New York Life Insurance Compliance Lawyer & Attorney : Currin Law Office : Annuity Compliance & Insurance Regulation

It has come to my attention through the post approval review process that there is a new position at the NYSID with respect to payouts. 

The Department is requiring an endorsement of approved contracts, at least those picked up on post-approval review,  to state what happens when the beneficiary also dies before guaranteed payments are all paid out.  This issue apparently arose from consumers' questions and when told that it depends what the contract says and the Department looked to see what they did say, it was found that many say nothing.  Questions arose regarding what would happen and whether the payments would go to the owner or the beneficiary's estate.  To promote clarity, the Department began to require a contract provision on those it reviews.    

Companies should take note because this is enforced not only on a going forward basis, but those companies who are subject to post-approval review are being required to endorse their  in-force contracts to address this perceived ambiguity.   There is nothing we can do about all the policies and contracts we have filed before we knew of this unpublished position - it will be up to each company to address the issue as it sees fit if it comes up on post-approval review - but for contracts being drafted now, this is a provision that should be included to avoid a comment and possible endorsement on the back-end. 

 

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In a recent conversation with Ms. Nelligan of the New York State Insurance Department, she assured me that the new language regarding continued use of the forms during the PAR process (discussed in yesterday's post) was not intended to cause alarm, but was rather intended to be sure that companies were aware that the number of policy forms issued is one of the factors in the determination of a fine, if a fine is appropriate in the circumstances.   She assured me that the intent was only to provide information, not to cause undue concern at companies receiving the letter. 

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I recently started seeing a series of questions on post-approval review letters that seem to be more adversarial than previous PAR letters were.  I do not think it is necessarily intentionally so, but I know the companies I speak with have felt quite concerned by the tone.  The series is as follows:

1. Has the policy form been issued?  If so, please identify the number of policy forms issued.

2.  Is the policy form still being issued?  If not, when did sales cease?

3.  Has the policy form been replaced by a subsequently approved form?  If so, please identify by form number, Department file number, and date of approval. 

These introductory questions are then typically followed by any substantive questions or requests for clarification.  But then the most alarming questions get asked - still in this first letter before there is any discussion of the issues, which are often quite minor.  These new questions read: 

--In view of the comments made herein, is it your company's intention to continue to issue the policy form?  If so, please note that penalties imposed for statutory and regulatory violations can take into consideration the number of forms issued. 

-- If you wish to replace this form with a corrected form for use on a going forward basis it will be necessary to make a new submission.. 

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Section 3103 of the NYS Ins. Law states that except as otherwise provided, "any policy of insurance or contract of annuity delivered or issued for delivery in this state in violation of any of the provisions of this chapter shall be valid and binding upon the insurer issuing the same, but in all respects in which its provisions are in violation of the requirements or prohibitions of this chapter it shall be enforceable as if it conformed with such requirements or prohibitions....In any action to recover under the provisions of any policy of insurance or contract of annuity delivered or issued for delivery in this state which the superintendent is authorized by this chapter to approve if in his opinion its provisions are more favorable to policyholders, the court shall enforce such policy or contract as if its provisions were the same as those specified in this chapter unless the court finds that its actual provisions were more favorable to policyholders at the date when the policy or contract was issued."   (emphasis added) 

This section simply says that regardless of what the policy actually says, it will be binding on the company and interpreted to comply with the law.   It seems to contemplate a situation where an approved form does not fully comply with the law and it provides a mechanism to interpret the minimum standards into a contract where on or more may be missing. 

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