OGC Opinion No. 09-08-05
The Office of General Counsel issued the following opinion on August 11, 2009, representing the position of the New York State Insurance Department.
RE: 1033 Waivers
1. What types of criminal offenses are considered “criminal felon[ies] involving dishonesty or a breach of trust” within the meaning of the Violent Crime Control and Law Enforcement Act of 1994, 18 U.S.C. § 1033(e)(1)(A)?
2. Which positions come within the meaning of the “business of insurance,” as defined under 18 U.S.C. § 1033(e)(2)(f)?
3. Is an offer of employment a pre-requisite for applying for a “1033 waiver”?
4. What factors does the Department consider when evaluating the application for a “1033 waiver”?
5. What additional requirements are imposed under N.Y. Ins. Law § 2108 (McKinney 2009) for persons seeking consent to be employed as a licensed adjuster?
1. Neither the statute, relevant case law nor legislative history define “dishonesty” or “breach of trust.” Therefore, the New York State Insurance Department applies the commonly accepted meaning of these terms when evaluating applications of convicted felons for permission to be employed in the business of insurance.
2. As defined under 18 U.S.C. § 1033(e)(2)(f), the term “business of insurance” includes any prospective officer, director or employee of an insurer, or its agent, or an applicant for a position requiring licensing who has been convicted of a felony involving dishonesty or breach of trust.
3. An offer of employment is a pre-requisite for applying for a “1033 waiver,” unless the waiver is for a position that requires a license from the Department.
4. Generally, the Department makes a determination as to the trustworthiness and competence of an applicant in view of the specific circumstances of the crime committed by the individual. In the event the applicant is also applying for a license, the provisions of N.Y. Correction Law §§ 750-753 (McKinney 2009) also must be satisfied.
5. Pursuant to the provisions of Insurance Law § 2108, a person convicted of any felony, or of a crime involving “fraudulent or dishonest practices,” must obtain either an executive pardon, a certificate of relief from disabilities or a certificate of good conduct to be employed as a licensed adjuster.
The inquirer reports that she works for a not-for-profit law firm that works on legal and policy issues related to HIV/AIDS, alcohol and drug dependence, and criminal records. The inquirer asks for clarification of the barriers that exist for persons convicted of felonies to obtain employment in the business of insurance in New York State.
1. Dishonesty and Breach of Trust
The inquirer’s first question asks about the type of offenses that involve felonies involving “dishonesty or a “breach of trust.” A federal law, 18 U.S.C. § 1033, entitled “The Violent Crime Control and Law Enforcement Act of 1994” (“the Act”), is relevant to the inquiry. That statute prohibits the employment in the business of insurance of a person convicted of a felony involving dishonesty or a breach of trust unless such person has obtained written consent (“1033 waiver”) from a regulatory official authorized to regulate the insurer. In pertinent part, 18 U.S.C. § 1033 reads as follows:
(e)(1)(A) Any individual who has been convicted of any criminal felony involving dishonesty or a breach of trust, or who has been convicted of an offense under this section, and who willfully engages in the business of insurance whose activities affect interstate commerce or participates in such business, shall be fined as provided in this title or imprisoned not more than 5 years, or both.
(B) Any individual who is engaged in the business of insurance whose activities affect interstate commerce and who willfully permits the participation described in paragraph (A) shall be fined as provided in this title or imprisoned not more than 5 years, or both.
(2) A person described in paragraph (1)(A) may engage in the business of insurance or participate in such business if such person has the written consent of any insurance regulatory official authorized to regulate the insurer, which consent specifically refers to this subsection.
(f) As used in this section—
the term business of insurance means—
the writing of insurance, or
the reinsuring of risks,
by an insurer, including all acts necessary or incidental to such writing or reinsuring and the activities of persons who act as, or are, officers, directors, agents, or employees of insurers or who are other persons authorized to act on behalf of such insurers…
The Act does not define “criminal felony involving dishonesty or a breach of trust.” Nor does New York case law or the legislative history relating to the statute include a definition of disqualifying felonies that require the submission of the application for a 1033 waiver.
