4000 - Advisory Opinions
Funds Paid to Non-Profit Association by Members for Health Insurance Premiums for Benefit of Members' Employees Are Not Entitled to Pass-Through Insurance
FDIC 91-23 April 1, 1991 J. William Via, Jr., Counsel
As we understand it, the *** is a nonprofit corporation the membership of which consists of some 500 independent business corporations. The Association itself has entered directly into contracts with various providers of group health insurance for the ultimate benefit of eligible employees of the business corporations. The Association bills the business corporations for the premiums and places the money monthly into a savings account that bears the Association's name followed by "Insurance Fund", following which it puts the money into a similarly identified checking account from which payments are made to the insurance companies. You ask, in effect, whether the funds in these accounts are eligible for "pass-through" deposit insurance as owned by the business corporations.
You did not furnish us a copy of the agreement pursuant to which the Association conducts this activity that benefits the business corporations, and their employees, but we surmise that when a business corporation makes a premium payment to the Association it is doing so in fulfillment of its contractual obligation to the Association, which in turn is obligated to the business corporation to make timely premium payments to the insurance companies to keep the group insurance coverage policies in force. In such case, the funds that comprise the deposits are merely payments made to the Association in consideration for the performance by it of a contractual obligation and, thus, funds in which the payor-business corporation retains no ownership interest and with respect to which it bears no risk of loss. Put another way, we expect that once a business corporation performs by making a payment to the Association, the latter is obligated to perform its part of the bargain irrespective of what happens to the funds. If so, the deposits are not eligible for "pass-through" deposit insurance, but will be insured as funds owned by the Association.
Incidentally, even when the requisite ownership interest exists (and proper records identifying each such interest are kept), in order to qualify for "pass-through" deposit insurance, the deposit account records of the insured institution must explicitly disclose that the account is held in a representative capacity (e.g., by an agent, custodian, trustee or nominee). It is not sufficient to identify an account as "Insurance Fund". See 12 CFR § 330.4(b)(1), (2). In addition, for these purposes, a deposit slip is not a deposit account record, but a signature card is. See 12 CFR § 330.1(d).
If you wish to discuss any of this, please telephone me at (202) 898-3733.