OGC Op. No. 07-09-12

The Office of General Counsel issued the following opinion on September 12, 2007 representing the position of the New York State Insurance Department.

RE: Code of Ethical Practices With Respect to the Insuring of the Benefits of Union or Union-Management Welfare and Pension Funds

Question Presented:

Is the Code, whose adoption by New York was announced in a December 19, 1957 Circular Letter, still binding?


Yes. The Code, which, with modifications, was promulgated as N.Y. Comp. Code R. & Regs. tit. 11, Part 202 (2003) (Regulation 65) to regulate life insurance purchased by union-management jointly administered employee welfare funds, still governs both life and accident & health insurance in New York.


An insurance agent seeks clarification about the Code, which he asserts is being interpreted differently by various parties.


While commissions on sales of life insurance are generally governed by N. Y. Ins. Law § 4228 (McKinney 2007), commissions for the sale of accident & health insurance are not statutorily limited1. However, Insurance Law § 4235(h)(1) provides:

Each domestic insurer and each foreign or alien insurer doing business in this state shall file with the superintendent its schedules of premium rates, rules and classification of risks for use in connection with the issuance of its policies of group accident, group health or group accident and health insurance, and of its rates of commissions, compensation or other fees or allowances to agents and brokers pertaining to the solicitation or sale of such insurance and of such fees or allowances, exclusive of amounts payable to persons who are in the regular employ of the insurer, other than as agent or broker to any individuals, firms or corporations pertaining to such class of business, whether transacted within or without the state.

Because of abuses in the operation of union-management welfare funds, the New York Legislature in 1956 enacted Insurance Law Article III-A, which conferred on the Insurance Department jurisdiction over jointly administered or jointly funded employee welfare funds, except where a bank was a trustee (in which case jurisdiction was conferred by the New York Banking Law on the Banking Department.) In the 1984 recodification of the Insurance Law, Article III-A became Insurance Law Article 44.

Because of many of the same abuses which animated the New York Legislature, the NAIC in 1957 adopted the Code, which in Section 2 dealt with commissions to insurance producers. By Circular Letter dated December 19, 1957, which was addressed to insurers writing group life insurance, group annuities, and group health insurance in New York, the Insurance Department stated:

This Department subscribes fully to the principles enunciated in the Code, and believes adherence thereto to be in the public interest.

While the Circular Letter was merely precatory and had no force and effect, the Insurance Department subsequently took action against insurers and insurance producers who violated the Code for being untrustworthy. See Insurance Law § 2110(a).

In April 1973, the Insurance Department adopted Regulation 65, which became effective in June 1973. 11 NYCRR § 202.2(a)(1) provides a commission scale for life insurance policies issued on a mass merchandising basis under plans sponsored by union-management employee welfare funds. Although Regulation 65 did not establish an acceptable commission scale for group health insurance sold to union-management welfare funds, the Insurance Department continues to believe that the requesting of commissions in excess of the Code by insurance producers can constitute an untrustworthy act within the meaning of Insurance Law § 2110.

In 1974, again because of abuses with regard to employee benefits, Congress enacted the Employee Retirement Income Security Act (“ERISA”), 29 U.S.CF.A. § 1001 et seq. (West 2003). Union-management plans generally are covered by ERISA, see 29 U.S.C.A. § 1003(b), and Congress has divested states of jurisdiction over plans regulated by ERISA. See 29 U.S.C.A. § 1144(a).

Accordingly, most of the plans that had been registered in accordance with Insurance Law Article III-A, since recodified as Insurance Law Article 44, ceased reporting to the Insurance Department. In addition, with respect to many of the union-management health benefit plans that remained under Insurance Department jurisdiction, which were primarily plans where the employer was a local government entity, the benefits became self-funded. In those instances, too, the Code had no application because the funds did not purchase insurance.

There is an exception in ERISA, however. 29 U.S.C.A. § 1144(b)(2) provides:

(A) Except as provided in subparagraph (B), nothing in this title shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities.

(B) Neither an employee benefit plan . . . nor any trust established under such a plan, shall be deemed to be an insurance company or other insurer, bank, trust company, or investment company or to be engaged in the business of insurance or banking for purposes of any law of any State purporting to regulate insurance companies, insurance contracts, banks, trust companies, or investment companies.

Accordingly, for those health insurance plans that are subject to Insurance Department jurisdiction and which are insured, the Code continues to be operative. Since the requirement to file commission rates with the Department governs insurers, see Insurance Law § 4235(h)(1)2, it is not preempted. See 29 U.S.C.A. § 1144(b)(2). Therefore, the Insurance Department will not place on file a commission scale for accident & health insurance that has been filed in accordance with Insurance Law § 4235(h)(1), and that exceeds Code standards.

In addition, Insurance Law § 4413(b)(2), which is directed at kickbacks by insurers to union-management welfare funds, provides:

No insurance company . . . shall directly or indirectly, pay any commission, make any loan or give any thing of value to any employee welfare fund or to any employer or labor organization representing any employees eligible for employee benefits thereunder or to any trustee or other officer or employee of any such fund, employer or labor organization, in connection with the solicitation, sale, service or administration of a contract providing employee benefits for such fund.

Since that statute regulates insurers, and not union-management welfare funds, ERISA does not preempt Insurance Law § 4413(b)(2).

For further information you may contact Principal Attorney Alan Rachlin at the New York City office.


1 Commissions payable by health maintenance organizations are regulated by the Health Department, see 10 NYCRR § 98-1.11(t), and the Insurance Department, see 11 NYCRR § 52.42(e) (Regulation 62).

2 The Insurance Department expresses no opinion as to whether ERISA or any other federal statute affects commissions or other payments to insurance producers with respect to union-management welfare plans.