N.Y. insurance brokers must disclose source of compensation: CourtPosted On: Mar. 9, 2012 12:00 AM CST
ALBANY, N.Y.—A New York appeals court has upheld the state Department of Financial Services' authority to require insurance brokers to disclose the sources of their compensation.
The regulation issued in 2010 by the then-Department of Insurance, which became part of the New York Department of Financial Services, requires insurance producers to describe their role in the sale of insurance, disclose whether they receive compensation from an insurer or third party, and any factors that might affect their compensation. It further requires agents and brokers to provide additional disclosure regarding such issues if the buyer requests it.
The petitioners in Matter of Sullivan Financial Group Inc. vs. Wrynn argued that the department had overstepped its authority when it issued the rule because the Legislature had not expressly delegated the power to order such disclosures. But the Appellate Division of the Supreme Court of New York, 3rd Department, ruled Thursday that the department indeed had such power.
The court said that the petitioners contended that the regulation wasn’t likely “to effectively increase transparency or protect consumers for a variety of reasons—they maintain, for example, that consumers will only be further confused by the disclosure of complex compensation arrangements and that the regulation is not cost-effective or rationally limited to ‘untrustworthy conduct.’” But the court held that “it is not the role of the courts to second-guess (the state superintendent of insurance’s) expert judgment regarding the efficacy of the regulation in protecting consumers from bid-rigging and steering schemes.” The regulation is “a reasonable exercise” of regulators’ broad power to implement insurance law, the court said.
The state Supreme Court had dismissed efforts to overturn the regulation, which led agents groups to appeal to the appellate division.
As the appellate court noted in its opinion, the disclosure rule came in response to then-New York Attorney General Eliot Spitzer’s investigation into bid-rigging and steering schemes in the early 2000s.