Insurance Circular Letter No. 13 (2022)
November 21, 2022
All Insurers, Licensed Insurance Producers, Licensed Fraternal Benefit Societies, the New York Automobile Insurance Plan, the New York Property Insurance Underwriting Association, the New York State Insurance Fund, the New York Medical Malpractice Insurance Plan, and the Excess Line Association of New York
Cannabis-Related Criminal Convictions and Insurance Underwriting
STATUTORY REFERENCES: N.Y. Executive Law § 296(16); N.Y. Criminal Procedure Law §§ 1.20(45) and 160.50(3)(k) and (5)(a); and N.Y. Insurance Law §§ 2303 and 4224
The purpose of this circular letter is to provide guidance to all insurers, licensed insurance producers, licensed fraternal benefit societies, the New York Automobile Insurance Plan, the New York Property Insurance Underwriting Association, the New York State Insurance Fund, and the New York Medical Malpractice Insurance Plan (collectively, “issuers”) and the Excess Line Association of New York regarding changes in the New York Criminal Procedure Law (“CPL”) that have resulted in the expungement of certain cannabis-related convictions and to remind issuers that they must implement and maintain procedures and controls to ensure that they neither inquire about nor take adverse action based upon any arrest or conviction specified in Executive Law § 296(16), including expunged cannabis-related convictions.
Some issuers use past criminal convictions when underwriting certain types of life insurance, accident and health insurance, and property/casualty insurance. The use of past convictions in underwriting includes: (1) deciding whether to accept or deny an application for insurance; (2) making a distinction in premiums or rates; or (3) making a distinction in the terms and conditions of coverage, where permitted by the New York Insurance Law. Issuers obtain information about criminal convictions through application questions or by using third-party data sources to obtain criminal conviction records.
In 2019, the Legislature added and then amended CPL § 160.50(5), providing for the expungement of certain marihuana-related records, as Chapters 131 and 132 of the Laws of 2019. In 2021, the Marihuana Regulation & Taxation Act (“MRTA”) was signed into law on March 1, 2021 as Chapter 92 of the Laws of 2021. The MRTA repealed Penal Law Article 221, which made the possession, use, and sale of marihuana illegal, and added a new Article 222 to legalize adult-use cannabis (also known as marihuana or recreational marihuana). The MRTA further created a new Office of Cannabis Management governed by a Cannabis Control Board (collectively, the “OCM”) to oversee and implement the MRTA. The OCM will issue licenses and develop regulations outlining how and when people can participate in the new adult-use cannabis industry.
A major focus of the MRTA is social and economic equity. The MRTA incentivizes participation in the new adult-use cannabis industry for individuals disproportionally impacted by the previous prohibition against the possession, use, and sale of marihuana, expunges certain cannabis-related criminal convictions, and invests a portion of the adult-use cannabis tax revenue in the New York State Community Grants Reinvestment Fund, which is to be used in communities disproportionately affected by past federal and state drug policies to support job placement, job skills services, adult education, mental health treatment, substance use disorder treatment, housing, financial literacy, and community banking, among other things.
Since the MRTA decriminalized the possession, sale, or use of marihuana and expunged certain cannabis-related criminal convictions, the Department of Financial Services is providing guidance to remind issuers to have procedures and controls in place to ensure that they neither inquire about nor take adverse action based upon any arrest or conviction specified in Executive Law § 296(16), including expunged cannabis-related convictions.
Executive Law § 296(16) applies to unlawful discriminatory practices and states in relevant part that:
[i]t shall be an unlawful discriminatory practice, unless specifically required or permitted by statute, for any person, agency, bureau, corporation or association, including the state and any political subdivision thereof, to make any inquiry about, whether in any form of application or otherwise, or to act upon adversely to the individual involved, any arrest or criminal accusation of such individual not then pending against that individual which was followed by a termination of that criminal action or proceeding in favor of such individual as defined in subdivision two of section 160.50 of the criminal procedure law, or by an order adjourning the criminal action in contemplation of dismissal, pursuant to section 170.55, 170.56, 210.46, 210.47, or 215.10 of the criminal procedure law, or by a youthful offender adjudication, as defined in subdivision one of section 720.35 of the criminal procedure law, or by a conviction for a violation sealed pursuant to section 160.55 of the criminal procedure law or by a conviction which is sealed pursuant to section 160.59 or 160.58 of the criminal procedure law, in connection with the…providing of…insurance to such individual….
