## Facts

- Benjamin Ostrer was licensed to sell life insurance in New York and commonly received commissions as high as 55% of an individual life policy’s first-year premium, consistent with limits set by the Insurance Law for individual policies.
- The Superintendent of Insurance, Benjamin Schenck, adopted a regulation limiting agent commissions to no more than 5.2% of the annual premium for certain policies treated as group insurance in practice.
- The regulation applied to insurance issued to trustees of funds established by (i) two or more employers in the same industry for employees’ benefits or (ii) labor unions for members’ benefits, where premiums were paid from fund assets by the trustees.
- The regulation was adopted after public concern about abuses in the administration of employer contributions to union welfare funds and the costs associated with the marketing and sale of insurance through those funds.
- The regulation applied where 25 or more employees or union members were insured under an arrangement providing a fixed amount of insurance, with premiums paid from the welfare fund.
- Ostrer arranged with trustees of a union welfare fund to provide coverage to fund members through multiple “individual” policies rather than a single group policy.
- Although the coverage was financed through fund assets, issuing individual policies allowed Ostrer to claim higher commissions tied to individual-policy commission limits.
- Some of the individual policies provided less favorable features for insured members than a true group policy would have; for example, coverage could terminate after a period of unemployment and require later reinstatement, unlike typical continuous group coverage.
- When Ostrer sought payment of the higher commissions for the individual policies, the carrier refused to pay the full amount, applying the commission limitation reflected in the superintendent’s regulation.
- Ostrer sued the superintendent seeking to invalidate the regulation as inconsistent with the Insurance Law; the trial court held the regulation invalid, and the Appellate Division affirmed.
- The superintendent appealed to the New York Court of Appeals.

## Issues

1. Did the Superintendent of Insurance act within statutory authority in limiting commissions to 5.2% for welfare-fund, group-type life insurance arrangements, even when marketed through multiple individual policies, or did the regulation conflict with the Insurance Law’s commission provisions?

## Decision

- The New York Court of Appeals reversed the lower courts.
- The court upheld the regulation as a valid exercise of the superintendent’s authority to regulate insurance practices, including commission practices, in welfare-fund arrangements functioning as group insurance.
- The court rejected the argument that statutory commission limits for individual policies guaranteed an agent the right to collect the higher individual-policy commission in transactions that were, in substance, group-type placements funded and administered through a welfare fund.

## Legal Principles

- An insurance regulator may set commission limits for insurance arrangements that function as group coverage through union or multiemployer welfare funds, even if coverage is issued in the form of separate individual policies.
- Statutory provisions permitting higher maximum commissions on individual policies do not necessarily confer an entitlement to those commissions when the transaction is structured to avoid group-related controls.
- Courts generally uphold insurance regulations that reasonably implement the Insurance Law’s purposes and address evasive marketing structures, absent a direct conflict with explicit statutory text.
- In reviewing an agency rule in a heavily regulated field, a court gives substantial weight to the regulator’s reasonable construction of the statutory scheme and its choice of methods to curb identified abuses.

## Conclusion

The Court of Appeals upheld the superintendent’s commission-limiting regulation for welfare-fund life insurance arrangements, holding that the superintendent could cap commissions at the group-type level where the program, though issued as multiple individual policies, operated as fund-sponsored coverage for a large class of members paid from welfare-fund assets.


Ostrer v. Schenck, 41 N.Y.2d 782, 364 N.E.2d, 396 N.Y.S.2d 335 (1977)