"But that doesn't mean we are in favor of–and, in fact, we are opposed to–a mandatory rule that's going to mean more paperwork, more notices that consumers don't necessarily want [and] more record-keeping," he added.

It's no surprise New York has become the main battleground over broker compensation disclosure. After all, it was New York's former attorney general, Eliot Spitzer, who exposed bid-rigging and contingency fee abuse by big brokers.

But does that mean a whole new set of legal requirements is necessary? The insurance department obviously thinks so, and the Risk and Insurance Management Society agrees–in fact, they don't believe New York's regulations go far enough.

The questions before the court are whether the department has the authority to issue these disclosure regulations, whether the regulations "impose massive and unwarranted costs of compliance on brokers so as to constitute an arbitrary exercise of regulatory power," and whether the regulation violates producers' rights to due process and equal protection under the U.S. and New York State Constitutions. Those are some heavy-duty legal challenges.

I am no lawyer, but somehow I don't believe the agents' arguments will carry the day in court. And even though I sympathize with the concerns of producers, I can't help but wonder if the damage to the industry's already sullied reputation won't be exacerbated regardless of the suit's outcome.

IIABNY was right to reject the New York department's disparagement of its motives in filing the suit. But even if you take their position at face value–which I do–consumer groups (particularly RIMS) will not. They see a stall at best and perhaps a cover-up at worst.

The Professional Insurance Agents of New York, which declined to participate in the suit, has continued to negotiate with the department about compliance. The group says its "commitment against mandatory disclosure is unwavering," yet is proceeding as if the regulation is a done deal, hoping to craft an acceptable compromise in terms of implementation.

That may be the better way to approach this regulation, because producers face a no-win situation with their lawsuit. Even if they prevail on the legal arguments, it will ultimately look like producers don't want to disclose how they are paid to clients.

Producers would prefer a "Don't Ask, Don't Tell" policy when it comes to compensation, but to sue to keep mandatory disclosure off the table could be a losing proposition in the long run, no matter how the court rules.