The MRTA amended CPL § 160.50(3)(k) to provide for the termination of certain cannabis-related convictions. CPL § 160.50(5)(a) provides for the expungement of certain marihuana-related records and states in relevant part that:
[a] conviction for an offense described in paragraph (k) of subdivision three of this section shall, on and after the effective date of this paragraph, in accordance with the provisions of this paragraph, be vacated and dismissed, and all records of such conviction or convictions and related to such conviction or convictions shall be expunged, as described in subdivision forty-five of section 1.20 of this chapter, and the matter shall be considered terminated in favor of the accused and deemed a nullity, having been rendered by this paragraph legally invalid. All such records for an offense described in this paragraph where the conviction was entered on or before the effective date of the chapter of the laws of 2019 that amended this paragraph shall be expunged promptly and, in any event, no later than one year after such effective date.
Thus, inquiring about or acting adversely based upon a New York cannabis-related expunged conviction as specified in the CPL would violate Executive Law § 296(16). In addition, since an expungement restores the accused to the status that the individual occupied before the arrest and any enforcement activity, to inquire about or act adversely based upon the expunged conviction would result in unfair discrimination between individuals of the same class in violation of Insurance Law § 2303 or 4224.
Pursuant to Executive Law § 296(16), an issuer also may not inquire about, or act adversely based upon:
- an arrest or criminal accusation not pending against a person that has been terminated in the person’s favor;
- a criminal action that has been adjourned in contemplation of dismissal and has not been restored to the calendar for further prosecution;
- a youthful offender adjudication;
- a conviction for a violation sealed pursuant to CPL § 160.55; and
- a conviction sealed pursuant to CPL § 160.59 or 160.58.
An issuer should have procedures and controls in place to prevent the issuer from inquiring about or acting adversely based upon any of the arrests or convictions specified in Executive Law § 296(16), including denying applications, making a distinction in premiums or rates, or making a distinction in the terms and conditions of insurance. Issuers must review their procedures and controls and update them, as needed, to ensure that they address recently expunged cannabis-related convictions, as well as other arrests or convictions specified in Executive Law § 296(16).
If issuers include a general question about past criminal convictions on applications for insurance, issuers must have procedures or controls in place to ensure that they are not inquiring about or acting adversely based upon any convictions specified in Executive Law § 296(16) during the underwriting process. Procedures or controls may include instructing applicants at the time of application that an applicant may respond to questions about convictions specified in Executive Law § 296(16) as if the convictions did not occur.
Issuers must also have procedures and controls in place to ensure that they do not act adversely based upon any of the arrests or criminal convictions specified in Executive Law § 296(16) that may appear in third-party data sources that issuers use to obtain criminal record information.
It is an unlawful discriminatory practice to inquire about or act adversely based upon any arrest or conviction specified in Executive Law § 296(16), including an expunged cannabis-related criminal conviction. Issuers may not deny an application for insurance, make a distinction in premiums or rates, make a distinction in the terms and conditions of insurance, or otherwise adversely underwrite based on any such arrest or conviction. Issuers must review their procedures and controls and update them, as needed, to ensure that they do not inquire about or act adversely based upon any such arrests or convictions, including newly expunged cannabis-related convictions.
Please direct any questions regarding this circular letter by email to [email protected].
Very truly yours,
Kevin J. Bishop
Acting General Counsel
 CPL §1.20(45) defines “expunge” to mean “where an arrest and any enforcement activity connected with that arrest, including prosecution and any disposition in any New York state court, is deemed a nullity and the accused is restored, in contemplation of the law, to the status such individual occupied before the arrest, prosecution and/or disposition; that records of such arrest, prosecution and/or disposition shall be marked as expunged or shall be destroyed as set forth in section 160.50 of this chapter. Neither the arrest nor prosecution and/or disposition, if any, of a matter deemed a nullity shall operate as a disqualification of any person so accused to pursue or engage in any lawful activity, occupation, profession or calling. Except where specifically required or permitted by statute or upon specific authorization of a superior court, no such person shall be required to divulge information pertaining to the arrest, prosecution and/or disposition of such a matter.”