NY Ins L § 7317 (2021)
2021 New York Laws ISC - Insurance Article 73 - Conversion to Different Type of Insurer 7317 - Conversion of Certain Article 43 Corporations.

§  7317.  Conversion  of  certain  article 43 corporations. (a) (1) 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, which seeks to convert into one or more corporations or other  entities  organized  for pecuniary  profit  or  into  one or more for-profit organizations of any kind shall submit a proposed plan of conversion  to  the  superintendent for approval pursuant to this section.  (2) This section shall apply to any transaction the effect of which is to  change  the status, orientation or operation of the applicant from a not-for-profit organization to a for-profit organization, including:  (A) Any sale, lease, transfer,  exchange,  option,  conveyance,  gift, joint venture, merger, consolidation or disposition of all or a material portion of the assets of the applicant over a period of five years;  (B)  Any transfer of control, responsibility or governance over all or substantially all of the assets of the applicant; or  (C) Continuation of  the  corporate  existence  of  the  applicant  by reconstituting the corporate form of the applicant from a not-for-profit corporation  to  a  business  corporation  by  the  filing of a restated certificate of incorporation regardless of whether such changes occur in one transaction or in a series of transactions.  (b) The proposed plan  of  conversion  shall  include  all  items  and address all issues as may be required by the superintendent in order for the  superintendent  to  assure  that  the  conversion  process will not adversely  affect  the  applicant's  contractholders  or  members,  will protect  the interests of and will not negatively impact on the delivery of health care benefits and services to the people of the state  of  New York  and  results in the fair, equitable and convenient winding down of the business and affairs of the applicant. The superintendent may  adopt such  rules  or  regulations  or  establish such procedures as he or she deems necessary or proper to implement the provisions of this section.  (c)(1) The proposed plan shall address the following items and issues, if applicable, to the satisfaction of the superintendent:  (A)  The  transition  of  contract  forms  from   the   not-for-profit corporation   to   the   converted  corporation  or  health  maintenance organization including any related holding  companies,  subsidiaries  or other entities involved in the proposed conversion;  (B) Any transfer of assets agreements;  (C)  Any  corporate  resolutions  or  authorizations  by  the board of directors;  (D) Any reinsurance arrangements;  (E)  An  explanation  of  any  transfers  of  employees,  records  and equipment;  (F) Any management contracts or administrative service agreements;  (G) Any guarantees or cross-guarantee agreements;  (H) Any trust agreements;  (I)  That  the  applicant's financial reserves are funded prior to the conversion  at  the  level  required  by  law  and  provide  a  detailed description  of  the  financial  structure  and  reserve  levels  of the converted corporation or organization;  (J) The governance structure  and  the  character  and  competence  of directors and officers;  (K)  Any  administrative agreements among related companies, including fair and equitable terms and reasonable fees;  (L) A detailed description of any proposed public  sale  of  stock  or securities or any initial public offering;  (M)   New   or   revised  contract  forms  together  with  notices  of discontinuance or  any  other  explanation  to  contractholders  of  the conversion process;  (N)  A  plan  for outreach to consumers to explain in simple terms the transaction and the steps, if any, consumers need to  take  to  preserve their coverage;  (O) Any necessary protections for contractholders to preserve contract form  anniversary  dates,  calculation  of  deductibles  and  consistent premiums as part of the contract transfer process; and  (P) That sufficient  safeguards  are  in  place  to  ensure  that  the affected  community  has  continued  or  increased access to health care coverage.  (2) The proposed plan shall explain in detail the method  of  transfer of contract forms or other methods of assuring uninterrupted continuance of  coverage  for all covered persons, with particular focus on medicare supplement, policies issued pursuant to  sections  four  thousand  three hundred  twenty-one  and  four thousand three hundred twenty-two of this chapter, policies subject to chapter six hundred sixty-one of  the  laws of  nineteen  hundred  ninety-seven,  and  any  other  types of coverage designated by the superintendent which may warrant special attention.  (d)  (i)  The  superintendent  shall  review  the  proposed  plan   of conversion  and  may  require,  prior  to issuing any approval, that the applicant make any changes to the proposed plan that the  superintendent deems  necessary.  The  superintendent shall establish a date certain by which the initial public offering shall occur. In the event the proposed plan of conversion  affects  an  organization  certified  under  article forty-four  of  the  public health law, the superintendent shall solicit the views of the commissioner of health and the superintendent shall not issue any approvals of the plan of conversion  unless  the  commissioner has  consented  in  writing  to those elements of the plan of conversion which are under the commissioner's  jurisdiction  with  respect  to  the applicant's  certificate  of  authority  under article forty-four of the public health law.  (ii) For purposes of granting his approval pursuant to subsection  (f) of  this  section, the superintendent may deem sufficient and as meeting all legal requirements any or all portions of the conversion transaction completed by an applicant organized under article  forty-three  of  this chapter  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.  (e)  The  superintendent  shall  provide  in  an  opinion and decision approving the conversion for the timely transfer  of  the  public  asset consistent with the purposes of this chapter so as to maximize the value of  the  public  asset. The public asset shall be deposited in a special fund to be known as the "public asset fund." Such fund shall consist  of assets  or  moneys  paid  to it as a result of the creation of a "public asset", as defined in paragraph three of subsection (j) of section  four thousand  three  hundred one of this chapter, together with any earnings thereon. Such fund shall be separate and apart from any other  fund  and from all other state moneys. The comptroller shall be the sole custodian of  the  fund.  Custodial  authority of the fund shall be limited to the rights set forth in this subsection,  and  any  and  all  other  rights,  including  shareholder  rights with respect to the public asset shall be vested in the board, as set forth in paragraph four of subsection (j) of section  four  thousand  three  hundred  one  of   this   chapter.   All disbursements  shall  be made by the comptroller upon vouchers signed by the superintendent, or his deputy,  upon  the  direction  of  the  board established pursuant to subparagraph (B) of paragraph four of subsection (j)  of  section  four  thousand  three hundred one of this chapter. The moneys of the fund shall be invested by the comptroller, pursuant to the direction of such board, so as to maximize the value of  the  assets  in such  fund  consistent  with  the board's statutory obligation to direct disbursements as described herein and in subsection (j) of section  four thousand  three  hundred  one  of  this chapter. The fund shall continue until there are no longer any assets or  moneys  therein  available  for distribution.  (f)   (i)   Notwithstanding   any   other   provision   of   law,  the superintendent's approval of the conversion transaction shall constitute final approval of the  transaction  and  no  further  authorizations  or approvals shall be required. Notwithstanding any other provision of law, sole  jurisdiction  for  any  challenge  of  the  superintendent's final determination regarding the conversion transaction shall rest  with  the New  York supreme court and shall be commenced within thirty days of the superintendent's final determination. Judicial review shall  be  limited to  a  determination  as  to  whether  the  superintendent  acted  in an arbitrary or capricious manner with respect to reaching a determination.  (ii)  This  section  shall  be  deemed  to  supercede  all   otherwise applicable  laws and legal requirements and compliance with this section and subsection (j) of section four thousand three hundred  one  of  this chapter  and  the  use of such funds as provided in such section, and in subsection (k) of this section, shall be deemed to constitute compliance with and shall supercede all such other legal  requirements,  including, but  not  limited  to,  statutory, common law and any other requirements relating  to  not-for-profit  corporations  and  fiduciary  requirements applicable  to  the  board  of  directors  of  any company filing a plan pursuant to this section. In addition, and  not  in  limitation  of  the foregoing,  a transaction approved by the superintendent shall be deemed for all purposes to be a transaction that is fair and reasonable  to  an applicant  and to promote the purposes of that applicant, and the use of proceeds as described herein shall be deemed for all purposes  to  be  a use  for  a purpose that is consistent with and as near as may be to the purposes  for  which  the  applicant  was   originally   organized   and subsequently operated.  (g)  The  conversion  transaction shall not result in inurement to any private person or entity. The converted corporation shall not  issue  to any employee or member of the board of directors of either the applicant or  the  converted  corporation,  any  stock  options, warrants or stock appreciation rights unless the value of such options, warrants or rights is initially set at the publicly  traded  price  of  the  stock  of  the converted  insurer  on  a  date  no  earlier  than  six months after the commencement of the  initial  public  offering.  In  no  event  shall  a director  of  the applicant receive stock options in his or her capacity as a director of the applicant.  (h) After the superintendent deems the  proposed  plan  of  conversion sufficiently  complete, the superintendent shall hold one or more public hearings regarding the proposed plan of conversion within the geographic area served by the applicant. The number and locations of  the  hearings shall  be  sufficient to ensure adequate public involvement and comment. The applicant shall provide notice of the public hearings throughout the geographic area affected by the application by distributing  a  form  or  notice  approved by the superintendent and including such notices in the state  register,  in  accordance  with  the  provisions  of  the   state administrative  procedure  act, in newspapers of general circulation and electronic  notices  posted  on the internet. The applicant shall notify contractholders, subscribers and enrollees,  as  well  as  participating providers  of health care services under the applicant's health plan, in writing of the application and hearings. In the event that there  is  an amendment to the application, additional hearings shall be held with due notice  provided that the superintendent determines that such changes to the plan are materially  adverse  to  the  interests  of  policyholders, subscribers  or  enrollees.  