A New York and New Jersey Lawyer Who Represents Policyholders and Beneficiaries in Life Insurance Denial Cases

This month a panel of the Appellate Division, Third Department, upheld a rule promulgated by the New York State Department of Financial Services that requires New York insurance brokers and agents to disclose to consumers whether they receive incentives or other compensation from insurance companies.

The decision is matter of Sullivan Financial Group. v. Wrynn.

The court was faced with the task of determining the scope of authority that the Department of Financial Services has to regulate the field of insurance. In doing so, it had to explore the contours of legislative action and administrative rule-making, since it was argued that the rule was inappropriate as it was not legislatively-enacted.

The court also observed that the rule did not contravene the common law, which imposes few duties on insurers to insureds. In other words, nothing in the common law forbids the enforcement of the rule.

The rule was enacted after an investigation revealed bid-rigging and steering schemes between insurers and agents and brokers. This occurs, for instance, where an agent or broker is provided with compensation or incentives from a particular insurer, while the customer is under the mistaken impression that the agent or broker is selling a product without an allegiance to a particular company. There needs to be transparency and disclosure in these transactions.

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