Recently, two state insurance departments took action against third party administrators in their respective states based on their failure to be properly licensed. These regulatory actions demonstrate the importance for TPAs to be properly licensed, as well as for insurance companies to confirm that the TPAS they are contracted with are duly licensed.

The details of the actions are summarized below.

South Dakota Regulatory Actions

Recently, the South Dakota Division of Insurance took regulatory actions against two companies operating in South Dakota based on their failure to be properly licensed as a Third Party Administrator (TPA).

According to the Division, the first company was a licensed TPA in South Dakota but allowed its TPA license to lapse due to its failure to renew its license. Notwithstanding the lapse of its license, the company continued to conduct insurance business in South Dakota without a TPA license in violation of SDCL § 58-29D-21 and 58-29E2.

As a result, the company entered into a Consent Order with the Division and agreed to pay a $25,000 monetary penalty.

According to the Division, the second company acted as a TPA in South Dakota without being licensed in violation of SDCL § 58-29D-21. Additionally, the second company had also failed to disclose to the Division an administrative action taken against it in another state.

As a result, the second company entered into a Consent Order with the Division in which it agreed to pay a $20,000 monetary penalty in lieu of an application denial.

Tennessee Regulatory Action

Recently, the Tennessee Insurance Department took action against a licensed TPA based on the fact that its certification as a utilization review agent had expired. Specifically, the TPA's utilization review certification remained inactive for two months in Tennessee, during which time it completed approximately 135 utilization reviews. As a result, the TPA entered into a Consent Order with the Tennessee Insurance Department that ordered:

• The TPA to pay a civil penalty of $10,000 for utilization review violations.

• All persons to cease and desist from all activities that in any way assist, aid, or help the TPA in violation of Tennessee law.