Black’s Law Dictionary, rev’d 7th ed. (1990), defines “dishonesty” as a “disposition to lie, cheat or defraud; untrustworthiness; lack of integrity.” According to the National Association of Insurance Commissioners (“NAIC”), “as a general statement, crimes involving dishonesty involve some element of deceit, misrepresentation, untruthfulness or falsification.” See National Association of Insurance Commissioners, Guidelines for State Insurance Regulators to the Violent Crime Control and Law Enforcement Act of 1994 (1998) at 22. Consequently, the Department applies the common meaning of these terms when making a determination as to which felonies fall within the meaning of the Act. These include larceny, robbery, burglary, fraud, bribery, forgery, embezzlement or perjury.
“Breach of trust” is defined in Black’s Law Dictionary, rev’d 7th ed. (1990), as follows:
Any act done by a trustee contrary to the terms of his trust, or in excess of his authority and to the detriment of the trust; or the wrongful omission by a trustee of any act required of him by the terms of the trust. Also the wrongful misappropriation by a trustee of any property which had been lawfully committed to him in a fiduciary character.
According to the NAIC “crimes involving breach of trust are based on the fiduciary relationship of the parties and the wrongful acts violating that relationship.” See NAIC Guidelines at 22.
Based on a reasonable interpretation of the Act in its entirety, which primarily concerns itself with protecting property and financial transactions in connection with the business of insurance, felonies involving “breach of trust” within the meaning of the Act include those that entail the traditional concept of “breach of trust” set forth in Black’s Law Dictionary, where the crimes involve property held in “trust” by an individual who acts in a fiduciary capacity and who violates a duty owed to a beneficiary of the “trust.” Specific examples of such “breach of trust” felonies therefore include larceny or embezzlement.
2. Employment in the Business of Insurance
The inquirer next asks what positions come within the “business of insurance” as defined by the Act. The term “business of insurance,” as defined in the Act, includes the writing of insurance or the reinsuring of risks, and all acts necessary or incidental to such writing or reinsuring, which activities affect interstate commerce. The term also includes the activities of persons “who act as, or are, officers, directors, agents, or employees of insurers or other persons authorized to act on behalf” of the insurer.
Thus, any prospective officer, director or employee of an insurer, or its agent, or an applicant for a position requiring licensing (or his employee) who has been convicted of a felony involving dishonesty or breach of trust, comes within the meaning of the Act, and therefore must obtain a 1033 waiver. See OGC Opinion No. 08-04-30 (April 23, 2008) (opining that a 1033 waiver is not required for an attorney employed by an unaffiliated law firm retained by an insurer); OGC Opinion No. 05-05-16 (May 10, 2005) (opining that a 1033 waiver is required for an adjuster’s license).
3. Offer of Employment
The inquirer asks whether an offer of employment is a prerequisite for a 1033 waiver application. An offer of employment is a pre-requisite for applying for a 1033 waiver, unless the waiver is for a position that requires a license from the Department. The offer of employment is necessary because the Department’s consideration of any 1033 waiver application takes into account the duties that the waiver applicant would perform. Further, the Superintendent’s approval of a 1033 waiver application is limited only to the position for which the applicant applied for the waiver.
There is no such requirement in the event the individual seeks a waiver for the purpose of obtaining an insurance license. In such cases, the Department may issue a waiver that is not limited to a specific position of employment.
4. 1033 Waiver Determinations
The inquirer also asks about the factors that the Department considers in evaluating an application for a 1033 waiver. The Department analyzes applications for 1033 waivers on a case-by-case basis, taking into account the relevant circumstances of the crime committed by a particular applicant. Thus, the applicant must provide specific details regarding the felony conviction, as well as information concerning the applicant’s education, employment and other activities since the time of the conviction.
a. License Applicants
An applicant for an insurance license, such as an agent, broker or adjuster, with a felony conviction involving dishonesty or breach of trust, must apply for a 1033 waiver. The Superintendent has broad discretion to refuse a license to any person who the Superintendent finds is not trustworthy and competent. See OGC Opinion No. 05-02-17 (February 9, 2005). Insurance Law § 2103(h), concerning the licensing of insurance agents, reads in relevant part as follows:
The superintendent may refuse to issue any insurance agent’s license if, in his judgment, the proposed licensee or any sub-licensee is not trustworthy and competent to act as such agent, or has given cause for the revocation or suspension of such a license, or has failed to comply with any prerequisite for the issuance of such license.
Insurance Law §§ 2104(a)(1), 2106(d)(1), 2107(d), 2108(c)(1) and 2131(b)(2) set forth similar provisions with respect to insurance brokers, reinsurance intermediaries, insurance consultants, adjusters and certain limited licenses, respectively.
