations to make fuller

use of their resources in the development of such plans, including the

acquisition and construction of hospitals, medical service centers and

other health facilities and the equipment therefor, subject to such

limitations as the superintendent shall deem necessary or proper to

ensure the performance of contracts issued by such corporations and to

protect the interests of persons covered under such contracts.

(6) Any other corporation subject to the provisions of this article

may by appropriate amendment to its certificate of incorporation become

a health service corporation.

(f) No foreign or alien medical expense indemnity corporation, dental

expense indemnity corporation, health service corporation, or hospital

service corporation shall be authorized to do business in this state. No

person, firm, association or corporation shall in this state furnish or

contract to furnish medical expense indemnity, dental expense indemnity,

hospital service or health service under any insurance plan unless

authorized so to do under the provisions of this chapter.

(g) Two or more corporations organized pursuant to the provisions of

this article may, upon compliance with the applicable provisions of

article seventy-one of this chapter, consolidate, if the superintendent

finds that such consolidation will promote the public interest. No

corporation resulting from any such consolidation shall operate in any

county in which none of the corporations so consolidated was empowered

to operate immediately prior to such consolidation.

(h) A medical expense indemnity corporation or a hospital service

corporation may, pursuant to a plan submitted to and approved by the

superintendent, furnish both medical expense indemnity and hospital

service benefits, as these are defined in subsections (b) and (d) of

this section, by amending its certificate or act of incorporation in the

manner provided in the applicable provisions of the not-for-profit

corporation law and the cooperative corporations law. Except as the

context otherwise requires, a corporation writing both medical expense

indemnity and hospital service benefits shall be subject to all of the

provisions of this article applicable to medical expense indemnity and

hospital service corporations.

(i) Subject to the provisions of the preceding subsections, a hospital

service corporation and a medical expense indemnity corporation and a

dental expense indemnity corporation or any two of such corporations may

issue a combined contract providing for hospital service, medical

expense indemnity or dental expense indemnity, but no one of such

corporations shall issue any such combined contract unless it complies

with the applicable provisions of subsection (h) hereof. A hospital

service corporation and a medical expense indemnity corporation and a

dental expense indemnity corporation or any two of such corporations may

underwrite jointly in such a combined contract such benefits as each

might otherwise individually provide under this article. Any one of such

corporations may act as agent for the other without being required to

obtain a license as an agent under article twenty-one of this chapter.

(j) (1) Except as provided in this subsection, no medical expense

indemnity corporation, dental expense indemnity corporation, health

service corporation, or hospital service corporation shall be converted

into a corporation organized for pecuniary profit. Every such

corporation shall be maintained and operated for the benefit of its

members and subscribers as a co-operative corporation.

(2) An article forty-three corporation which was the subject of an

initial opinion and decision issued by the superintendent on or before

December thirty-first, nineteen hundred ninety-nine, as the same may be

amended or one or more article forty-three corporations whose main

offices on January first, two thousand seven were located in one of the

counties listed in section one thousand two hundred sixty-two of the

public authorities law and its or their not-for-profit subsidiaries

(including, without limitation, any such subsidiary licensed as a health

service corporation pursuant to this chapter or as a health maintenance

organization organized pursuant to article forty-four of the public

health law), hereinafter referred to in the singular, may be converted

into one or more corporations or other entities organized for pecuniary

profit, or into one or more for-profit organizations, in any such case,

in accordance with the provisions of section seven thousand three

hundred seventeen of this chapter.

(3) For the purposes of this subsection and section seven thousand

three hundred seventeen of this chapter, "public asset" shall mean

assets representing ninety-five percent of the fair market value of the

corporation seeking to convert into a corporation or other entity

organized for pecuniary profit pursuant to paragraph two of this

subsection; provided, however, that for the purposes of the conversion

of a corporation or corporations after the effective date of the chapter

of the laws of two thousand seven which amended this paragraph, "public

asset" shall mean assets representing ninety percent of the fair market

value of the corporation or corporations. Fair market value, as defined

in subsection (l) of section seven thousand three hundred seventeen of

this chapter, shall be determined as of the date the superintendent

approves the conversion transaction pursuant to subsection (f) of

section seven thousand three hundred seventeen of this chapter.

