N.Y. ISC Law § 7317 — New York Code / Act ISC / Article 73 / Section 7317
Conversion of certain article 43 corporations
Status: in_force

§ 7317. Conversion of certain article 43 corporations. (a) (1) An\narticle forty-three corporation which was the subject of an initial\nopinion and decision issued by the superintendent on or before December\nthirty-first, nineteen hundred ninety-nine, as the same may be amended\nor one or more article forty-three corporations whose main offices on\nJanuary first, two thousand seven were located in one of the counties\nlisted in section one thousand two hundred sixty-two of the public\nauthorities law and its or their not-for-profit subsidiaries (including,\nwithout limitation, any such subsidiary licensed as a health service\ncorporation pursuant to this chapter or as a health maintenance\norganization organized pursuant to article forty-four of the public\nhealth law), hereinafter referred to in the singular, which seeks to\nconvert into one or more corporations or other entities organized for\npecuniary profit or into one or more for-profit organizations of any\nkind shall submit a proposed plan of conversion to the superintendent\nfor approval pursuant to this section.\n  (2) This section shall apply to any transaction the effect of which is\nto change the status, orientation or operation of the applicant from a\nnot-for-profit organization to a for-profit organization, including:\n  (A) Any sale, lease, transfer, exchange, option, conveyance, gift,\njoint venture, merger, consolidation or disposition of all or a material\nportion of the assets of the applicant over a period of five years;\n  (B) Any transfer of control, responsibility or governance over all or\nsubstantially all of the assets of the applicant; or\n  (C) Continuation of the corporate existence of the applicant by\nreconstituting the corporate form of the applicant from a not-for-profit\ncorporation to a business corporation by the filing of a restated\ncertificate of incorporation regardless of whether such changes occur in\none transaction or in a series of transactions.\n  (b) The proposed plan of conversion shall include all items and\naddress all issues as may be required by the superintendent in order for\nthe superintendent to assure that the conversion process will not\nadversely affect the applicant's contractholders or members, will\nprotect the interests of and will not negatively impact on the delivery\nof health care benefits and services to the people of the state of New\nYork and results in the fair, equitable and convenient winding down of\nthe business and affairs of the applicant. The superintendent may adopt\nsuch rules or regulations or establish such procedures as he or she\ndeems necessary or proper to implement the provisions of this section.\n  (c)(1) The proposed plan shall address the following items and issues,\nif applicable, to the satisfaction of the superintendent:\n  (A) The transition of contract forms from the not-for-profit\ncorporation to the converted corporation or health maintenance\norganization including any related holding companies, subsidiaries or\nother entities involved in the proposed conversion;\n  (B) Any transfer of assets agreements;\n  (C) Any corporate resolutions or authorizations by the board of\ndirectors;\n  (D) Any reinsurance arrangements;\n  (E) An explanation of any transfers of employees, records and\nequipment;\n  (F) Any management contracts or administrative service agreements;\n  (G) Any guarantees or cross-guarantee agreements;\n  (H) Any trust agreements;\n  (I) That the applicant's financial reserves are funded prior to the\nconversion at the level required by law and provide a detailed\ndescription of the financial structure and reserve levels of the\nconverted corporation or organization;\n  (J) The governance structure and the character and competence of\ndirectors and officers;\n  (K) Any administrative agreements among related companies, including\nfair and equitable terms and reasonable fees;\n  (L) A detailed description of any proposed public sale of stock or\nsecurities or any initial public offering;\n  (M) New or revised contract forms together with notices of\ndiscontinuance or any other explanation to contractholders of the\nconversion process;\n  (N) A plan for outreach to consumers to explain in simple terms the\ntransaction and the steps, if any, consumers need to take to preserve\ntheir coverage;\n  (O) Any necessary protections for contractholders to preserve contract\nform anniversary dates, calculation of deductibles and consistent\npremiums as part of the contract transfer process; and\n  (P) That sufficient safeguards are in place to ensure that the\naffected community has continued or increased access to health care\ncoverage.\n  (2) The proposed plan shall explain in detail the method of transfer\nof contract forms or other methods of assuring uninterrupted continuance\nof coverage for all covered persons, with particular focus on medicare\nsupplement, policies issued pursuant to sections four thousand three\nhundred twenty-one and four thousand three hundred twenty-two of this\nchapter, policies subject to chapter six hundred sixty-one of the laws\nof nineteen hundred ninety-seven, and any other types of coverage\ndesignated by the superintendent which may warrant special attention.