The New York State Department of Financial Services (NYSDFS) has promulgated a regulation that requires insurance companies to provide Commercial Crime Coverage to employers who have prior knowledge of an employee’s prior criminal conviction. Commercial Crime Coverage is defined as coverage under a policy of commercial risk insurance that provides burglary and theft insurance or fidelity insurance.

NYSDFS was created in 2011, replacing the New York State Banking and Insurance Departments. It supervises many different types of financial services institutions, including insurance companies. The Department has a stated goal of guarding against fraud and financial crises, as well as modernizing regulation of financial services in New York. Its regulations can have ripple effects for companies dealing with financial services institutions and insurance companies.

The new regulation (Title 11 of the New York Codes Rules and Regulations Part 76), issued by NYSDFS on December 6, 2016, applies only to insurers whose insured has engaged in a Correction Law Article 23-A analysis.

The Correction Law forbids discriminating based upon a conviction for a previous criminal offense, unless there is a direct relationship between the criminal offense and the employment sought. The Correction Law specifies eight factors, including the public policy of the state, when analyzing whether there is a “direct relationship.”

Eight Factors

Eight factors to determine a “direct relationship” under Article 23-A:

1. The state public policy encouraging the employment of persons previously convicted of one or more criminal offenses;

2. The specific duties and responsibilities necessarily related to the employment sought or held by the person;

3. The bearing, if any, the criminal offense(s) will have on the person’s fitness or ability to perform one or more such duties or responsibilities;

4. The amount of time that elapsed since the criminal offense(s);

5. The age of the person at the time of the criminal offense(s);

6. The seriousness of the criminal offense(s);

7. Any information produced by the person, or on his or her behalf, regarding rehabilitation and good conduct; and

8. The legitimate interest of the employer in protecting property and the safety and welfare of specific individuals or the general public.

Effective Date

The regulation is effective July 1, 2017. It will be applied only prospectively to policies issued, renewed, or delivered in New York after that date.

However, insurers may properly audit employers and require them to maintain adequate records to demonstrate that the employer, in fact, conducted the full Article 23-A analysis. This process therefore may begin before the effective date for policies to be issued on or after July 1, 2017.

Next Steps

Employers in New York should be familiar with their obligations to consider the Article 23-A factors prior to denying employment. The new regulation is another incentive for keeping accurate records of the analysis, as an employer may otherwise lose the benefit of commercial crime insurance coverage.