(4) In addition to any other requirements of law, rule or regulation,

the following requirements shall be applicable to the public asset:

(A) The public asset shall be transferred to the fund established

pursuant to subsection (e) of section seven thousand three hundred

seventeen of this chapter and the public asset shall be irrevocably

dedicated to the purpose as set forth in such section;

(B) There is hereby established a board for the purpose of advising

and making decisions with respect to the investment of assets and moneys

in the fund created pursuant to subsection (e) of section seven thousand

three hundred seventeen of this chapter. Such board shall be composed of

five members appointed as follows: three members shall be appointed by

the governor; one member appointed by the temporary president of the

senate; and one member appointed by the speaker of the assembly. Each

member of the board shall be appointed for a term of three years and may

be reappointed at the end of said term by the same person that made the

original appointment. A vacancy in the membership of the board shall be

filled for the unexpired portion of the term provided for by the

original appointment by the same person that made the original

appointment. Each member may be removed, other than upon the expiration

of his or her term, only for neglect of duty, misconduct or other good

cause. Each member of the board shall be a member of the public with

knowledge and expertise in capital markets and a demonstrated commitment

to ensuring continued access to, and availability of, health care

services and may not be an officer or employee of the state or any

municipal subdivision thereof;

(C) The members shall serve without compensation for their services as

members, but shall be entitled to reimbursement for actual and necessary

expenses incurred in the performance of their official duties. Such

members, except as otherwise provided by law, may engage in private

employment, or in a profession or business;

(D) The board and its corporate existence shall continue until there

are no longer any assets or moneys in the fund created pursuant to

subsection (e) of section seven thousand three hundred seventeen of this

chapter available for distribution;

(E) The affirmative vote of three of the members shall be necessary

for the transaction of any business or the exercise of any power or

function of the board. The board may delegate to one or more of its

members, or its agents, such powers and duties as it may deem proper;

(F) The board shall have the power to:

(i) direct, in consultation with the director of the division of the

budget regarding the anticipated schedule of payments to the state, the

manner in which moneys in the fund created pursuant to subsection (e) of

section seven thousand three hundred seventeen of this chapter are

invested so as to maximize the value of the assets in such fund

consistent with the board's statutory obligation to direct disbursements

as described below and in subsection (e) of section seven thousand three

hundred seventeen of this chapter;

(ii) direct that disbursements be made from such fund in accordance

with the direction of the director of the division of the budget and as

described in subsection (e) of section seven thousand three hundred

seventeen of this chapter; and

(iii) make and execute contracts and all other instruments, and to

exercise such other powers, necessary or convenient for the exercise of

its powers and functions.

In directing investments pursuant to this subparagraph, the board

shall not be limited by any restrictions on investments contained in any

other section of law, subject only to the board's obligations and the

considerations set forth above;

(G) (i) Neither the members of the board nor any agent or other person

or persons acting on its behalf, while acting within the scope of their

authority as members or agents of the board, shall be subject to any

personal liability resulting from the carrying out of the powers

conferred hereunder, and (ii) the provisions of section seventeen of the

public officers law shall apply to members of the board and agents or

other persons acting on its behalf, in connection with any and all

claims, demands, suits, actions or proceedings which may be made or

brought against any of them arising out of any determination made or

actions taken or omitted to be taken in compliance with any obligations

under or pursuant to the terms of this section or section seven thousand

three hundred seventeen of this chapter. The provisions of this

subparagraph shall be severable from and shall survive any legal

challenge to the legality, validity, or constitutionality of this

section;

(H) Any action or proceeding in which any question arises as to the

validity of any provision in this subsection or in section seven

thousand three hundred seventeen of this chapter, shall be preferred

over all other civil causes except election causes in all courts of the

state of New York and shall be heard and determined in preference to all

other civil business pending therein except election causes,

irrespective of position on the calendar. The same preference shall be

granted upon application of counsel to the board in any action or

proceeding questioning the validity of any provision herein in which he

or she may be allowed to intervene;

(I) To assist in carrying out its functions, the board shall be

authorized to hire independent financial, legal and other experts and

consultants;

(J) Inconsistent provisions of other laws are superseded. Insofar as

any provision in this section is inconsistent with the provisions of any

other law, general, special or local, the provisions in this section

shall be controlling;

(K) This section, being necessary for the welfare of the state and its

inhabitants, shall be liberally construed so as to effectuate its

purposes;

(L) Each member of the board shall be and shall remain independent of

any control or influence by the surviving corporation or other surviving

entity organized for pecuniary profit and its affiliates and successors.

