By Leslie Scism
American International Group Inc. sued New York's top financial
watchdog on Thursday, escalating a potentially costly licensing
dispute into an unusual confrontation with one of AIG's primary
regulators.
The global insurer filed a lawsuit in federal court in Manhattan
Thursday afternoon, seeking a ruling that the New York Department
of Financial Services is wrongly interpreting a state law regarding
licensing requirements.
The department under Benjamin Lawsky has been an aggressive
enforcer, and earlier this week fined MetLife Inc. $50 million in a
case directly related to the matter AIG is now contesting in
federal court. The MetLife fine was the largest ever against an
insurer by New York state regulators.
Lawrence J. White, a professor at New York University's Stern
School of Business, said AIG challenging its regulator in federal
court is "not a once-in-100-year event, but it is unusual."
Most companies don't want to get on the bad side of the
regulators, "but if they really feel this is an egregious
situation, they will just grit their teeth and appeal to the
court," he said.
The dispute involves whether AIG unlawfully sold insurance in
the state to multinational companies without proper licensing
through two insurers that AIG sold to MetLife in 2010.
MetLife agreed to the record fine to settle allegations that the
operations bought from AIG were selling insurance without proper
licensing. In addition to the fine, MetLife agreed to pay $10
million to avoid possible prosecution by the New York County
District Attorney.
AIG's lawsuit states that "New York officials have advised AIG
that they will initiate administrative proceedings and other
actions in order to impose substantial monetary penalties on AIG"
based on alleged improper marketing in New York when AIG owned
American Life Insurance Co., or Alico, one of the two units.
New York regulators sent a subpoena to AIG on Tuesday seeking
emails and testimony related to the sales activity, a person
familiar with the matter said.
AIG maintains that the "express language" in state law doesn't
require the licensing. "The Department has identified no legitimate
state interest justifying its unprecedented attempt to expand its
regulatory reach."
Responding to the litigation, a spokesman for Mr. Lawsky said,
"AIG may not want to cooperate with our probe, but they are not
above the law--no matter how big or powerful they may be. We will
respond in court."
AIG's lawsuit notes that New York officials in their consent
order with MetLife didn't "identify a single harm to a single
insurance consumer (in New York or otherwise), nor does it allege
that the activities at issue somehow threatened the stability of
the New York insurance market."
AIG seeks a declaratory judgment that the New York actions are
unconstitutional, including alleged violation of due process and
free speech.
AIG also seeks injunctive relief prohibiting New York officials
"from commencing or continuing any proceeding...or imposing any
penalty" against AIG in the matter.
In a statement, AIG said that the New York regulators'
conclusion in the MetLife consent order that there was a violation
of state law "compels us to seek a declaration from the court that
the department's position is unconstitutional."
Since taking office in 2011, Mr. Lawsky has been an aggressive,
inaugural leader of New York's new financial regulatory office,
which was created by merging banking and insurance oversight.
A former prosecutor, Mr. Lawsky has investigated a number of
potential financial abuses, including how mortgage loans are
handled and consumer lending.
Write to Leslie Scism at leslie.scism@wsj.com
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