N.Y. ISC Law § 7313 — New York Code / Act ISC / Article 73 / Section 7313
Reorganization of domestic mutual accident and health insurance companies
Status: in_force

§ 7313. Reorganization of domestic mutual accident and health\ninsurance companies.\n  (a) In this section:\n  (1) "Affiliate" of a mutual insurer means any person who controls, is\ncontrolled by or is under common control with, the mutual insurer being\nconverted. A corporation is an affiliate of another corporation,\nregardless of ownership, if substantially the same group of persons\nmanage the two corporations.\n  (2) "Control" has the meaning assigned to it in paragraph two of\nsubsection (a) of section one thousand five hundred one of this chapter.\n  (3) A "domestic mutual insurer" or "mutual insurer" means a domestic\nmutual accident and health insurance company organized under article\ntwelve of this chapter and licensed under article forty-two of this\nchapter and not operating under an order of rehabilitation.\n  (4) "Policyholder" means a person, as determined by the records of a\nmutual accident and health insurer, who is deemed to be the\n"policyholder" of a policy that is of a type described in paragraph\nthree of subsection (a) of section one thousand one hundred thirteen of\nthis chapter.\n  (5) "Policyholders' membership interest" means and includes all\npolicyholders' rights as members arising under the charter of the mutual\naccident and health insurer or this chapter or otherwise by law,\nincluding the rights to vote and to participate in the distribution of\nsurplus whether or not incident to a liquidation of a mutual accident\nand health insurer. The term "policyholders' membership interest" does\nnot include rights, including without limitation the right to\nparticipate in the distribution of surplus, expressly conferred upon the\npolicyholders by their policies or contracts other than any right to\nvote.\n  (6) "Reorganization" means a conversion in accordance with this\nsection.\n  (b)(1) A domestic mutual insurer may apply to the superintendent for\npermission to reorganize and convert into a domestic stock accident and\nhealth insurer complying with the relevant organization and licensing\nprovisions of articles twelve and forty-two of this chapter. The\napplication to the superintendent shall be pursuant to a resolution,\nadopted by no less than a majority of the entire board of directors,\nspecifying the reasons for and the purposes of the proposed conversion\nand the manner in which the conversion is expected to benefit\npolicyholders and the public. A copy of the resolution, together with a\nstatement of its adoption, both certified by the president and\nsecretary, or officers corresponding to either of them, and affirmed by\nthem as true under the penalties of perjury and under the seal of the\nmutual insurer, and such other information as the superintendent may\nrequire shall accompany the application.\n  (2) The superintendent shall order an examination of the mutual\ninsurer pursuant to section three hundred ten of this chapter as of the\nlast day of the period covered in the insurer's latest filed statement,\nexcept that the proposed conversion shall terminate without an\nexamination if the superintendent finds that:\n  (A) the resolution is defective upon its face;\n  (B) the proposed conversion is contrary to law or is not in the best\ninterests of the policyholders or the public; or\n  (C) the mutual insurer does not have a surplus to policyholders at\nleast equal to the minimum capital and surplus required to be maintained\nfor a newly organized stock insurer doing the same kinds of insurance.\n  (c) The superintendent shall also appoint one or more qualified\ndisinterested persons to appraise and report to the superintendent the\nfair market value of the mutual insurer and, to the extent necessary,\nits affiliates, on the basis of its latest filed annual or quarterly\nstatement, and of any significant subsequent developments. The\nappraisers shall consider the assets and liabilities of the mutual\ninsurer and any factors bearing on the value of the mutual insurer or\nits affiliates. The appraisers shall receive reasonable compensation and\nbe reimbursed for reasonable expenses incurred in discharging their\nduties. The appraisers may, as necessary, employ consultants to advise\nthem on any technical matters.\n  (d) The superintendent shall make copies of such examination report\nand appraisal report available to the board of directors within fifteen\ndays of the superintendent's receipt of the reports. After receiving the\nreports, the superintendent may grant or deny permission to the board of\ndirectors to submit to the superintendent a plan of conversion. If\npermission is granted, the plan shall include the provisions, and be\nsubmitted in the manner and under the conditions, required by subsection\n(e) of this section. If permission is denied, the superintendent shall\nmake a written statement of the superintendent's findings and the board\nshall have the right to a hearing before the superintendent within\nthirty days of the date of denial.\n  (e)(1) In order for the conversion to proceed:\n  (A) the plan must be adopted by a majority of the entire board;\n  (B) the plan must be signed by the president and attested to by the\nsecretary, or officers corresponding to either of them, under the\ncorporate seal of the insurer; and\n  (C) a copy of the plan and resolution, both certified by such officers\nas true under the penalties of perjury and under the seal of the\ninsurer, shall be submitted to the superintendent not later than\nforty-five days after permission was granted under subsection (d) of\nthis section.\n  (2) The plan shall include:\n  (A) the proposed charter and by-laws of the insurer as a stock\ncorporation set out in accordance with paragraph five of subsection (a)\nof section one thousand two hundred one of this chapter;\n  (B) the manner of treating a holder of an agreement subject to section\none thousand three hundred seven of this chapter, if any; the holder, if\notherwise qualified, may, at its option, exchange such agreement for an\nequitable share of the securities or other consideration, or both, of\nthe corporation into which the insurer is to be converted.