New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
ONE COMMERCE PLAZA
ALBANY, NEW YORK 12257

David A. Paterson
Governor

Eric R. Dinallo
Superintendent

The Office of General Counsel issued the following opinion on April 23, 2007, representing the position of the New York State Insurance Department.

Re: 1033 Waiver Pursuant to 18 U.S.C. § 1033

Questions Presented:

1) Does a felony conviction under 18 U.S.C. § 1014 constitute a felony involving dishonesty or breach of the trust within the meaning of 18 U.S.C. § 1033 (hereinafter, “disqualifying conviction”)?

2) May an insurer employ a person who has a disqualifying conviction as an in-house staff attorney or as a claims examiner or adjuster?

3) May a person with a disqualifying felony conviction be employed by an unaffiliated law firm that is retained by an insurer to defend its insureds in third-party lawsuits?

Conclusions:

1) Yes.  A felony conviction under 18 U.S.C. § 1014 constitute a felony involving dishonesty or breach of the trust within the meaning of 18 U.S.C. § 1033.

2) An insurer may not employ a person who has a disqualifying conviction, including as an in-house staff attorney or as a claim examiner or adjuster whose activities affect interstate commerce and the business of insurance, unless the person has obtained written consent from any insurance regulatory official authorized to regulate the insurer, such as the Superintendent of Insurance of the State of New York.

3) A person with a disqualifying felony conviction may be employed by an unaffiliated law firm that is retained by an insurer to defend its insureds in third-party lawsuits.

Facts:

The inquirer reports that he is presently an attorney in good standing with the New York State Bar. The inquirer also reports that he has a felony conviction for a violation of 18 U.S.C. § 1014 arising from post-dated checks tendered by a purchaser to a seller at a real estate closing. The inquirer states that the conviction resulted in suspension from the practice of law but that he has been reinstated to the bar. The inquirer asks whether the conviction prevents him from lawfully obtaining employment with an insurer or a law firm that represents insurers in litigation.

Analysis:

The Violent Crime Control and Law Enforcement Act of 1994, 18 U.S.C. § 1033(e) (the “Act”) prohibits a person who has been convicted of a felony involving dishonesty or breach of the trust, or of an offense under 18 U.S.C. § 1033 whose activities affect interstate commerce, from engaging in the “business of insurance” unless the person has obtained written consent from any insurance regulatory official authorized to regulate the insurer, such as the Superintendent (“1033 waiver”). The statute reads, in relevant part, as follows: 

(e) (1) (A) Any individual who has been convicted of any criminal felony involving dishonesty or a breach of trust, or who has been convicted of an offense under this section, and who willfully engages in the business of insurance whose activities affect interstate commerce or participates in such business, shall be fined as provided in this title or imprisoned not more than 5 years, or both.

(B) Any individual who is engaged in the business of insurance whose activities affect interstate commerce and who willfully permits the participation described in subparagraph (A) shall be fined as provided in this title or imprisoned not more than 5 years, or both.

(2) A person described in paragraph (1)(A) may engage in the business of insurance or participate in such business if such person has the written consent of any insurance regulatory official authorized to regulate the insurer, which consent specifically refers to this subsection.

(f) As used in this section—

(1) the term "business of insurance" means--

(A) the writing of insurance, or

(B) the reinsuring of risks,

by an insurer, including all acts necessary or incidental to such writing or reinsuring and the activities of persons who act as, or are, officers, directors, agents, or employees of insurers or who are other persons authorized to act on behalf of such persons; . . .

At issue here is a conviction under 18 U.S.C. § 1014, a Class B felony pursuant to 18 U.S.C. § 3599. Section 1014 makes it a crime to knowingly make any false statement or report, or willfully overvalue any land, property or security for the purpose of influencing the action of certain entities, such as banks and credit unions, “upon any application, advance, discount, purchase, purchase agreement, repurchase agreement, commitment, or loan, or any change or extension of any of the same, by renewal, deferment of action or otherwise, or the acceptance, release, or substitution of security therefor . . . .”

As noted above, a disqualifying felony under 18 U.S.C. § 1033 is one that involves dishonesty or breach of trust. “Dishonesty” is commonly defined to include, inter alia, lying or otherwise deceiving another.  See Webster’s NewWorld Dictionary: Second College Edition at 404 (1980). Given that an element of an 18 U.S.C. § 1014 crime is the making of a false statement or report, or an overvaluation, in the Department’s view, a felony conviction under 18 U.S.C. § 1014 is, in the Department’s view, a criminal felony involving “dishonesty” within the meaning of the Act.

The term “business of insurance,” as defined in 18 U.S.C. § 1033(f)(1), includes the writing of insurance or the reinsuring of risks, and all acts necessary or incidental to such writing or reinsuring, which activities affect interstate commerce. The term also includes the activities of persons “who act as, or are, officers, directors, agents, or employees of insurers or other persons authorized to act on behalf” of the insurer. Thus, an in-house counsel for an insurer engages in the “business of insurance” by virtue of the attorney’s status as an employee. Accordingly, to hold such a position, the inquirer would have to obtain the requisite waiver.

Employment as an attorney at an unaffiliated law firm that is retained by an insurer to defend its insureds in third-party lawsuits, however, is a different matter. The attorney is the employee of the law firm and not, absent other circumstances, a director, officer or employee of the insurer. See Opinion of General Counsel No. 02-07-24 (July 24, 2002) (opining that an employee of a company that provides credit information to insurers for underwriting purposes is not an employee of an insurer). Nor does the position typically involve the writing of insurance or reinsurance of risks, or acts that are necessary or incidental to such writing or reinsuring. See Opinion of Office of General Counsel No. 05-05-16 (May 10, 2005) (opining that a 1033 waiver is required for an adjuster’s license).

Further, although the attorney represents the insured in litigation, it is the Department’s view that such representation does not constitute acting as an agent of an insurer or otherwise as a person authorized to act on behalf of officers, directors, agents, or employees of the insurer within the meaning of the Act. As a general rule, statutes defining crimes are strictly construed. See United States v. Moore, 423 U.S. 122, 145 (1975). Further, a statute’s “words are given their fair meaning in accord with the manifest intent of the lawmakers.” Id. citing United States v. Brown, 333 U.S. 18, 25-26 (1948). Although there is nothing in the legislative history that illuminates the scope of these terms, the language of the statute evidences an intent to safeguard all activities necessary and incidental to the “business of insurance.” Thus, the canon of construction noscitur a sociis (“a word is known by the company it keeps”) is instructive here. “The maxim noscitur a sociis . . . while not an inescapable rule, is often wisely applied where a word is capable of many meanings in order to avoid the giving of unintended breadth to the Acts of Congress.” See Jarecki v. G. D. Searle & Co., 367 U.S. 303, 307 (1961).  If applied broadly, the statute’s use of the word “agent” and the phrase “who are other persons authorized to act on behalf of such persons” could apply in situations unassociated with insurance.  Applying the legislative intent and the cannon noscitur a sociis, the Department is of the view that these terms should be limited to persons who engage in activities that are necessary or incidental to the writing of insurance or the reinsuring of risks.

Given these circumstances, a 1033 waiver is not required for employment as an attorney at an unaffiliated law firm that is retained by an insurer to defend its insureds in third-party lawsuits. That said, please note that the Department’s opinion that a waiver is not required in this instance is informal, and not binding upon any court. Further, the Department does not have jurisdiction over any criminal prosecution for violation of 18 U.S.C. § 1033, a federal statute.

For further information you may contact Senior Attorney Brenda Gibbs at the Albany Office.