BILL NUMBER: S9746
SPONSOR: BAILEY
 
TITLE OF BILL:
An act to amend the insurance law, in relation to clarifying that
certain prohibitions on insurance companies shall apply to policies or
contracts purchased and delivered or issued for delivery in the state of
New York
 
PURPOSE::
This bill would clarify that the provisions of section 4226 only apply
with respect to policies and contracts purchased and delivered or issued
for delivery in New York.
 
SUMMARY OF SPECIFIC PROVISIONS::
Section 1 amends section 4226 of the insurance law to clarify that the
section applies with respect to any policy or contract purchased and
delivered or issued for delivery in New York.
Section 2 provides for an immediate effective date.
 
JUSTIFICATION::
States have been primary prudential regulators of the business of insur-
ance since the 1800's. Each state has its own department, insurance laws
and regulations, and each has an interest in regulating transactions
that take place within its borders. As the financial capital of the
world, New York is home to many of the world's largest insurance compa-
nies, and its regulatory system has firmly established the New York
State Department of Financial Services as the pre-eminent regulator of
insurance in the country.
In 1945, Congress endorsed this state-specific approach by enacting the
McCarran-Ferguson Act, which leaves insurance regulation up to each
state. Since the passage of McCarron-Ferguson, New York courts have
generally articulated a presumption against extraterritorial application
of New York's laws. While this has been generally understood and recog-
nized by the DFS and the New York courts, a recent contrary federal
court ruling introduced unwanted ambiguity that this legislation is
designed to correct.
This bill reinforces the well understood reading of Section 4226 by
adding language to make it clear that the section is only applicable to
policies or contracts purchased and delivered or issued for delivery in
New York. The consequences of any other reading of this statute are far
reaching as any insurer that is authorized to do business in New York
would find itself subject to litigation under Section 4226 for all of
the policies and illustrations it issues outside New York in connection
with sales that occur wholly outside of New York. Layering New York law
on top of the law of the state where the policy was issued would intro-
duce redundant jurisdiction and potential oversight, and would inject
substantial and unnecessary uncertainty into the state-based system of
insurance regulation. This type of conflict jeopardizes the state-based
system, and potentially undermines New York's authority, by encouraging
Congress to act to displace the state-based system through federal
intervention.
By way of example, if this section of New York law is not clarified, so
long as a life insurer is authorized to do business in New York, it is
subject to liability under Section 4226 for all of its life insurance
policies and illustrations issued across the country-even those issued
outside of New York. A California insurer would be subject to liability
under New York Insurance Law Section 4226 for illustrations issued in
California or Texas, in connection with policies sold in those states.
New York has little interest in regulating stich transactions, and
significantly less of an interest than the states where those trans-
actions occurred. New York does have a strong interest in maintaining
the current state based regulatory regime for the insurance market.
Enacting this bill will strengthen that system and help to ensure the
federal government does not act.
 
LEGISLATIVE HISTORY::
This is a new bill.
 
EFFECTIVE DATE::
This act shall take effect immediately.

Statutes affected:
S9746: 4226 insurance law