\n  (C)(i) the manner and basis of exchanging the equitable share of each\neligible mutual policyholder's membership interests for securities or\nother consideration, or both, of the stock corporation into which the\nmutual insurer is to be converted and the disposition of any unclaimed\nshares.\n  (ii) The plan shall also provide that each person who had a policy of\ninsurance in effect at any time during the three-year period immediately\npreceding the date of adoption of the resolution described in subsection\n(b) of this section shall be entitled to receive in exchange for the\nequitable share, without additional payment, consideration payable in\nvoting common shares of the insurer or other consideration, or both. The\nequitable share of the policyholder in the mutual insurer shall be\ndetermined by the ratio that the net premiums (gross premiums less\nreturn premiums and dividend paid) such policyholder has properly and\ntimely paid to the insurer on insurance policies in effect during the\nthree years immediately preceding the adoption of the resolution by the\nboard of directors under subsection (b) of this section bears to the\ntotal net premiums received by the mutual insurer from such eligible\npolicyholders. In computing a policyholder's equitable share, no credit\nshall be given for any net premiums which result from an endorsement\nwhich is effective on or after the date of adoption of the resolution.\n  (iii) Notwithstanding item (ii) of this subparagraph, credit shall be\ngiven for any net premiums resulting from an audit or retrospective\npremium adjustment that is billed within one hundred eighty days after\nthe date of adoption of the resolution described in subsection (b) of\nthis section, provided the premium is paid timely.\n  (iv) If the equitable share of the eligible policyholder entitles the\npolicyholder to the purchase of a fractional share of stock, the\npolicyholder shall have the option to receive the value of the\nfractional share in cash or purchase a full share by paying the balance\nin cash;\n  (D) the number of voting common shares proposed to be authorized for\nthe stock corporation, their par value and the price at which they shall\nbe offered, which price may not exceed one-half of the median equitable\nshare of all policyholders under item (ii) of subparagraph (C) of\nparagraph two of this subsection.\n  (E) any other information or other item that the superintendent may\nrequire.\n  (f) The mutual insurer shall give prompt notice to all persons who\nbecome policyholders or holders of agreements subject to section one\nthousand three hundred seven of this chapter on or after the date of the\nadoption of the resolution described in subsection (b) of this section.\nThe notice shall specify the pendency of a proposed conversion and the\neffect the conversion shall have on them.\n  (g) The superintendent shall hold a public hearing, adequate notice of\nwhich shall be mailed by the mutual insurer to each policyholder on the\nday preceding the date of adoption of the resolution described in\nsubsection (b) of this section, accompanied by a copy of the plan of\nconversion and any comment the superintendent considers necessary for\nthe adequate information of the policyholders. The mutual insurer shall\nalso immediately cause the notice to be posted on its website. In\naddition, the mutual insurer shall give notice of the hearing by\npublication in a newspaper of general circulation in the county in which\nthe mutual insurer has its principal office and in the two largest\ncities in each state in which the insurer has underwritten insurance\nwithin the five years preceding the date of the adoption of the\nresolution described in subsection (b) of this section. The notice shall\nbe accompanied by a summary approved by the superintendent of the plan\nand any comment the superintendent considers necessary for the adequate\ninformation of former policyholders and the public.\n  (h) (1) After the hearing, the superintendent shall approve the plan\nas submitted, refuse to approve the plan, or request modification of the\nplan before granting approval. The superintendent may approve the plan\nunless the superintendent finds that the plan violates this chapter, is\ninconsistent with law, or is not fair and equitable or in the best\ninterests of the policyholders and the public. If the superintendent\nfinds that the plan does not meet the foregoing standards for approval,\nthe superintendent shall either refuse to approve the plan and the plan\nshall become null and void or return the plan to the mutual insurer for\nmodification to meet the superintendent's stated objections.\n  (2) If within ninety days after receipt of the superintendent's\nrequest for modifications the mutual insurer does not submit an amended\nplan satisfactory to the superintendent and that meets the\nsuperintendent's objections and complies with the standards for\napproval, the plan shall become null and void.\n  (i) After approval by the superintendent the plan shall be submitted\nto a vote of the persons who were policyholders of the mutual insurer on\nthe day preceding the date of adoption of the resolution described in\nsubsection (b) of this section. The plan shall provide for proxy voting\nin a manner to be prescribed by the superintendent. The board shall\nsubmit the question of the plan to the policyholders at a meeting\nthereof, by causing a full, true and correct copy or a summary thereof\napproved by the superintendent, together with notice, stating the time,\nplace and purpose of the meeting, to be delivered personally, or\ndeposited in the post office, postage prepaid, at least thirty days\n(unless a shorter time, not less than ten days, be approved by the\nsuperintendent) prior to the time fixed for such meeting, addressed to\neach policyholder at the policyholder's last post office address\nappearing on the records of the insurer or other form of delivery\nintended to encourage participation acceptable to the superintendent.