The Act does not provide specific guidance about the factors that the Superintendent must consider upon ruling on a 1033 waiver application. Nor does Correction Law §§ 752 or 753, by their terms, apply to 1033 waiver applications. Nevertheless, those provisions provide helpful guidance for the Superintendent to consider upon deciding a 1033 waiver application.
In making a licensing decision for an application with a criminal conviction, the Superintendent applies the provisions enumerated under Correction Law §§ 752 and 753. Correction Law § 752 provides, in relevant part, as follows:
No application for any license or employment, and no license or employment held by an individual, to which the provisions of this article are applicable, shall be denied or acted upon adversely by reason of the individual’s having been previously convicted of one or more criminal offenses, or by reason of a finding of lack of “good moral character” when such finding is based upon the fact that the applicant has previously convicted of one or more criminal offenses, unless:
(1) there is a direct relationship between one or more of the previous criminal offenses and the specific license or employment sought or held by the individual; or
(2) the issuance or continuation of the license or the granting or continuation of the employment would involve an unreasonable risk to property or to the safety or welfare of specific individuals or the general public.
Correction Law § 753(1) sets forth a number of factors for the Superintendent to consider, including the time that has elapsed since the occurrence of the criminal offense, the age of the person at the time the crime was committed, the seriousness of the offense, and what bearing the criminal offense will have on the individual’s ability or fitness to perform one or more duties or responsibilities of employment or licensure. See OGC Opinion No. 05-02-17 (February 9, 2005). Moreover, pursuant to Correction Law § 753(2), the Superintendent must give consideration to both certificates of relief from disabilities or certificates of good conduct issued to the applicant, which create a presumption of rehabilitation in regard to the offense specified therein.
b. Applicants for Employment Not Requiring Licensing
An applicant seeking employment with an authorized insurer in a position that does not require licensing, such as an administrative position, must submit a 1033 waiver application, along with proof of a specific offer of employment, including the name of the insurer, and the specific duties that will be associated with the employment. As noted above, Correction Law §§ 750-753 provide useful guidance to the Superintendent in evaluating a criminal conviction in connection with a 1033 waiver application. If the Department determines the applicant is not disqualified from engaging in the business of insurance, the waiver is limited to the specific position described in the application.
5. Licensed Adjusters.
Lastly, the inquirer asks about any other requirements established by Insurance Law § 2108 for persons seeking a position as a licensed adjuster. Insurance Law § 2108(d)(3) & (4) provides:
(3) No such license shall be issued to any person who has ever been convicted of a felony, or of any crime or offense involving fraudulent or dishonest practices; nor shall a licensee under this section employ any person who has ever been convicted of a felony or such a crime or offense.
(4) This subsection shall not prevent the employment of or the issuance of a license to any person who, subsequent to his conviction, shall have received executive pardon therefor removing his disability, or who has received a certificate of good conduct granted by the board of parole…
Thus, in addition to the 1033 waiver requirements set forth in the Act, persons convicted of any felony, or a misdemeanor involving fraudulent or dishonest practices are prohibited from being licensed as an adjuster or employed by a licensed adjuster pursuant to Insurance Law § 2108(3), unless the person has received either an executive pardon, certificate of good conduct, or certificate of relief from disabilities.
The term “fraudulent or dishonest act” is defined in Black’s Law Dictionary, rev’d 7th ed. (1990), as “[o]ne which involves bad faith, a breach of honesty, a want of integrity, or moral turpitude.” Fraudulent acts include “[a]n intentional perversion of the truth for the purpose of inducing another in reliance upon it to part with some valuable thing belonging to him or to surrender a legal right…” Id.
The Department applies the commonly accepted meaning of these terms when determining whether a misdemeanor involves “fraudulent or dishonest practices.” Although Insurance Law § 2108 provides no specific definition of such crimes, for guidance purposes, examples of such offenses include petit larceny, shoplifting, or misdemeanor theft of services.
As a practical matter, the Superintendent reviews applications of persons convicted of such crimes to be licensed as an adjuster, or employed by a licensed adjuster, using the same relevant factors as discussed above in connection with 1033 waivers and applications for licensed agents, brokers and non-licensed administrative employees.
For further information you may contact Associate Counsel Bradley F. Rice at the Albany Office.