2023 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.