\n  (j) Each such policyholder eligible to vote pursuant to subsection (i)\nof this section shall be entitled to the number of votes as may be\nprovided for in the by-laws of the mutual insurer. The votes of\ntwo-thirds of all the votes cast by policyholders represented at the\nmeeting in person or by proxy, or by such other means acceptable to the\nsuperintendent intended to encourage participation, shall be necessary\nfor the adoption of the plan. Upon the conclusion of the vote the\ninsurer shall submit to the superintendent a certified copy of the plan\nvoted on together with a certificate setting forth the results of the\nvote, both of which shall be subscribed by the president and attested by\nthe secretary, or officers corresponding to either of them, under the\ncorporate seal of the mutual insurer, and affirmed by them as true under\nthe penalties of perjury.\n  (k) If at any stage in the process of a conversion under this section\nthe superintendent finds that the mutual insurer is impaired or that the\nfurther transaction of business by the mutual insurer will be hazardous\nto its policyholders, its creditors, or the public, the proposed\nconversion shall terminate.\n  (l) If the conversion plan is adopted pursuant to subsection (j) of\nthis section, the superintendent, upon being satisfied that the insurer\nwill have at least the minimum capital and surplus required to be\nmaintained for a newly organized domestic stock insurer doing the same\nkinds of insurance, shall issue a new certificate of authority to the\ninsurer, thereby converting the mutual insurer into a stock insurer. At\nthe same time, the superintendent may issue such license as may be\nrequired pursuant to section one thousand two hundred four of this\nchapter.\n  (m) Upon the conversion, the stock insurer shall give notice thereof\nby publication in a newspaper of general circulation in the county in\nwhich the insurer has its principal office and in the two largest cities\nin each state in which the insurer shall be licensed to do business. In\naddition, the stock insurer shall also immediately cause the notice to\nbe posted on its website. The notice shall include a correct copy of the\nplan, or a summary thereof approved by the superintendent.\n  (n) Upon the conversion of the mutual insurer in the manner herein\nprovided, all the rights, franchises and interests of the former mutual\ninsurer, in and to every species of property, real, personal and mixed,\nand things in action thereunto belonging, shall be deemed as transferred\nto and vested in the stock insurer, without any other deed or transfer;\nand simultaneously therewith such company shall be deemed to have\nassumed all of the obligations and liabilities of the former mutual\ninsurer.\n  (o) No action or proceeding, pending at the time of the conversion to\nwhich the mutual insurer may be a party shall be abated or discontinued\nby reason of such conversion, but the same may be prosecuted to final\njudgment in the same manner as if the conversion had not taken place, or\nthe stock corporation may be substituted in place of the mutual insurer\nby order of the court in which the action or proceeding may be pending.\n  (p) The directors and officers of the mutual insurer shall serve until\nnew directors and officers have been duly elected and qualified pursuant\nto the charter and by-laws of the stock insurer.\n  (q) The insurer, whether before or after conversion, shall pay no\ncompensation of any kind to any person other than regular salaries to\nexisting personnel, in connection with the proposed conversion, other\nthan for clerical and mailing expenses, except that, with the\nsuperintendent's approval, payment may be made at reasonable rates for\nprinting costs, and for legal and other professional fees for services\nactually rendered. All expenses of the conversion, including the\nexpenses incurred by the department, shall be borne by the insurer.\n  (r) No voting common shares shall be subscribed by or issued to\npersons other than eligible policyholders or holders of agreements\nsubject to section one thousand three hundred seven of this chapter\nuntil all subscriptions by such policyholders or agreement holders have\nbeen filled or other consideration has been provided in accordance with\nthe plan. Thereafter, any new issue of common shares within three years\nafter the conversion shall first be offered to the persons who have\nbecome voting common shareholders, pursuant to subsection (e) of this\nsection in proportion to their holdings of such shares.\n  (s) No insurer becoming a domestic stock insurer under the provisions\nof this section shall:\n  (1) for a period of ten years after conversion, redomesticate directly\nor indirectly or remove its principal offices from within the state; or\n  (2) for a period of five years after conversion:\n  (A) enter into any agreement by the terms of which any person,\npartnership or corporation agrees to pay all or a portion of the\nexpenses of management of the insurer in consideration of the insurer's\nagreement to pay such person or other entity either commissions on\npremiums due the insurer or any other compensation for services, or\n  (B) enter into any agreement with an officer or director of the\ninsurer or with any firm or corporation in which any officer or director\nof the insurer is pecuniarily interested, directly or indirectly, under\nwhich agreement the insurer agrees to pay, for the acquisition of\nbusiness, any commissions or other compensation that by the terms of\nsuch agreement varies with the amount of the business or with the\nearnings of the insurer on the business.\n  (t) Nothing in this section shall in any way impede or impair the\nexercise by the superintendent of the superintendent's authority under\nany other provision of this chapter.\n