New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

George E. Pataki
Governor

Gregory V. Serio
Superintendent

The Office of General Counsel issued the following opinion on May 20, 2003, representing the position of the New York Insurance Department

RE: Election of Domestic Mutual Life Insurance Company Directors

Question Presented:

Is the board of directors of a domestic mutual life insurance company required under the New York Insurance Law to present to its policyholders, for their vote on an upcoming election, a slate of nominees for openings on the board of directors that includes individuals nominated by the policyholders?

Conclusions:

Under N.Y. Ins. Law § 4210 (McKinney 2000) if the statutorily required number of policyholders have not presented an independent slate of director nominees, a domestic mutual life insurance company is only required to present to its policyholders for election a slate of nominees selected by the existing board of directors.

Facts:

A policyholder of a New York domestic mutual life insurance company provided the Department with a copy of a letter addressed to the policyholder dated March 28, 2003 from the insurer concerning its election of directors. According to this letter, the policyholder had written to the Chairman of such insurer, returning the election ballot marked with notations indicating displeasure with the election process. The ballot, a copy of which was sent to the Department, contained only the names of individuals recommended for nomination as directors by the current directors.

In its letter, the insurer informed the policyholder that the slate of candidates for directors that was presented for voting purposes was nominated by the Board, the individuals having been recommended for nomination as directors by the Governance Committee of the Board of Directors. It also states that under the New York State Insurance Law policyholders may also submit independent nominations for the Board, subject to the requirements provided therein. It was noted therein that this ballot did not provide any alternatives to the nominees presented by the Board because it is an "uncontested election."

Analysis:

The election of directors of domestic mutual life insurance companies is governed by N.Y. Ins. Law § 4210 (McKinney 2000). This statute contains very comprehensive provisions relating to the conduct and supervision of elections of directors by policyholders of domestic mutual life insurance companies.

Under subsection (a)(3)(A) of § 4210, a "policyholder" is the person insured under an individual life insurance policy or accident and health insurance policy or the person to whom an annuity or pure endowment benefit is payable under an individual annuity or pure endowment contract, if such person is the applicant for insurance. Under the statute, participating policyholders and annuity contract holders, and certain nonparticipating policyholders and annuity contract holders, whose policy or contract have been in force for at least one year prior to any election, are entitled to vote in an election of directors. Each policyholder is only entitled to one vote no matter how may policies or contracts he or she has with the insurance company.

Section 4210, among other things, addresses how individuals are selected as nominees for election to the board of directors. Section 4210(g) provides that at least seven months prior to the date of any election of directors for a mutual life insurance company, the board of directors must nominate candidates for every vacancy to be filled at the election. The board is further required to file the names of the candidates nominated and the persons designated to receive the proxies with the Superintendent and the insurance company’s home office.

However, the statute also provides the option for additional nominations of other individuals to be made by a percentage of policyholders. Such nominations are referred to in the statute as "independent nominations." If any independent nominations are made, then the election is referred to as a "contested election." Under Subsection (h)(1)(A) of § 4210, policyholders of domestic mutual life insurance companies, which have over one hundred thousand policies or contracts in force in its last preceding election, each in the amount of one thousand dollars or more, who would be qualified to vote in the next election and who at least equal a certain specified percentage or number of the total policies in force, may nominate individuals, other than those presented by the board, for election to vacancies. Pursuant to § 4210(c) the policyholders must file with the Superintendent, at least five months prior to the election, a certificate giving the names and addresses of the candidates nominated and the names and addresses of three persons designated to receive proxies to be voted for these nominees, and a name or title designated by the Superintendent to distinguish the ticket from the administration ticket. After a review or a hearing the Superintendent may certify such a certificate.

Pursuant to Section 4210(c)(2), to enable policyholders to canvass other policyholders in a contested election, if one or more independent nominations are made, then a complete list or card catalogue of the names of all policyholders eligible to vote is required to be filed by the insurance company within forty-five days after a copy of the certificate of these nominations, certified by the Superintendent and filed at the home office of the insurance company.

N.Y. Codes R. & Regs., tit 11, Part 3 (Regulation 14-A) (1996) implements § 4210, and § 3.1 requires every domestic life insurance company to provide a notice on all of its life insurance premium receipts and annuity contract payment receipts of the right of the policyholder or contract holder to vote at the annual election of the directors and indicating that pursuant to the statute, groups of policyholders and contract holders have the right to nominate one or more independent tickets.

The New York Insurance Law and Regulation 14-A establishes a framework that enables fair and open elections of directors of domestic mutual life insurance companies. The fact that in any one particular election no group of policyholders may choose to go through the steps necessary to bring about a contested election does not mean that the uncontested election that results is in any sense unfair or undemocratic. The opportunity to present alternative nominees exists.

For further information you may contact Associate Attorney Barbara A. Kluger at the New York City Office.