<p style="text-align: justify;">Finally, some clarity. A unanimous New York high court decided this week to uphold the Suitability and Best Interests in Life Insurance and Annuity Transactions Amendment to Insurance Regulation 187. The Department of Financial Services (DFS) in 2018 added this amendment because of concerns that the increasing complexity involved in purchasing annuities and life insurance made consumers more reliant on the advice of agents and brokers, who were incentivized to recommend transactions that prioritized their own compensation over the consumer’s best interest.</p>
<p style="text-align: justify;">The Amendment set forth a uniform standard of care for all insurance agents and brokers (i.e. producers) that provide retirement planning or investment advice: producers must act in the best interests of their clients by making reasonable efforts to obtain client suitability information and based any recommendation on that suitability information (i.e. age, annual income, and financial situation, needs, objectives, and experience, among other categories) and not on any compensation or other incentives. The Amendment requires producers to recommend only suitable transactions and have a reasonable basis to believe that the consumer has been reasonably informed of the consequences of the purchase and ultimately benefits from such a purchase. Such a standard of care had previously only applied to annuity contracts.</p>
<p style="text-align: justify;">The Amendment was challenged as arbitrary and capricious and unconstitutionally vague. In 2020, a Justice of the Supreme Court upheld the Amendment, but the Appellate Division, Third Department, reversed and held that the Amendment was unconstitutionally vague because it failed to provide concrete, practical guidance to insurance producers.</p>
<p style="text-align: justify;">On October 20, 2022, the New York Court of Appeals, reversed yet again, holding that DFS “appropriately exercised its authority to create a carefully considered and clear regulation” in concluding that the duty to act in the “best interest” of the consumer was a necessary standard of care “to protect consumers.”</p>
<p style="text-align: justify;">Thanks to Abed Bhuyan for his contribution to this post. Please contact <a href="mailto:abhuyan@wcmlaw.com">Abed Bhuyan</a> with any questions.</p>