New York insurance agents have lost their bid to overturn a state consumer regulation governing the sale of life insurance and annuity products that they believe is vague and exceeds the state insurance regulator’s authority.
The Regulation 187 that agents opposed was amended to require that producers, or insurers when no producer is involved, act in the “best interest of the consumer” when making a “recommendation.”
Agents argued that the amended regulation is unconstitutionally vague because key terms including “best interest,” “recommendation,” “suitability information” are “indefinite, ambiguous, and subjective.” They also contended that the New York State Department of Financial Services (DFS) exceeded its authority in promulgating the amendment and that the amendment is arbitrary and capricious.
While the Independent Insurance Agents and Brokers of New York (Big I NY) won its case against DFS at the appellate level in 2021, the State of New York Court of Appeals on October 20 reversed that opinion, finding the regulation is valid and constitutional.
The high court ruled that DFS “appropriately exercised its authority to create a carefully considered and clear regulation” and it found no basis to invalidate the regulation. In so ruling, the high court reinstated a 2019 Supreme Court (Albany) ruling in favor of DFS, an opinion that the Appellate Division in 2021 unanimously overturned and caused DFS to appeal.
The state’s high court took up that appeal and has now concluded that the regulation provides clear explanations of its terms and that the regulatory authority arguments lack merit.
“Ultimately, petitioners’ quarrel is with the policy and objectives of the regulation, not with its rationality. DFS reasonably concluded that the ‘best interest’ framework was needed to protect consumers, and petitioners cannot show that the amended regulation is ‘essentially arbitrary,'” wrote Judge Madeline Singas.
Acting Chief Judge Anthoy Cannataro and Judges Jenny Rivera, Garcia, Rowen Wilson and Shirley Troutman concurred in the opinion.
The court found the argument for invalidating the regulation unavailing. “Petitioners have fallen woefully short of their burden to sustain a facial due process challenge on vagueness grounds, and the extensive administrative record supporting the amended regulation refutes their alternative challenges,” it concluded.
The Big I NY said it is disappointed in the ruling and still believes the regulation is unconstitutionally vague.
“The court’s ruling leaves in place a regulation which lacks the clarity necessary for independent insurance agents and brokers to understand what is expected of them as they operate on a daily basis,” Lisa Lounsbury, president and CEO of Big I NY, said in a statement to Insurance Journal.
When arguing against the amendment when it was first being considered in 2018, the Big I expressed concern that it could make buying life insurance more complicated for consumers and lead to fewer consumers buying policies. But Lounsbury added that New York independent insurance agents and brokers “will continue to serve their customers and provide them with coverage options to help protect what matters most” and “their commitment to insurance consumers will not waver.”
The regulation is similar to a model law advocated by the National Association of Insurance Commissioners that applies in dozens of other states. The amendment took effect in August 2019 for annuities and in February 2020 for life insurance policies.
Topics New York Agencies Legislation
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