Appleton Rule

The Appleton Rule is a regulation initiated in 1901 by New York Deputy Superintendent of Insurance Henry D. Appleton. The rule requires that every insurance company doing business in New York abide by New York state law, specifically the New York Insurance Code, even if it does business in other states. The Appleton Rule made New York a leader in insurance regulation and means that the Empire State is one of the most stringently regulated states for insurance companies to do business. Firms that don't comply with the Appleton Rule are at risk of losing their insurance license in the state.

The Appleton Rule was first enacted as an administrative regulation at the turn of the 20th Century, and in 1939, the it was incorporated into New York's state insurance laws. Although the regulation was popular in New York for its consumer protections, it was not as welcomed by companies looking to do business there and in other states because any proposed new regulation that would conflict or jeopardize New York state insurance licenses would meet opposition. The rule was also disliked by other state insurance commissioners because it prevented them from introducing different regulations if they opposed the Appleton rule.

The Appleton Rule requires "foreign insurers and U.S. branches of alien insurers licensed in New York to adhere to certain requirements and limitations of the insurance law with respect to their operations outside of New York," according to Frederic M. Garsson, partner with Saul Ewing Arnstein & Lehr.

"Specifically, section 1106(f) prohibits foreign insurers and U.S. branches of alien insurers from transacting outside of New York any kind or combination of kinds of insurance business not permitted to be done in New York by similar domestic insurers, unless in the judgment of the superintendent such kind or combination of kinds of insurance business will not be prejudicial to the best interests of the people of New York," he explained.

He noted that, "because New York allows financial guaranty insurance policies to be issued in New York only by monoline financial guaranty insurers, a foreign insurer, or U.S. branch of an alien insurer, licensed in New York, but not licensed as a monoline financial guaranty insurer, is prohibited from issuing financial guaranty insurance policies in New York. The Appleton Rule serves to prohibit these insurers from issuing financial guaranty insurance policies in any other jurisdiction, even if authorized to issue such policies under another state’s law."

Any insurance company that wants to be licensed in New York, notwithstanding a rare exception issued by the superintendent, will be barred from doing business outside of New York in any way it wouldn't be allowed to in the state, he said, even if the other state's laws allow for it.

Those insurance companies that violate the Appleton Rule may have their licenses revoked, and a monetary penalty of $500 for each violation may be imposed, according to the New York State Department of Financial Services.