The Latest Court Decision Striking Down Regulation 208 Is A For Title Insurers.

Author:Gabay, Sari

* On August 2, 2019, Honorable Eileen A. Rakower of the Supreme Court of the State of New York, New York County, resolved certain remaining causes of action concerning the title insurance industry's challenge to the Department of Financial Services' ("DFS") Insurance Regulation 208 which affected marketing and advertising practices and certain premium rate cuts.

By way of background, on February 20, 2018 the New York State Land Title Association, Inc. and other petitioners filed an Article 78 proceeding to annul Regulation 208 on the grounds that the provisions were "arbitrary and capricious." The Supreme Court granted the Petition and annulled the Regulation which was an initial victory for title insurance agents.

However, DFS appealed and title insurers continued to advocate against the Regulation. On January 15, 2019, the Appellate Division affirmed the Supreme Court's decision in part, reversed in part, and remanded certain causes of action of the Petition back to Honorable Rakower.

Specifically, the issues on remand concerned: (1) whether Section 228.3's rate reduction violate the Insurance Law and should be annulled; (2) whether the limitations imposed by Section 228.2 are so vague as to violate of the Due Process Clause of the U.S. Constitution; (3) whether the Regulation violates the First Amendment and (4) whether the Regulation violates DFS's authority under the State Administrative Procedures Act.

Notably, the Supreme Court invalidated the Regulation based on constitutional grounds. With respect to the due process argument, the court explained that a regulation violates due process when it "fails to provide a person of ordinary intelligence fair notice of what is prohibited, or is so standardless that it authorizes or encourages seriously discriminatory enforcement." The court reasoned that because Section 22.8.2(c) does not define "reasonable and customary" yet not "lavish and excessive" this "gray area in between" is so unclear "it also has the potential to chill companies from engaging in such type of conduct whatsoever." As such, the Regulation could be arbitrarily enforced since the standard of what is "reasonable" but not "lavish and excessive" is subject to a variety of interpretations. Such vague language, according to the court, violates due process.

The court also found that Section 228.2 (c)'s restrictions on political...

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