## Facts

- New York enacted reforms for the small-group health insurance market requiring community rating and open enrollment.
- The Superintendent of Insurance issued regulations: Part 360 (small-group rules, including “small group” scope) and Part 361 (a regional risk-sharing pool redistributing funds among small-group insurers based on demographic risk).
- Colonial Life, a small-group insurer, challenged mandatory participation in the Part 361 pool and aspects of Part 360 that required coverage for certain entities Colonial argued were outside the statutory definition of “small group.”
- Colonial alleged Part 361 assessments were an unconstitutional tax and an uncompensated taking, and that the Superintendent exceeded delegated authority by applying the pool to existing policies and by expanding “small group” in Part 360.
- In an Article 78 proceeding, the trial court upheld Part 361 but partially annulled Part 360 as exceeding statutory authority; both sides appealed.

## Issues

1. Whether Part 361’s mandatory risk-sharing pool exceeded delegated authority, including by applying assessments based on existing small-group business rather than only new policies.
2. Whether Part 361 assessments constituted an unconstitutional tax or an unconstitutional taking without just compensation.
3. Whether provisions of Part 360 exceeded delegated authority by expanding the statutory definition of “small group” to include entities not covered by Insurance Law § 3231(a).

## Decision

- The appellate court largely affirmed the trial court’s judgment on cross-appeals.
- Part 361 was upheld as a valid implementation of the statutory reforms, including the Superintendent’s decision to base risk-sharing on relevant small-group business without limiting it to post-effective-date policies.
- The court rejected the claims that Part 361 assessments were an unconstitutional tax or a taking.
- Part 360 was partially annulled; the court held that 11 NYCRR § 360.4(c) impermissibly expanded the statutory definition of “small group” by requiring coverage for individual proprietors or groups of two contrary to the statute’s plain language.
- Other challenged Part 360 provisions were assessed individually; those conflicting with statutory text were invalidated, while provisions reasonably implementing the reforms were sustained.

## Legal Principles

- An agency regulation is valid when it is within authority expressly granted or necessarily implied by statute and is reasonably related to legislative purposes.
- An agency may not contradict or enlarge a clear and unambiguous statutory definition, even to advance the statute’s general policy goals.
- Industry assessments tied to a regulatory program and earmarked to support that program may be treated as regulatory assessments rather than taxes where they do not raise general revenue.
- Mandatory payments imposed as conditions of participation in a regulated market generally do not constitute a compensable taking when they serve legitimate public purposes and do not amount to confiscation or denial of economically viable use.

## Conclusion

The court sustained New York’s small-group risk-sharing pool as a lawful regulatory assessment supporting community rating and open enrollment, while limiting the Superintendent’s rulemaking power by invalidating regulatory provisions that expanded the statutory definition of “small group” beyond the Legislature’s chosen terms.


Colonial Life Ins. Co. of Am. v. Curiale, 205 A.D.2d 58, 617 N.Y.S.2d 377 (N.Y. App. Div. 3d Dep’t 1994)