New York Agents Lose Court Battle over Compensation Disclosure

By | November 22, 2010

New York agents failed to make their case that insurance regulators cannot require agents and brokers to disclose their commissions, a Supreme Court judge has ruled.

That just-released decision by Supreme Court Justice Richard M. Platkin appears to end for now a legal battle launched by two trade groups — the Independent Insurance Agents and Brokers of New York (IIABNY) and the Council of Insurance Brokers of Greater New York (CIBGNY) — over new regulations that will force agents throughout the Empire State to tell clients the amount and source of their commissions.

Agents had sought to stop the new rule by arguing that the state insurance department lacked the legal authority to create the rule, and that it violated agents’ rights — arguments that were roundly rejected by Platkin in his decision.

“The superintendent has determined that the benefits associated with the disclosure of producer incentive compensation, even from small producers, outweigh the associated regulatory disclosure costs and burdens,” Platkin ruled. “It is not the role of the judiciary to substitute its judgment for that of responsible executive branch officials.”

That rule is set to go into effect in January and has been one of the most closely watched issues facing agents and brokers in the state since it was first proposed in early 2009.

The new rule requires agents to inform their clients of the source, amount and nature of their commissions on any particular transaction.

Agents have argued that the rule imposes unnecessary costs and burdens while adding no real value for their clients. Regulators counter that the move will add transparency to the insurance-buying process and will prevent the potential for unscrupulous agents to steer clients toward a carrier that may pay them a higher commission.

“We have always felt that promulgating this regulation was a reasonable exercise in fleshing out the more general statutory language and we are pleased that the court upheld the superintendent’s authority to implement the regulation,” said Martha Lees, deputy superintendent and general counsel for the New York State Insurance Department

Lees said that, over the next few months, the department would continue working with stakeholders to answer questions about how the regulation will be implemented.

Despite the loss in court, IIABNY Chair David M. Gelia said his organization “still believe(s) that this regulation is an outrageous attempt to rewrite the insurance law and an unfair and costly demand on law-abiding insurance agents and brokers.”

IIABNY and CIBGNY said they would meet soon to consider their next steps in challenging the rule.

Added CIBGNY President Anthony Aquilino: “This regulation is unfair, unneeded, and beyond the Insurance Department’s authority. We regret that the justice saw otherwise.”

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