\n  (d) (i) The superintendent shall review the proposed plan of\nconversion and may require, prior to issuing any approval, that the\napplicant make any changes to the proposed plan that the superintendent\ndeems necessary. The superintendent shall establish a date certain by\nwhich the initial public offering shall occur. In the event the proposed\nplan of conversion affects an organization certified under article\nforty-four of the public health law, the superintendent shall solicit\nthe views of the commissioner of health and the superintendent shall not\nissue any approvals of the plan of conversion unless the commissioner\nhas consented in writing to those elements of the plan of conversion\nwhich are under the commissioner's jurisdiction with respect to the\napplicant's certificate of authority under article forty-four of the\npublic health law.\n  (ii) For purposes of granting his approval pursuant to subsection (f)\nof this section, the superintendent may deem sufficient and as meeting\nall legal requirements any or all portions of the conversion transaction\ncompleted by an applicant organized under article forty-three of this\nchapter which was the subject of an initial opinion and decision issued\nby the superintendent on or before December thirty-first, nineteen\nhundred ninety-nine, as the same may be amended.\n  (e) The superintendent shall provide in an opinion and decision\napproving the conversion for the timely transfer of the public asset\nconsistent with the purposes of this chapter so as to maximize the value\nof the public asset. The public asset shall be deposited in a special\nfund to be known as the "public asset fund." Such fund shall consist of\nassets or moneys paid to it as a result of the creation of a "public\nasset", as defined in paragraph three of subsection (j) of section four\nthousand three hundred one of this chapter, together with any earnings\nthereon. Such fund shall be separate and apart from any other fund and\nfrom all other state moneys. The comptroller shall be the sole custodian\nof the fund. Custodial authority of the fund shall be limited to the\nrights set forth in this subsection, and any and all other rights,\nincluding shareholder rights with respect to the public asset shall be\nvested in the board, as set forth in paragraph four of subsection (j) of\nsection four thousand three hundred one of this chapter. All\ndisbursements shall be made by the comptroller upon vouchers signed by\nthe superintendent, or his deputy, upon the direction of the board\nestablished pursuant to subparagraph (B) of paragraph four of subsection\n(j) of section four thousand three hundred one of this chapter. The\nmoneys of the fund shall be invested by the comptroller, pursuant to the\ndirection of such board, so as to maximize the value of the assets in\nsuch fund consistent with the board's statutory obligation to direct\ndisbursements as described herein and in subsection (j) of section four\nthousand three hundred one of this chapter. The fund shall continue\nuntil there are no longer any assets or moneys therein available for\ndistribution.\n  (f) (i) Notwithstanding any other provision of law, the\nsuperintendent's approval of the conversion transaction shall constitute\nfinal approval of the transaction and no further authorizations or\napprovals shall be required. Notwithstanding any other provision of law,\nsole jurisdiction for any challenge of the superintendent's final\ndetermination regarding the conversion transaction shall rest with the\nNew York supreme court and shall be commenced within thirty days of the\nsuperintendent's final determination. Judicial review shall be limited\nto a determination as to whether the superintendent acted in an\narbitrary or capricious manner with respect to reaching a determination.\n  (ii) This section shall be deemed to supercede all otherwise\napplicable laws and legal requirements and compliance with this section\nand subsection (j) of section four thousand three hundred one of this\nchapter and the use of such funds as provided in such section, and in\nsubsection (k) of this section, shall be deemed to constitute compliance\nwith and shall supercede all such other legal requirements, including,\nbut not limited to, statutory, common law and any other requirements\nrelating to not-for-profit corporations and fiduciary requirements\napplicable to the board of directors of any company filing a plan\npursuant to this section. In addition, and not in limitation of the\nforegoing, a transaction approved by the superintendent shall be deemed\nfor all purposes to be a transaction that is fair and reasonable to an\napplicant and to promote the purposes of that applicant, and the use of\nproceeds as described herein shall be deemed for all purposes to be a\nuse for a purpose that is consistent with and as near as may be to the\npurposes for which the applicant was originally organized and\nsubsequently operated.