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August 07, 2020

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New York Regulatory Action a Reminder That Insurers Cannot Outsource Their Regulatory Responsibilities

The New York Department of Financial Services’ (“DFS”) recently announced an extraordinary regulatory action in which two insurers have entered into a Consent Order with the DFS under which one of the insurers will pay a $15 million fine and the second insurer will provide approximately $40 million in remediation for alleged violations of New York insurance laws and regulations.

According to the DFS, the regulatory actions taken against the insurers were the result of a market conduct examination which found that required information such as premium notices, annual reports, cash surrender value notices, and annual privacy notices were not provided to approximately 15,000 policyholders from 2015 to 2017.

The DFS indicated the alleged violations were the result of one of the insurers ceding its life insurance business through several reinsurance agreements to a reinsurer and then entering into an administrative services agreement to have the reinsurer administer the policies. The reinsurer then outsourced the data system conversion and administration of the life business to an unaffiliated TPA.

Per a recent press release issued by the DFS, New York Insurance Superintendent Maria Vullo stated, “Insurers who outsource their responsibilities to third parties are still responsible to meet all of their obligations under the law…Given the increased frequency with which insurers use third party providers, insurers will be held accountable for any failures to meet their legal obligations even if that failure was the fault of a third party provider.”

This extraordinary and significant regulatory action taken by the DFS against these insurers is a reminder that even in a state like New York, in which the DFS doesn’t license and regulate TPAs, insurers cannot outsource their regulatory responsibilities and may be held strictly liable for alleged violations of insurance laws committed by TPAs or other third party providers.

© Polsinelli PC, Polsinelli LLP in CaliforniaNational Law Review, Volume VIII, Number 194


About this Author

Steven L. Imber, Polsinelli PC, Insurance Regulatory Attorney, Enforcement Actions Lawyer,

Steve Imber chairs Polsinelli's Insurance Business and Regulatory group.  As a former General Counsel at a state insurance department, Steve Imber has the knowledge and experience to provide quality counsel to insurers, third party administrators, insurance agencies, medical discount plans and other insurance regulated entities. His practice includes representing and assisting clients on multi-state and national licensing projects, research projects, enforcement actions, market conduct examinations, audits and compliance programs and various other regulatory and...


Justin Liby has a talent for organizing and managing large national and multi-state licensure and research projects. This knack provides him with a solid foundation for crafting and implementing sound, efficient strategies that achieve success for his clients. Justin concentrates his efforts on helping the insurance industry navigate the formidable federal and state regulatory maze to achieve the industry’s business needs. He stays current in the insurance industry's evolution, as well as the legislation and regulatory activity impacting the industry.

Justin is a former regulator for the Kansas Insurance Department and in-house counsel for a national third-party administrator.


Jennifer Osborn Nix works diligently for insurance companies, third-party administrators, and other regulated entities to further their goals and help them remain compliant within the 50-state regulatory scheme. She focuses on insurance regulatory and compliance issues, with a primary emphasis on life and health insurance matters.

Jennifer works with many regulated entities, including many in the health care sector, who rely on her for research, advice, strategic counsel, and licensing.