What You Need to Know
- The court unanimously concluded that the rule is “unconstitutionally vague.”
- Judges said the rule uses “subjective terms” and “fails to provide sufficient concrete, practical guidance.”
- The decision could be appealed.
The New York best-interest standard for annuity sales was struck down Thursday by the Appellate Division of the New York State Supreme Court for being “unconstitutionally vague.”
Formally known as the New York Department of Financial Services’ Amended Regulation 187, Suitability and Best Interests in Life Insurance and Annuity Transactions, the rule is “unconstitutionally vague,” the judges unanimously concluded. They noted that it uses “subjective terms,” “fails to provide sufficient concrete, practical guidance for producers,” and “provide[s] insufficient guidance with respect to how producers must conduct themselves in order to comply.”
The amended rule took effect Aug. 1, 2019, for annuity sales, and began applying to life insurance sales on Feb. 1, 2020. The amendment required recommendations to be in the best interests of the consumer.
Jason Berkowitz, chief legal and regulatory affairs officer for the Insured Retirement Institute, told ThinkAdvisor Thursday in an email that “today’s NY Appellate Court decision is important but it may not be the final step in the legal process as the decision may be appealed to the New York Court of Appeals.”
IRI, Berkowitz said, “continues to advocate for uniform adoption of the National Association of Insurance Commissioners’ best interest model regulation by all states to avoid a patchwork of conflicting standard of conduct regulations for annuity sales.”
Wesley Bissett, senior counsel for government affairs at the Independent Insurance Agents & Brokers of America, said Thursday in a statement that the decision “could have implications beyond New York in light of state consideration of the NAIC’s Suitability in Annuity Transactions Model Regulation.”
The National Association of Insurance Commissioners’ model “mirrors the New York rule in numerous ways and includes similar ‘best interest’ references, which create the same type of ambiguity and vagueness that is at the heart of today’s decision,” Bissett said.
Insurance agents “desire clear obligations and rules of the road, and no constituency benefits from nebulous and subjective mandates that do not specify what actions or compliance measures are required and what behavior is prohibited,” Bissett said.
The views expressed by the court today, Bissett added, “are why IIABA has urged the NAIC and individual states to remove any ambiguous references to ‘best interest’ and to allow the robust elements of the model to stand on their own.”