\n  (g) The conversion transaction shall not result in inurement to any\nprivate person or entity. The converted corporation shall not issue to\nany employee or member of the board of directors of either the applicant\nor the converted corporation, any stock options, warrants or stock\nappreciation rights unless the value of such options, warrants or rights\nis initially set at the publicly traded price of the stock of the\nconverted insurer on a date no earlier than six months after the\ncommencement of the initial public offering. In no event shall a\ndirector of the applicant receive stock options in his or her capacity\nas a director of the applicant.\n  (h) After the superintendent deems the proposed plan of conversion\nsufficiently complete, the superintendent shall hold one or more public\nhearings regarding the proposed plan of conversion within the geographic\narea served by the applicant. The number and locations of the hearings\nshall be sufficient to ensure adequate public involvement and comment.\nThe applicant shall provide notice of the public hearings throughout the\ngeographic area affected by the application by distributing a form or\nnotice approved by the superintendent and including such notices in the\nstate register, in accordance with the provisions of the state\nadministrative procedure act, in newspapers of general circulation and\nelectronic notices posted on the internet. The applicant shall notify\ncontractholders, subscribers and enrollees, as well as participating\nproviders of health care services under the applicant's health plan, in\nwriting of the application and hearings. In the event that there is an\namendment to the application, additional hearings shall be held with due\nnotice provided that the superintendent determines that such changes to\nthe plan are materially adverse to the interests of policyholders,\nsubscribers or enrollees. Upon receipt of a complete application, the\napplication and any supporting material submitted to the superintendent\nin conjunction with the application shall be deemed to be public records\nand shall be made available to the public for inspection during normal\nbusiness hours, at no cost, at the applicant's main office within the\nstate of New York and at the office of the superintendent. Prior to the\nhearing date, the applicant shall post its application and all such\nsupporting material electronically on the internet. The superintendent\nshall cause a transcript to be made of each public hearing and such\ntranscript and any submitted written comments shall become public\nrecords. The superintendent shall similarly promptly provide copies of\ntranscripts of any hearings held by the superintendent to the\ncommissioner of health and all members of the board.\n  (i) Within a reasonable time after receipt of a final plan of\nconversion, the superintendent shall render a written decision\ndetermining whether the proposed plan of conversion shall become\neffective as filed, shall become effective as modified or shall be\ndisapproved.\n  (j) To assist in the review of the proposed plan of conversion, the\nsuperintendent shall be authorized to hire independent financial,\nhealth, legal and other experts and consultants, the reasonable and\nnecessary costs of which shall be paid by the applicant. The applicant\nshall deliver to the superintendent at the time of submission of the\nproposed plan of conversion a written undertaking in form and substance\nsatisfactory to the superintendent and signed by the applicant and by\nsuch other persons as the superintendent may require specifying the\nmanner in which all costs and expenses incurred in any manner in\nconnection with the plan of conversion shall be paid or reimbursed. Such\nundertaking shall provide for the payment or reimbursement of all\nexpenses incurred by the superintendent or the department in connection\nwith the plan of conversion, other than normal operating expenses of the\ndepartment.\n  (k) (1) A charitable organization shall be established for the purpose\nof receiving the charitable asset and shall operate as a tax exempt\norganization pursuant to section 501(c)(3) of the federal internal\nrevenue code for the purposes of receiving the charitable asset. Whether\nor not the charitable organization is classified as a private foundation\nunder section 509 of the internal revenue code, as amended or any\ncomparable provision of any successor law, it shall be subject to the\nrestrictions and limitations that apply to private foundations in\nsections 4941 through 4945 of the federal internal revenue code, as\namended or any comparable provision of any successor law. The\nsuperintendent shall provide in an opinion and decision approving the\nconversion for the timely transfer of the charitable asset consistent\nwith the purposes of this chapter. In the case of the conversion of a\ncorporation or corporations which occurs after the effective date of the\nchapter of the laws of two thousand seven which amended this paragraph,\nthe superintendent shall provide in an opinion and decision approving\nsuch conversion for the timely transfer of the charitable asset to the\nNew York state health foundation created pursuant to this subsection and\nin compliance with all applicable provisions of this subsection.