Ostrer v. Schenck

• Decision Date: 07 June 1977
• Citation: 364 N.E.2d 1107,41 N.Y.2d 782,396 N.Y.S.2d 335
• Parties: , 364 N.E.2d 1107 Benjamin OSTRER, Respondent, v. Benjamin R. SCHENCK, as Superintendent of Insurance of the State of New York, Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 335

396 N.Y.S.2d 335

41 N.Y.2d 782, 364 N.E.2d 1107

Benjamin OSTRER, Respondent, v. Benjamin R. SCHENCK, as Superintendent of Insurance of the State of New York, Appellant.

Court of Appeals of New York.

June 7, 1977.

Louis J. Lefkowitz, Atty. Gen., New York City (Robert S. Hammer and Samuel A. Hirshowitz, New York City, of counsel), for appellant.

Philip R. November, New York City, for respondent.

JASEN, Judge.

In June, 1973, the Superintendent of Insurance promulgated regulation 65 (11 NYCRR Part 202), which limits to specified maximum levels, adjusted for volume, the commissions an insurance agent may receive for life insurance policies issued on a mass-merchandising basis under plans sponsored by union-management employee welfare funds. The issue on this appeal is whether regulation 65 conflicts with positive provisions of the Insurance Law and is, therefore, a nullity. Or put more concretely, the issue is whether the Superintendent of Insurance may adopt a regulation to control the masking of a group insurance arrangement, subject to close statutory and administrative regulations, under the guise of issuing individual policies by which a salesman of insurance in complicity with a union-management welfare fund may enhance his commissions.

Plaintiff Benjamin Ostrer is a duly licensed life insurance agent who is in the business of soliciting and placing life insurance coverage for members of union-management welfare funds. Ostrer had an agency relationship with the International Life Insurance Company of Buffalo. Under the terms of this agency agreement with the insurance carrier, Ostrer was to receive a commission on each individual life insurance policy he placed with the company equal to 55% of the first-year premium. The rate of commission applicable to the placement of a single policy covering a group of individuals was substantially lower.

In the spring of 1973, plaintiff successfully arranged for the placement with International Life of a life insurance program to be sponsored by the Airline, Aerospace and Affiliated Employees Severance Fund for Local 732. The assets of this union-management welfare fund were contributed pursuant to the terms of a collective bargaining agreement. Instead of providing for a single-group policy to cover all fund members, plaintiff arranged with the trustees of the fund for a program whereby each member would be issued a uniform individual policy with terms prearranged by the trustees of the fund and the insurance carrier. Ostrer was, thus, able to claim the benefits of the higher commission rate applicable to individual policies. Regulation 65, which took effect prior to payment of the commission to Ostrer, limits his commission to no more than 5.2% of the annual premium of each policy. (11 NYCRR 202.2.) Relying upon the duly promulgated regulation, the insurance carrier refused to pay Ostrer the full commission specified in the agency agreement.

Plaintiff brought an action to invalidate regulation 65. After a trial, Special Term found in favor of the plaintiff and held that regulation 65 conflicted with subdivision 4 of section 213 of the Insurance Law. The Appellate Division affirmed. We conclude that regulation 65 is a valid exercise of powers conferred upon the Superintendent of Insurance by statute, that the regulation does not conflict with any provision of the Insurance Law, and that the order of the Appellate Division should be reversed.

Subdivision 4 of section 213 of the Insurance Law establishes, as a general principle, that the first-year commission on the sale of life insurance may be as great as 55% of the first-year premium. Plaintiff argues that regulation 65 reduces the maximum commission level below the rate established by statute and must, therefore, be invalidated. However, subdivision 11 of section 213 specifically excludes group insurance from the expense limitations provided elsewhere in the statute. Thus, the threshold question is whether it was reasonable for the Superintendent of Insurance to conclude that the mass- merchandising of identical policies to members of a defined group was, in reality, a form of group insurance. If the classification was reasonable, subdivision 4 of section 213 is no bar to the regulation.

Group life insurance is defined by statute to include a policy issued to the trustees of a fund established by two or more employers in the same industry or labor unions to insure employees of the employer or members of the unions. The basic requirements are that the persons eligible for insurance be employees or union members; that the premium be paid by the trustees from fund assets; that the policy include at least 25 persons on the date of issue; and that the amounts of insurance available under the policy be fixed. (Insurance Law, § 204, subd. 1, par. (d).) We conclude that the Superintendent of Insurance could reasonably exercise his broad regulatory powers to prevent a collusive arrangement between an insurance salesman and the trustees of a union-management welfare fund from masking a group insurance program through the mass issuance of standard individual policies, pursuant to a common plan to fund members.

The superintendent has wide authority to "prescribe, in writing, official regulations, not inconsistent with the provisions of this chapter * * * interpreting the provisions of this chapter". (Insurance Law, § 21.) Further, the superintendent possesses whatever powers may be "reasonably implied" from the statute. (Insurance Law, § 10.) The courts have consistently recognized that these provisions vest the superintendent "with broad power to interpret, clarify, and implement the legislative policy". (Breen v. Cunard Lines S. S. Co., 33 N.Y.2d 508, 511, 355 N.Y.S.2d 333, 335, 311 N.E.2d 478, 480) Provided that his regulatio are not inconsistent with some specific statutory provision, the superintendent may prescribe regulations "to effectuate any of the powers given to him by law" (Matter of B. & R. Excess Corp. v. Thacher, 37 Misc.2d 307, 309, 234 N.Y.S.2d 486, 488 aff'd 18 A.D.2d 1137, 239 N.Y.S.2d 531), including any powers that the statute reasonably implies.

The function of a reviewing court is a limited one. The challenger of a regulation must establish that the regulation "is so lacking in reason for its promulgation that it is essentially arbitrary." (Matter of Marburg v. Cole, 286 N.Y. 202, 212, 36 N.E.2d 113, 117.) The interpretation given a statute by the administering agency "if not irrational or unreasonable, should be upheld." (Matter of Howard v. Wyman, 28 N.Y.2d 434, 438, 322 N.Y.S.2d 683, 686, 271 N.E.2d 528, 529.) As was observed in Mississippi Val. Barge Co. v. United States, 292 U.S. 282, 286-287, 54 S.Ct. 692, 694, 178 L.Ed. 1260), "(t) he judicial function is exhausted when there is found to be a rational basis for the conclusions approved by the administrative body."

There is ample warrant in the record to support the conclusion of the superintendent that mass-merchandised, standard individual policies issued to members of a group are the functional equivalent of a single-group...