NY Ins L § 7313 (2021)
2021 New York Laws ISC - Insurance Article 73 - Conversion to Different Type of Insurer 7313 - Reorganization of Domestic Mutual Accident and Health Insurance Companies.

§   7313.  Reorganization  of  domestic  mutual  accident  and  health insurance companies.  (a) In this section:  (1) "Affiliate" of a mutual insurer means any person who controls,  is controlled  by or is under common control with, the mutual insurer being converted.  A  corporation  is  an  affiliate  of  another  corporation, regardless  of  ownership,  if  substantially  the same group of persons manage the two corporations.  (2) "Control" has the meaning assigned  to  it  in  paragraph  two  of subsection (a) of section one thousand five hundred one of this chapter.  (3)  A  "domestic mutual insurer" or "mutual insurer" means a domestic mutual accident and health insurance  company  organized  under  article twelve  of  this  chapter  and  licensed under article forty-two of this chapter and not operating under an order of rehabilitation.  (4) "Policyholder" means a person, as determined by the records  of  a mutual   accident   and   health  insurer,  who  is  deemed  to  be  the "policyholder" of a policy that is of  a  type  described  in  paragraph three  of subsection (a) of section one thousand one hundred thirteen of this chapter.  (5)  "Policyholders'  membership  interest"  means  and  includes  all policyholders' rights as members arising under the charter of the mutual accident  and  health  insurer  or  this  chapter  or  otherwise by law, including the rights to vote and to participate in the  distribution  of surplus  whether  or  not incident to a liquidation of a mutual accident and health insurer. The term "policyholders' membership  interest"  does not   include   rights,   including  without  limitation  the  right  to participate in the distribution of surplus, expressly conferred upon the policyholders by their policies or contracts other  than  any  right  to vote.  (6)  "Reorganization"  means  a  conversion  in  accordance  with this section.  (b)(1) A domestic mutual insurer may apply to the  superintendent  for permission  to reorganize and convert into a domestic stock accident and health insurer complying with the relevant  organization  and  licensing provisions  of  articles  twelve  and  forty-two  of  this  chapter. The application to the superintendent shall be  pursuant  to  a  resolution, adopted  by  no  less  than a majority of the entire board of directors, specifying the reasons for and the purposes of the  proposed  conversion and   the  manner  in  which  the  conversion  is  expected  to  benefit policyholders and the public. A copy of the resolution, together with  a statement   of  its  adoption,  both  certified  by  the  president  and secretary, or officers corresponding to either of them, and affirmed  by them  as  true  under the penalties of perjury and under the seal of the mutual insurer, and such other information  as  the  superintendent  may require shall accompany the application.  (2)  The  superintendent  shall  order  an  examination  of the mutual insurer pursuant to section three hundred ten of this chapter as of  the last  day of the period covered in the insurer's latest filed statement, except  that  the  proposed  conversion  shall  terminate   without   an examination if the superintendent finds that:  (A) the resolution is defective upon its face;  (B)  the  proposed conversion is contrary to law or is not in the best interests of the policyholders or the public; or  (C) the mutual insurer does not have a  surplus  to  policyholders  at least equal to the minimum capital and surplus required to be maintained for a newly organized stock insurer doing the same kinds of insurance.  (c)  The  superintendent  shall  also  appoint  one  or more qualified disinterested persons to appraise and report to the  superintendent  the  fair  market  value  of the mutual insurer and, to the extent necessary, its affiliates, on the basis of its latest  filed  annual  or  quarterly statement,   and   of   any  significant  subsequent  developments.  The appraisers  shall  consider  the  assets  and  liabilities of the mutual insurer and any factors bearing on the value of the  mutual  insurer  or its affiliates. The appraisers shall receive reasonable compensation and be  reimbursed  for  reasonable  expenses  incurred in discharging their duties. The appraisers may, as necessary, employ consultants  to  advise them on any technical matters.  (d)  The  superintendent  shall make copies of such examination report and appraisal report available to the board of directors within  fifteen days of the superintendent's receipt of the reports. After receiving the reports, the superintendent may grant or deny permission to the board of directors  to  submit  to  the  superintendent  a plan of conversion. If permission is granted, the plan shall include  the  provisions,  and  be submitted in the manner and under the conditions, required by subsection (e)  of  this section. If permission is denied, the superintendent shall make a written statement of the superintendent's findings and the  board shall  have  the  right  to  a  hearing before the superintendent within thirty days of the date of denial.  (e)(1) In order for the conversion to proceed:  (A) the plan must be adopted by a majority of the entire board;  (B) the plan must be signed by the president and attested  to  by  the secretary,  or  officers  corresponding  to  either  of  them, under the corporate seal of the insurer; and  (C) a copy of the plan and resolution, both certified by such officers as true under the penalties  of  perjury  and  under  the  seal  of  the insurer,  shall  be  submitted  to  the  superintendent  not  later than forty-five days after permission was granted  under  subsection  (d)  of this section.  (2) The plan shall include:  (A)  the  proposed  charter  and  by-laws  of  the  insurer as a stock corporation set out in accordance with paragraph five of subsection  (a) of section one thousand two hundred one of this chapter;  (B) the manner of treating a holder of an agreement subject to section one thousand three hundred seven of this chapter, if any; the holder, if otherwise  qualified, may, at its option, exchange such agreement for an equitable share of the securities or other consideration,  or  both,  of the corporation into which the insurer is to be converted.  (C)(i)  the manner and basis of exchanging the equitable share of each eligible mutual policyholder's membership interests  for  securities  or other  consideration,  or  both, of the stock corporation into which the mutual insurer is to be converted and the disposition of  any  unclaimed shares.  (ii)  The plan shall also provide that each person who had a policy of insurance in effect at any time during the three-year period immediately preceding the date of adoption of the resolution described in subsection (b) of this section shall be entitled to receive  in  exchange  for  the equitable  share,  without  additional payment, consideration payable in voting common shares of the insurer or other consideration, or both. The equitable share of the policyholder  in  the  mutual  insurer  shall  be determined  by  the  ratio  that  the  net premiums (gross premiums less return premiums and dividend paid) such policyholder  has  properly  and timely  paid  to  the insurer on insurance policies in effect during the three years immediately preceding the adoption of the resolution by  the board  of  directors  under  subsection (b) of this section bears to the total net premiums received by the mutual  insurer  from  such  eligible policyholders.  In computing a policyholder's equitable share, no credit  shall be given for any net premiums which  result  from  an  endorsement which is effective on or after the date of adoption of the resolution.  (iii)  Notwithstanding item (ii) of this subparagraph, credit shall be given for any net premiums resulting  from  an  audit  or  retrospective premium  adjustment  that is billed within one hundred eighty days after the date of adoption of the resolution described in  subsection  (b)  of this section, provided the premium is paid timely.  (iv)  If the equitable share of the eligible policyholder entitles the policyholder to the  purchase  of  a  fractional  share  of  stock,  the policyholder  shall  have  the  option  to  receive  the  value  of  the fractional share in cash or purchase a full share by paying the  balance in cash;  (D)  the  number of voting common shares proposed to be authorized for the stock corporation, their par value and the price at which they shall be offered, which price may not exceed one-half of the median  equitable share  of  all  policyholders  under  item  (ii)  of subparagraph (C) of paragraph two of this subsection.  (E) any other information or other item that  the  superintendent  may require.  (f)  The  mutual  insurer  shall give prompt notice to all persons who become policyholders or holders of agreements  subject  to  section  one thousand three hundred seven of this chapter on or after the date of the adoption  of the resolution described in subsection (b) of this section. The notice shall specify the pendency of a proposed conversion  and  the effect the conversion shall have on them.  (g) The superintendent shall hold a public hearing, adequate notice of which  shall be mailed by the mutual insurer to each policyholder on the day preceding the date  of  adoption  of  the  resolution  described  in subsection  (b)  of  this  section, accompanied by a copy of the plan of conversion and any comment the superintendent  considers  necessary  for the  adequate information of the policyholders. The mutual insurer shall also immediately cause the notice  to  be  posted  on  its  website.  In addition,  the  mutual  insurer  shall  give  notice  of  the hearing by publication in a newspaper of general circulation in the county in which the mutual insurer has its principal  office  and  in  the  two  largest cities  in  each  state  in which the insurer has underwritten insurance within the five  years  preceding  the  date  of  the  adoption  of  the resolution described in subsection (b) of this section. The notice shall be  accompanied  by a summary approved by the superintendent of the plan and any comment the superintendent considers necessary for the  adequate information of former policyholders and the public.  (h)  (1)  After the hearing, the superintendent shall approve the plan as submitted, refuse to approve the plan, or request modification of the plan before granting approval. The superintendent may approve  the  plan unless  the superintendent finds that the plan violates this chapter, is inconsistent with law, or is not fair  and  equitable  or  in  the  best interests  of  the  policyholders  and the public. If the superintendent finds that the plan does not meet the foregoing standards for  approval, the  superintendent shall either refuse to approve the plan and the plan shall become null and void or return the plan to the mutual insurer  for modification to meet the superintendent's stated objections.  (2)  If  within  ninety  days  after  receipt  of the superintendent's request for modifications the mutual insurer does not submit an  amended plan   satisfactory   to   the   superintendent   and   that  meets  the superintendent's  objections  and  complies  with  the   standards   for approval, the plan shall become null and void.  (i)  After  approval by the superintendent the plan shall be submitted to a vote of the persons who were policyholders of the mutual insurer on  the day preceding the date of adoption of the  resolution  described  in subsection  (b) of this section. The plan shall provide for proxy voting in a manner to be prescribed by  the  superintendent.  The  board  shall submit  the  question  of  the  plan  to  the policyholders at a meeting thereof, by causing a full, true and correct copy or a  summary  thereof approved  by the superintendent, together with notice, stating the time, place and purpose  of  the  meeting,  to  be  delivered  personally,  or deposited  in  the  post  office,  postage prepaid, at least thirty days (unless a shorter time, not less than  ten  days,  be  approved  by  the superintendent)  prior  to the time fixed for such meeting, addressed to each  policyholder  at  the  policyholder's  last  post  office  address appearing  on  the  records  of  the  insurer  or other form of delivery intended to encourage participation acceptable to the superintendent.  (j) Each such policyholder eligible to vote pursuant to subsection (i) of this section shall be entitled to the  number  of  votes  as  may  be provided  for  in  the  by-laws  of  the  mutual  insurer.  The votes of two-thirds of all the votes cast by  policyholders  represented  at  the meeting  in person or by proxy, or by such other means acceptable to the superintendent intended to encourage participation, shall  be  necessary for  the  adoption  of  the  plan.  Upon  the conclusion of the vote the insurer shall submit to the superintendent a certified copy of the  plan voted  on  together  with a certificate setting forth the results of the vote, both of which shall be subscribed by the president and attested by the secretary, or officers corresponding to either of  them,  under  the corporate seal of the mutual insurer, and affirmed by them as true under the penalties of perjury.  (k)  If at any stage in the process of a conversion under this section the superintendent finds that the mutual insurer is impaired or that the further transaction of business by the mutual insurer will be  hazardous to  its  policyholders,  its  creditors,  or  the  public,  the proposed conversion shall terminate.  (l) If the conversion plan is adopted pursuant to  subsection  (j)  of this  section, the superintendent, upon being satisfied that the insurer will have at least the  minimum  capital  and  surplus  required  to  be maintained  for  a newly organized domestic stock insurer doing the same kinds of insurance, shall issue a new certificate of  authority  to  the insurer,  thereby converting the mutual insurer into a stock insurer. At the same time, the superintendent may  issue  such  license  as  may  be required  pursuant  to  section  one  thousand  two hundred four of this chapter.  (m) Upon the conversion, the stock insurer shall give  notice  thereof by  publication  in  a newspaper of general circulation in the county in which the insurer has its principal office and in the two largest cities in each state in which the insurer shall be licensed to do business.  In addition,  the  stock insurer shall also immediately cause the notice to be posted on its website. The notice shall include a correct copy of the plan, or a summary thereof approved by the superintendent.  (n) Upon the conversion of the mutual insurer  in  the  manner  herein provided,  all the rights, franchises and interests of the former mutual insurer, in and to every species of property, real, personal and  mixed, and things in action thereunto belonging, shall be deemed as transferred to  and vested in the stock insurer, without any other deed or transfer; and simultaneously therewith  such  company  shall  be  deemed  to  have assumed  all  of  the  obligations  and liabilities of the former mutual insurer.  (o) No action or proceeding, pending at the time of the conversion  to which  the mutual insurer may be a party shall be abated or discontinued by reason of such conversion, but the same may be  prosecuted  to  final  judgment in the same manner as if the conversion had not taken place, or the  stock corporation may be substituted in place of the mutual insurer by order of the court in which the action or proceeding may be pending.  (p) The directors and officers of the mutual insurer shall serve until new directors and officers have been duly elected and qualified pursuant to the charter and by-laws of the stock insurer.  (q)  The  insurer,  whether  before  or after conversion, shall pay no compensation of any kind to any person other than  regular  salaries  to existing  personnel,  in  connection with the proposed conversion, other than  for  clerical  and  mailing  expenses,  except  that,   with   the superintendent's  approval,  payment may be made at reasonable rates for printing costs, and for legal and other professional fees  for  services actually  rendered.  All  expenses  of  the  conversion,  including  the expenses incurred by the department, shall be borne by the insurer.  (r) No voting common shares  shall  be  subscribed  by  or  issued  to persons  other  than  eligible  policyholders  or  holders of agreements subject to section one thousand three  hundred  seven  of  this  chapter until  all subscriptions by such policyholders or agreement holders have been filled or other consideration has been provided in accordance  with the  plan. Thereafter, any new issue of common shares within three years after the conversion shall first be offered  to  the  persons  who  have become  voting  common  shareholders, pursuant to subsection (e) of this section in proportion to their holdings of such shares.  (s) No insurer becoming a domestic stock insurer under the  provisions of this section shall:  (1) for a period of ten years after conversion, redomesticate directly or indirectly or remove its principal offices from within the state; or  (2) for a period of five years after conversion:  (A)  enter  into  any  agreement  by  the  terms  of which any person, partnership or corporation agrees  to  pay  all  or  a  portion  of  the expenses  of management of the insurer in consideration of the insurer's agreement to pay such person  or  other  entity  either  commissions  on premiums due the insurer or any other compensation for services, or  (B)  enter  into  any  agreement  with  an  officer or director of the insurer or with any firm or corporation in which any officer or director of the insurer is pecuniarily interested, directly or indirectly,  under which  agreement  the  insurer  agrees  to  pay,  for the acquisition of business, any commissions or other compensation that  by  the  terms  of such  agreement  varies  with  the  amount  of  the business or with the earnings of the insurer on the business.  (t) Nothing in this section shall in any  way  impede  or  impair  the exercise  by  the superintendent of the superintendent's authority under any other provision of this chapter.