IIABNY Rebuts State’s Argument to Dismiss Regulation 194 Appeal

The Independent Insurance Agents & Brokers of New York, Inc. (IIABNY) filed its reply brief in response to the New York attorney general’s argument that the Appellate Division Third Department should dismiss the association’s appeal of a previous court decision that upheld Regulation 194. In a 15-page brief IIABNY maintained that the regulation’s requirements forcing insurance producers to disclose their compensation to clients exceeds state regulators’ authority and usurps the court’s authority to define the legal duties and obligations owed by insurance agents and brokers.

IIABNY also reiterated the argument that there is no rational basis for Regulation 194, explaining that the regulation will not satisfy its stated purpose, penalizes innocent violators and causes more harm than good. Legally, the IIABNY brief argues, Regulation 194 is unconstitutionally vague and confusing and was not promulgated in compliance with the New York State Administrative Procedure Act.

“We believe that the regulation, as drafted, goes far beyond what should be done in connection with any disclosure by agents and brokers,” said lead attorney James C. Keidel of the firm Keidel, Weldon & Cunningham, LLP, in a video message to members of the trade association. “We believe we have a very good chance of succeeding in connection with our appeal and hopefully annulling Regulation 194.”

New York Insurance Regulation 194, Producer Compensation Transparency, requires producers to disclose certain information about their compensation to all clients, regardless of whether the clients have asked for it. Should any client request more information, the regulation requires the producer to provide detailed information about his compensation for the policy sold and the compensation he would have received had the client chosen a different policy.

IIABNY (which in 2004 called on insurance agents and brokers to voluntarily disclose to their clients the existence and nature of all their compensation) and the Council of Insurance Brokers of Greater New York have opposed mandated disclosures as burdensome for producers and of little benefit to consumers. IIABNY and CIBGNY were part of an industry effort throughout 2009 aimed at convincing the New York Insurance Department to drop Regulation 194 or minimize its burdens on producers. After the department adopted the final version of the regulation in the winter of 2010, IIABNY and CIBGNY filed the Article 78 proceeding on May 25, 2010 to block its implementation. In November a state Supreme Court judge upheld the regulation and, thereafter, IIABNY filed an appeal on Sept. 1.