Upon receipt of a complete application, the application and any supporting material submitted to the  superintendent in conjunction with the application shall be deemed to be public records and  shall  be made available to the public for inspection during normal business hours, at no cost, at the applicant's main  office  within  the state  of New York and at the office of the superintendent. Prior to the hearing date, the applicant shall post  its  application  and  all  such supporting  material  electronically on the internet. The superintendent shall cause a transcript to be made of  each  public  hearing  and  such transcript  and  any  submitted  written  comments  shall  become public records. The superintendent shall similarly promptly provide  copies  of transcripts   of   any  hearings  held  by  the  superintendent  to  the commissioner of health and all members of the board.  (i) Within a  reasonable  time  after  receipt  of  a  final  plan  of conversion,   the   superintendent   shall  render  a  written  decision determining  whether  the  proposed  plan  of  conversion  shall  become effective  as  filed,  shall  become  effective  as modified or shall be disapproved.  (j) To assist in the review of the proposed plan  of  conversion,  the superintendent  shall  be  authorized  to  hire  independent  financial, health, legal and other experts  and  consultants,  the  reasonable  and necessary  costs  of which shall be paid by the applicant. The applicant shall deliver to the superintendent at the time  of  submission  of  the proposed  plan of conversion a written undertaking in form and substance satisfactory to the superintendent and signed by the  applicant  and  by such  other  persons  as  the  superintendent may require specifying the manner in which all  costs  and  expenses  incurred  in  any  manner  in connection with the plan of conversion shall be paid or reimbursed. Such undertaking  shall  provide  for  the  payment  or  reimbursement of all expenses incurred by the superintendent or the department in  connection with the plan of conversion, other than normal operating expenses of the department.  (k) (1) A charitable organization shall be established for the purpose of  receiving  the  charitable  asset  and shall operate as a tax exempt organization pursuant to  section  501(c)(3)  of  the  federal  internal revenue code for the purposes of receiving the charitable asset. Whether or not the charitable organization is classified as a private foundation under  section  509  of  the  internal  revenue  code, as amended or any comparable provision of any successor law, it shall be  subject  to  the restrictions  and  limitations  that  apply  to  private  foundations in sections 4941 through 4945 of the  federal  internal  revenue  code,  as amended   or   any  comparable  provision  of  any  successor  law.  The superintendent shall provide in an opinion and  decision  approving  the conversion  for  the  timely transfer of the charitable asset consistent with the purposes of this chapter. In the case of the  conversion  of  a corporation or corporations which occurs after the effective date of the chapter  of the laws of two thousand seven which amended this paragraph, the superintendent shall provide in an opinion  and  decision  approving  such  conversion  for the timely transfer of the charitable asset to the New York state health foundation created pursuant to this subsection and in compliance with all applicable provisions of this subsection.  (2)  The  charitable  organization  shall  be  governed  by a board of directors composed of nine  members,  three  of  whom  shall  be  voting members  and  six  of  whom  shall be non-voting members, which shall be appointed as follows: one voting member and two non-voting members shall be appointed by each of the governor, the  temporary  president  of  the senate,  and  the speaker of the assembly. Each member shall have 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. Members may not be officers or employees of the state or any municipal subdivision thereof.  The  board  of  such charitable organization shall be broadly representative of the community and  include  representatives  of  patient, consumer and public interest organizations and individuals with expertise in  public  health,  health care  delivery  and  financing,  patient  health issues, investments and philanthropic administration, provided further, no more than three board members of the entire  board  shall  be  representatives  from  any  one organization  or provider group and board vacancies shall be filled from eligible representatives who  are  not  represented  or  who  are  under represented  on the board. The charitable organization's structure shall provide mechanisms for ongoing  community  consultation  and  engagement including, but not limited to, the establishment of a community advisory board.  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.  (3) The mission of such charitable organization shall include:  (A)  expansion  of access to health care by extending health insurance coverage to state residents who cannot  afford  to  purchase  their  own coverage or who have coverage that is inadequate to meet their needs;  (B)  expansion  and enhancement of access to health care by augmenting and creating health care programs that deliver services  to  populations that are unable to access health care or that improve public health; and  (C)  augmentation  of  its  other  program  priorities  by  supporting programs that inform and educate New Yorkers about public health  issues and  empower  communities  to  address  these  issues  by  becoming more effective  at  identifying  and  articulating  health  care  needs   and implementing solutions.   