Ostrer v. Schenck

Benjamin Ostrer (plaintiff) was licensed to sell life insurance in the state of New York. Ostrer typically collected commissions up to 55 percent of an individual life-insurance policy’s first-year premium, as was authorized by state insurance law. However, a regulation that was promulgated by the superintendent of insurance, Benjamin Schenck (defendant), limited commissions that Ostrer could collect on the sale of group insurance policies to no more than 5.2 percent of the annual premium of each policy when the policies were issued to trustees of funds established by two or more employers in the same industry for the benefits of their employees or by labor unions for the benefits of their members. The regulation limiting Ostrer’s commissions was promulgated in response to public outcry against abuses in management of funds contributed by employers to union welfare funds for the benefit of union members and their dependents. The regulation applied when 25 or more employees or union members were insured by a policy that offered a fixed amount of insurance, and for which premiums were paid from fund assets by fund trustees. However, Ostrer entered an arrangement with the trustees of a union welfare fund to provide individual policies to the fund’s members as opposed to a single group policy covering all the members. The policy premiums were paid from the fund’s assets but allowed Ostrer to claim higher commissions on the individual policies. In some instances, however, the policies provided inferior benefits to the fund members. For example, when members were temporarily laid off, their individual policies would terminate after a period of unemployment and would need to be reinstated with new premiums paid when work resumed; that would not have been the case with a group policy. When Ostrer attempted to collect commissions on the individual policies that he sold through the arrangement with the fund’s trustees, he was denied full payment by the insurance carrier. Ostrer then sued the superintendent of insurance to have the commission-limiting regulations invalidated. A state trial court found that the superintendent’s regulations conflicted with state insurance law and were invalid. An appellate-division court affirmed. The superintendent appealed.