\n  (2) The charitable organization shall be governed by a board of\ndirectors composed of nine members, three of whom shall be voting\nmembers and six of whom shall be non-voting members, which shall be\nappointed as follows: one voting member and two non-voting members shall\nbe appointed by each of the governor, the temporary president of the\nsenate, and the speaker of the assembly. Each member shall have a term\nof three years and may be reappointed at the end of said term by the\nsame person that made the original appointment. A vacancy in the\nmembership of the board shall be filled for the unexpired portion of the\nterm provided for by the original appointment by the same person that\nmade the original appointment. Members may not be officers or employees\nof the state or any municipal subdivision thereof. The board of such\ncharitable organization shall be broadly representative of the community\nand include representatives of patient, consumer and public interest\norganizations and individuals with expertise in public health, health\ncare delivery and financing, patient health issues, investments and\nphilanthropic administration, provided further, no more than three board\nmembers of the entire board shall be representatives from any one\norganization or provider group and board vacancies shall be filled from\neligible representatives who are not represented or who are under\nrepresented on the board. The charitable organization's structure shall\nprovide mechanisms for ongoing community consultation and engagement\nincluding, but not limited to, the establishment of a community advisory\nboard. A vacancy in the membership of the board shall be filled for the\nunexpired portion of the term provided for by the original appointment\nby the same person that made the original appointment.\n  (3) The mission of such charitable organization shall include:\n  (A) expansion of access to health care by extending health insurance\ncoverage to state residents who cannot afford to purchase their own\ncoverage or who have coverage that is inadequate to meet their needs;\n  (B) expansion and enhancement of access to health care by augmenting\nand creating health care programs that deliver services to populations\nthat are unable to access health care or that improve public health; and\n  (C) augmentation of its other program priorities by supporting\nprograms that inform and educate New Yorkers about public health issues\nand empower communities to address these issues by becoming more\neffective at identifying and articulating health care needs and\nimplementing solutions.\n  Programs or initiatives instituted by the charitable organization\nshall not neglect the residents or institutions served by the applicant\nprior to the conversion.\n  (4) The members of the board of directors of the charitable\norganization shall serve without compensation for their services as\nmembers, but shall be entitled to reimbursement for actual and necessary\nexpenses incurred in the performance of their official duties. Such\nmembers, except as otherwise provided by law, may engage in private\nemployment, or in a profession or business.\n  (5) The members of the board of directors of the charitable\norganization and its corporate existence shall continue until there are\nno longer any assets or moneys comprising the charitable asset available\nfor distribution.\n  (6) The affirmative vote of all three voting members of the board of\ndirectors of the charitable organization shall be necessary for the\ntransaction of any business or the exercise of any power or function of\nsuch board. Such board may delegate to one or more of its members, or\nits agents, such powers and duties as it may deem proper.\n  (7) The members of the board of directors of the charitable\norganization shall have the power to make and execute contracts and all\nother instruments, and to exercise such other powers, necessary or\nconvenient for the exercise of its powers and functions.\n  In directing investments pursuant to this subparagraph, the board of\ndirectors of the charitable organization shall not be limited by any\nrestrictions on investments contained in any other section of law,\nsubject only to the board's obligations and the considerations set forth\nabove.\n  (8) (A) Neither the members of the board of directors of the\ncharitable organization nor any agent or other person or persons acting\non its behalf, while acting within the scope of their authority as\nmembers or agents of the board, shall be subject to any personal\nliability resulting from the carrying out of the powers conferred\nhereunder; and (B) the provisions of section seventeen of the public\nofficers law shall apply to members of the board and agents or other\npersons acting on its behalf, in connection with any and all claims,\ndemands, suits, actions or proceedings which may be made or brought\nagainst any of them arising out of any determination made or actions\ntaken or omitted to be taken in compliance with any obligations under or\npursuant to the terms of this section or section four thousand three\nhundred one of this chapter. The provisions of this subparagraph shall\nbe severable from and shall survive any legal challenge to the legality,\nvalidity, or constitutionality of this section.