Programs  or  initiatives  instituted  by  the charitable organization shall not neglect the residents or institutions served by the  applicant prior to the conversion.  (4)   The  members  of  the  board  of  directors  of  the  charitable organization 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.  (5)   The  members  of  the  board  of  directors  of  the  charitable organization and its corporate existence shall continue until there  are no longer any assets or moneys comprising the charitable asset available for distribution.  (6)  The  affirmative vote of all three voting members of the board of directors of the charitable organization  shall  be  necessary  for  the transaction  of any business or the exercise of any power or function of  such board. Such board may delegate to one or more of  its  members,  or its agents, such powers and duties as it may deem proper.  (7)   The  members  of  the  board  of  directors  of  the  charitable organization shall have the power to 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  of directors  of  the  charitable  organization 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.  (8)  (A)  Neither  the  members  of  the  board  of  directors  of the charitable organization 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 (B) 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 four thousand three hundred one 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.  (9)  The charitable organization receiving the charitable asset agrees in writing to register  and  file  annual  financial  reports  with  the attorney  general  in  compliance  with  section  8-1.4  of the estates, powers, and trusts law and to post its registration  filing  and  annual reports electronically on the internet.  (10)  The  charitable organization receiving the charitable asset, its directors, officers, and staff shall be and will 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 charitable organization from voting its equity shares in the for-profit  organization  in  accordance with  the  voting  and shareholders rights agreement entered into by the board with respect to the public asset and the  charitable  organization shall  be  subject  to such voting and shareholders rights agreement and the asset preservation agreement between the board with respect  to  the public asset and the converted corporation. No person who is an officer, director,  or staff member of the applicant at the time such corporation applies to the superintendent for permission to convert,  or  thereafter shall  be  an  officer,  director,  or  staff  member  of the charitable organization receiving  the  charitable  asset.  No  director,  officer, agent,  or  employee  of  the  applicant  or the charitable organization receiving the charitable  asset  will  receive  additional  compensation arising from the conversion transaction.  (11)  The  charitable organization receiving the charitable asset will establish formal mechanisms  to  avoid  conflicts  of  interest  and  to prohibit grants benefitting the surviving corporation or other surviving entity  organized for pecuniary profit, or its affiliates or successors, directors, management, and staff.  (12) 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.  (13)  To  assist  in  carrying  out  its functions, the board shall be authorized to hire independent financial, legal and  other  experts  and consultants.  (14)  Inconsistent provisions of other laws are superseded. Insofar as any provision herein is inconsistent with the provisions  of  any  other law,   general,  special  or  local,  the  provisions  herein  shall  be controlling.  (15) This section, being necessary for the welfare of  the  state  and its  inhabitants,  shall  be liberally construed so as to effectuate its purposes.  (l) For the purposes of this section, fair market value shall  consist of  either;  (i)  one  hundred percent of the stock that is transferred, provided that a portion of the shares may be sold in an  initial  public offering  and  that the net proceeds shall be transferred, together with the remaining unsold shares, (provided further that additional stock may be sold for fair market value  that  is  transferred  to  the  converted corporation), or (ii) in the case where one hundred percent of the stock is  not  transferred  and a public stock offering is not anticipated, an independent valuation that takes into account market  value,  investment or  earnings  value  and  not  asset  value.  Within  five  days  of the superintendent's final determination  of  the  fair  market  value,  the superintendent  shall  forward  to the attorney general such independent valuation. The attorney general may, within  thirty  days  after  having received   such  valuation,  provide  the  superintendent  with  written objections to such valuation. The superintendent shall respond  to  such written   objections   within   seven   days  stating  either  that  the superintendent accepts such objections  and  has  modified  his  or  her determination  accordingly,  or  that  the  superintendent  rejects such objections. The attorney general may, thereafter, pursue  an  action  in supreme  court seeking to have the valuation adjusted in accordance with the attorney general's objections. Such action 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.