The National Rifle Association announced May 11 that it has filed suit against the New York State Department of Financial Services; its superintendent, Maria T. Vullo; and the state’s governor, Andrew Cuomo, alleging the state and its agents violated the NRA’s First Amendment rights in a recent regulatory ruling.

I will leave to constitutional scholars to debate the First Amendment question. But in terms of regulating the business of insurance in an effective, efficient, and nonpoliticized manner — a topic about which I am the author of an annual report — the department’s behavior sets a dangerous precedent that should trouble citizens across the political spectrum.

The lawsuit stems from settlements the DFS reached earlier this month with Kansas City–based insurance broker Lockton Cos. and underwriter Chubb Ltd. The companies were fined $7 million and $1.3 million, respectively, in connection with alleged violations of New York insurance law. The purported wrongdoing stemmed from Lockton’s work as broker for the NRA’s “Carry Guard” insurance program, which provides liability insurance to NRA members for firearm-related accidents and for legal costs in self-defense cases.

The charges against Lockton varied from the technical to the flimsy to the picayune, but they all give the appearance of pretext for what the department was actually seeking, and got: a consent decree in which the broker agrees “not to participate in the Carry Guard Program, any similar programs, or any other NRA-endorsed programs with regard to New York State.”

In fact, Lockton had already cut ties with the NRA, one of a number of corporate partners to do so in the wake of the mass shooting at Marjory Stoneman Douglas High School in Parkland, Fla. But the Department of Financial Services has made clear its willingness to pressure other firms to do the same. In an April letter from Vullo to the state’s banks and insurance companies, she wrote that the department “encourages its chartered and licensed financial institutions to continue evaluating and managing their risks, including reputational risks, that may arise from their dealings with the NRA or similar gun promotion organizations.”

Ironically, we have simultaneously seen recent legislative efforts by some gun-control advocates, including in the general assembly of neighboring Connecticut, to actually require gun owners to maintain liability insurance. The type of coverage usually envisioned by such proposals, which would compensate the victims of offensive uses of firearms, is unlikely ever to come to market, as intentional acts are generally agreed to be uninsurable. But as a result of the New York regulator’s action, one expects a chilling effect that would cause insurers to withdraw from offering even the more limited coverage included in the NRA program, or in many homeowners insurance policies.

Indeed, Lloyd’s of London, the world’s largest market for hard-to-place risks, has responded by directing its underwriters “to terminate any existing programs of this type and not to enter into any new ones,” with specific reference to concerns about the New York DFS inquiry into “programs offered, marketed, endorsed or otherwise made available through the National Rifle Association of America.” The Lloyd’s decision was a feature, not a bug, of the department’s action. The goal pretty clearly was to use the regulator’s office, which is supposed to apply impartial, technocratic rules to see to it that insurance companies responsibly and competently manage their underwriting and investment risks and that they deal with consumers in good faith, to achieve political ends.

This temptation is not unique to the political Left. In early 2015, Oklahoma insurance commissioner John Doak issued a warning shot to property insurers in the state who might seek to invoke exclusions for “manmade” earthquakes stemming from oil and gas exploration. Despite strong evidence that deep-well injections play a role in the thousands of earthquakes Oklahoma experiences every year, Doak asserted there was “no agreement at a scientific or governmental level concerning any connection between injection wells or fracking and ‘earthquakes.’”

Seeing regulators open this Pandora’s box should be deeply concerning to those on both the right and the left. One easily could imagine similar motivated prosecutions of financial-services firms that do business with Planned Parenthood, tobacco companies, tech firms, the solar industry, or even the political campaigns of rival parties. The precedent set by these blatantly political regulatory actions undermines not only the insurance market, but the rule of law.


Image credit: a katz

Featured Publications