\n  (9) The charitable organization receiving the charitable asset agrees\nin writing to register and file annual financial reports with the\nattorney general in compliance with section 8-1.4 of the estates,\npowers, and trusts law and to post its registration filing and annual\nreports electronically on the internet.\n  (10) The charitable organization receiving the charitable asset, its\ndirectors, officers, and staff shall be and will remain independent of\nany control or influence by the surviving corporation or other surviving\nentity organized for pecuniary profit and its affiliates and successors.\nSuch requirement shall not prevent the charitable organization from\nvoting its equity shares in the for-profit organization in accordance\nwith the voting and shareholders rights agreement entered into by the\nboard with respect to the public asset and the charitable organization\nshall be subject to such voting and shareholders rights agreement and\nthe asset preservation agreement between the board with respect to the\npublic asset and the converted corporation. No person who is an officer,\ndirector, or staff member of the applicant at the time such corporation\napplies to the superintendent for permission to convert, or thereafter\nshall be an officer, director, or staff member of the charitable\norganization receiving the charitable asset. No director, officer,\nagent, or employee of the applicant or the charitable organization\nreceiving the charitable asset will receive additional compensation\narising from the conversion transaction.\n  (11) The charitable organization receiving the charitable asset will\nestablish formal mechanisms to avoid conflicts of interest and to\nprohibit grants benefitting the surviving corporation or other surviving\nentity organized for pecuniary profit, or its affiliates or successors,\ndirectors, management, and staff.\n  (12) Any action or proceeding in which any question arises as to the\nvalidity of any provision in this subsection or in section seven\nthousand three hundred seventeen of this chapter, shall be preferred\nover all other civil causes except election causes in all courts of the\nstate of New York and shall be heard and determined in preference to all\nother civil business pending therein except election causes,\nirrespective of position on the calendar. The same preference shall be\ngranted upon application of counsel to the board in any action or\nproceeding questioning the validity of any provision herein in which he\nor she may be allowed to intervene.\n  (13) To assist in carrying out its functions, the board shall be\nauthorized to hire independent financial, legal and other experts and\nconsultants.\n  (14) Inconsistent provisions of other laws are superseded. Insofar as\nany provision herein is inconsistent with the provisions of any other\nlaw, general, special or local, the provisions herein shall be\ncontrolling.\n  (15) This section, being necessary for the welfare of the state and\nits inhabitants, shall be liberally construed so as to effectuate its\npurposes.\n  (l) For the purposes of this section, fair market value shall consist\nof either; (i) one hundred percent of the stock that is transferred,\nprovided that a portion of the shares may be sold in an initial public\noffering and that the net proceeds shall be transferred, together with\nthe remaining unsold shares, (provided further that additional stock may\nbe sold for fair market value that is transferred to the converted\ncorporation), or (ii) in the case where one hundred percent of the stock\nis not transferred and a public stock offering is not anticipated, an\nindependent valuation that takes into account market value, investment\nor earnings value and not asset value. Within five days of the\nsuperintendent's final determination of the fair market value, the\nsuperintendent shall forward to the attorney general such independent\nvaluation. The attorney general may, within thirty days after having\nreceived such valuation, provide the superintendent with written\nobjections to such valuation. The superintendent shall respond to such\nwritten objections within seven days stating either that the\nsuperintendent accepts such objections and has modified his or her\ndetermination accordingly, or that the superintendent rejects such\nobjections. The attorney general may, thereafter, pursue an action in\nsupreme court seeking to have the valuation adjusted in accordance with\nthe attorney general's objections. Such action shall be preferred over\nall other civil causes except election causes in all courts of the state\nof New York and shall be heard and determined in preference to all other\ncivil business pending therein except election causes, irrespective of\nposition on the calendar.\n