Such requirement shall not prevent the board from voting its equity

shares in the for-profit organization in accordance with the voting and

shareholders rights agreement. No person who is an officer, director or

employee of the corporation seeking conversion at the time such

corporation applies to the superintendent for permission to convert

shall be a member of the board;

(M) The board shall establish formal mechanisms to avoid conflicts of

interest;

(N) The board shall enter into an asset preservation agreement with

the converted corporation; and

(O) Notwithstanding any other provision of law, the board shall direct

that such proceeds of the public asset are disbursed in accordance with

direction from the director of the division of the budget and

transferred to the credit of the tobacco control and insurance

initiatives pool, or its successor to be used for the exclusive purposes

provided therein.

(P) Section one hundred twelve of the state finance law shall apply to

the fund established pursuant to subsection (e) of section seven

thousand three hundred seventeen of this chapter and its board solely

and exclusively with respect to procurement contracts for consulting and

professional services recommended for award by the fund after June

twenty-third, two thousand five; provided that all such contracts

recommended for award by the fund on or before June twenty-third, two

thousand five shall be valid and effective in accordance with their

terms.

(Q) Section one hundred twelve of the state finance law shall not

otherwise apply to the fund established pursuant to subsection (e) of

section seven thousand three hundred seventeen of this chapter and its

board except as provided in subparagraph (P) of this paragraph. Without

in any way limiting the foregoing, section one hundred twelve of the

state finance law specifically shall not apply to any and all agreements

such fund, its board, or any medical expense indemnity corporation,

dental expense indemnity corporation, health service corporation or

hospital service corporation that has converted to for-profit status

pursuant to this section and section seven thousand three hundred

seventeen of this chapter, may enter into, or has entered into, in

connection with, or in anticipation of, sales of stock including, but

not limited to, any and all underwriting agreements, pricing agreements

and other documents related to such sales of stock or stock offerings,

whether such agreements are entered into in connection with initial

public offerings or subsequent public or private sales of stock.

(R) All disbursements from the fund established pursuant to subsection

(e) of section seven thousand three hundred seventeen of this chapter

shall be made pursuant to the provisions of this section and section

seven thousand three hundred seventeen of this chapter without an

appropriation. The provisions of this section and section seven thousand

three hundred seventeen of this chapter shall be controlling, any other

general, special or local law inconsistent therewith notwithstanding.

(5) For the purpose of this subsection and section seven thousand

three hundred seventeen of this chapter, "charitable asset" shall mean

assets representing five percent of the fair market value of the

corporation seeking to convert into a corporation or other entity

organized for pecuniary profit pursuant to paragraph two of this

subsection; provided, however, that for the purposes of the conversion

of a corporation or corporations after the effective date of the chapter

of the laws of two thousand seven which amended this paragraph,

"charitable asset" shall mean assets representing ten percent of the

fair market value of the corporation or corporations. Fair market value,

as defined in subsection (l) of section seven thousand three hundred

seventeen of this chapter, shall be determined as of the date the

superintendent approves the conversion transaction pursuant to

subsection (f) of section seven thousand three hundred seventeen of this

chapter. If one hundred percent of the stock is not transferred in

connection with the conversion transaction, the proportion of stock to

cash that is distributed as the charitable asset shall be the same as

the proportion of stock to cash that is distributed as the public asset.

(k) (1) The board of directors of each health service, hospital

service or medical expense indemnity corporation subject to this article

shall be composed of persons who are representative of the member

hospitals or licensed medical professionals of such corporation, persons

covered under its contracts and the general public. The board of

directors of such corporations may also include persons who are

employees of such corporations and who also serve as officers of such

corporations. Not more than one-fifth of the directors of any such

corporation shall be persons who are licensed to practice medicine in

this state (other than physicians employed on a full-time basis in the

fields of public health, public welfare, medical research or medical

education) or who are trustees, directors or employees of a corporation

organized for hospital purposes, or any combination thereof. Not more

than one-eighth of the directors of any such corporation shall be

persons who are employees of such corporation and who also serve as

officers of such corporation. Any person who is an officer of such

corporation but not an employee of such corporation shall be considered

under one of the other classifications of directors set forth in this

section, as appropriate. Whenever the maximum number of directors in

either of the classifications set forth in the preceding sentences

includes a fractional number equal to or greater than one-half, the

number shall be rounded to the next greater whole number. Whenever the

maximum number of directors in either of the classifications set forth

in the preceding sentences includes a fractional number less than

one-half, the number shall be rounded to the next lesser whole number.

