Summary Suspension of a DFS License
Typically, when an insurance agent, broker, or other licensee is investigated by the New York State Department of Financial Services (“DFS”), even if there is a violation of applicable insurance laws or regulations but the conduct does not rise to the level of “untrustworthiness” and/or “incompetence,” DFS may offer a compromise, by way of a stipulation, in which a respondent may admit to a statutory and/or regulatory violation and pay a penalty. For instance, in a failure to obtain signed 2119 service fee agreements, in addition to a fine, DFS may require a licensee to return service fees collected, or otherwise make restitution. In other instances, where, for example, DFS recommends license revocation, a hearing is held in which a licensee is provided with due process and an opportunity to challenge the recommendation of revocation. Even where a licensee timely submits a written request for a hearing, it may take numerous months until such a hearing is scheduled. All the while, the licensee remains licensed and can generally conduct business as usual, until at least a final determination by DFS is rendered following a hearing, and even longer if the decision (if unfavorable) is appealed to court by way of an Article 78 proceeding.
In very rare cases, however, the Superintendent of DFS may exercise its “summary suspension” power, which has the immediate effective of stripping a licensee of its license (at least temporarily), following issuance of a citation which sets forth the alleged wrongful conduct, but prior to a hearing with respect to the allegations. This extreme power is codified in Section 401 of the State Administrative Procedure Act (“SAPA”), which applies to adjudicatory proceedings of state agencies where notice and a hearing in connection with licensing is required. DFS, like other state agencies, may exercise this power under SAPA if the agency finds that “public health, safety, or welfare imperatively requires emergency action, and incorporates a finding to that effect in its order, summary suspension of a license may be ordered.” Effectively, a license is immediately suspended until a hearing, and SAPA requires the hearing to be “promptly instituted and determined.”
Recently, on January 25, 2019, DFS invoked its summary suspension power against a Brooklyn based insurance brokerage – Superior Service Group Ltd. and its sublicensee – and issued an order, without any details of the conduct at issue, suspending respondents’ insurance producer licenses until further order of the Superintendent. On January 31, 2019, DFS issued a Circular Letter notifying all insurers authorized to do business in New York of the suspension and instructing all such insurers to report any indication of respondents’ selling, soliciting or negotiating insurance, adjusting insurance claims, or other action in violation of the order.
Eventually, when DFS’ investigation is complete and the proceeding concludes, the basis for the extreme measure of summary suspension should be publicly available by way of a Freedom of Information Law Request, and may even be gleamed from DFS’ monthly summary of disciplinary actions. There are not many instances of summary suspension by DFS in recent years, though conduct such as the mishandling of premium funds would likely so effect the public welfare to “imperatively require(s) emergency action.”
Of note, a summary suspension order alone is not a final determination by a state agency. As such, a court would not have subject matter jurisdiction of an appeal from a summary suspension order. Rather, only following a hearing before DFS and the issuance of a final determination, can a respondent appeal the final determination by way of an Article 78 proceeding in court, and even then there is a very limited window to timely do so and a respondent would have to successfully demonstrate the DFS’ decision was “arbitrary and capricious.”
