A state appeals court has reinstated regulations on the title insurance industry enacted to prohibit insurers from wining and dining attorneys and real estate agents in exchange for business referrals and passing those costs along to consumers.
A panel from the Appellate Division, First Department on Tuesday reversed Manhattan Supreme Court Eileen Rakower’s order to annul the new regulations, promulgated by the state Department of Financial Services, on the grounds that they were arbitrary and capricious.
The new rules, called Insurance Regulation 208, prohibit insurers from offering tickets and other outings as inducements for business and restricts spending on meals and beverages to instances where there is no expectation that the recipient of the gifts intends to purchase insurance.
Writing for the panel, Justice Anil Singh said that DFS did not overreach its authority in putting forward the new rules.
Justices John Sweeny, Ellen Gesmer and Jeffrey Oing joined Singh on the unanimous decision.
In a statement issued after the ruling, DFS Superintendent Maria Vullo said the regulation will provide New Yorkers with relief from inflated insurance premiums.
“As I have maintained throughout this years-long process, the practice of using high-priced tickets, meals, lavish gifts and strip clubs as inducements for title insurance business is prohibited by New York Insurance Law, and those improper expenditures may not be passed on to consumers,” Vullo said.
Assistant Attorneys General Steven Wu and Matthew William Grieco appeared for DFS.
The New York State Land Title Association, which represents the title insurance industry and which has retained a team from Gibson, Dunn & Crutcher, argues that the regulations will “wreak havoc” on the industry and disrupt real estate markets.
Gibson Dunn partner Mylan Denerstein, who previously served as counsel to Gov. Andrew Cuomo, said the First Department’s ruling states that the DFS “overstepped its bounds on some issues.”
“In the end, the title insurance industry will continue to protect and serve New Yorkers as they make what is usually the most expensive purchase of their lives,” Denerstein said.
Gibson Dunn associates Akiva Shapiro and David Coon are also working on the case.
The new rules were enacted following a DFS investigation the title insurance industry’s activities from 2008 to 2012 and found eye-popping examples of insurers spending lavishly on their clients.
One insurer, according to court papers, spent between $2.5 million and $5.4 million on tickets to sporting events that were given to attorneys and other clients who were in a position to send business the insurer’s way.
Other insurers plunked down big sums for designer goods or trips to bars, strip clubs and Hooters restaurants, the First Department ruling states.
The department found that insurers were labeling these expenses as advertising and marketing costs; it estimated that, on average, about 5.3 percent of premiums charged violated state anti-inducement laws.