Of the directors not included in the classifications set forth in the

preceding sentences,

(A) one-half in number, as nearly as possible, shall be persons

covered under a contract or contracts issued by such health service,

hospital service or medical expense indemnity corporation, and who are

generally representative of broad segments of such covered persons, and

(B) one-half in number, as nearly as possible, shall be persons whose

background and experience indicate that they are qualified to act in the

broad public interest, whether or not they are persons covered under a

contract or contracts issued by such health service, hospital service or

medical expense indemnity corporation.

(C) A person who, or whose spouse or minor child, is an officer,

director, or owner of more than ten per centum of the stock of a

corporation whose aggregate sales to hospitals and licensed medical

professionals and to facilities of a health service, hospital service or

medical expense indemnity corporation exceed five per centum of its

total sales may not serve as a director under subparagraph (A) or (B)

hereof.

(D) Each such health service, hospital service or medical expense

indemnity corporation shall have an executive committee the members of

which shall be composed, as nearly as possible, of representatives of

any member hospitals or licensed medical professionals of such

corporation, employee-officers of such corporation, persons covered

under its contracts and the general public in the same proportions as

the membership of the board of directors.

(E) The board of directors of a health service, hospital service or

medical expense indemnity corporation with a combined premium volume

exceeding two billion dollars annually as of December thirty-first,

nineteen hundred ninety-six shall, in addition to its other

responsibilities, have responsibility for ensuring that the corporation

implements and maintains effective standards and procedures for

operating efficiency and for quality of consumer service and claims

payment, including but not limited to coordination of benefits and fraud

prevention and shall establish one or more committees comprised solely

of directors who are not officers or employees of the corporation. Such

committee or committees shall have responsibility for recommending the

selection of independent certified public accountants, reviewing the

corporation's financial condition, the scope and results of the

independent audit and any internal audit, nominating candidates for

director for election by members, and evaluating the performance of

officers deemed by such committee or committees to be principal officers

of the company and recommending to the board of directors the selection

and compensation of such principal officers.

(2) (A) Compliance with the provisions of paragraph one hereof shall

be under the supervision of the superintendent.

(B) Within ten days after a vacancy in the board of directors of a

health service, hospital service or medical expense indemnity

corporation shall occur, such corporation shall notify the

superintendent in writing that such vacancy exists. Not more than ten

days after the election of a person as a director of a health service,

hospital service or medical expense indemnity corporation, such

corporation shall furnish, in writing, the following information to the

superintendent: the name and address of the person so elected; whether

such person is representative of any member hospital or licensed medical

professional of such corporation or persons covered under its contracts

or the general public and qualified to serve pursuant to the provisions

of paragraph one hereof or is an employee-officer of such corporation;

and a biographical statement concerning such person. If the

superintendent finds, after a hearing, that the composition of the board

of directors of a health service, hospital service or medical expense

indemnity corporation is not in compliance with the provisions of

paragraph one hereof, he may direct that such board of directors be

reconstituted in accordance with his finding.

(3) No person who has served as a director of any corporation subject

to this article for ten consecutive years shall thereafter be elected

for an additional term of office as such until at least one year has

elapsed since the expiration of his prior term of office. The preceding

sentence shall not apply to a director of any corporation subject to

this article who is an employee of the corporation and who also serves

as an officer of the corporation. The superintendent, upon application

by a corporation subject to the provisions of this article, may waive

the ten year limit in this paragraph for a non-employee serving as

chairman of its board of directors.

(4) A director of a corporation subject to this article shall

automatically forfeit his office if (i) he fails to attend at least one

of the regular meetings of the board of directors held during any period

of eighteen consecutive months, or (ii) unless excused by the board of

directors of which he is a member, which action shall be entered on the

minutes of such board, it shall appear at the end of any calendar year

that he failed to attend at least one-half of the regular meetings of

such board held in such calendar year. A director whose office becomes

vacant pursuant to the provisions of this paragraph shall not be

eligible for election to such office for a period of one year from the

date the vacancy occurred.