The legal alert says insurers and their agents should also review business activity “that overly energetic government attorneys might mistakenly view as violative of New York law.” The alert was written by Robert B. Shapiro and Scott C. Shine, of Carlton Field’s Washington office.

The two say it is “also worth noting” that the New York Department of Financial Services “might have a much different idea of what type, if any, of penalty to assess if the amount of business written in New York by an unauthorized insurer were much smaller than the premiums written in the current case."

The dispute involves two former AIG subsidiaries, American Life Insurance Company (ALICO) and Delaware American Life Insurance Company (DelAm). They were sold to MetLife in 2010 as part of the AIG divestitures required to pay off the federal government, which rescued it in 2008, and return to private control. MetLife and AIG announced the probe was underway in securities filings in November.

Earlier this month, MetLife said it would pay $50 million in fines and another $10 million to avoid prosecution, to settle the case, and also agreed to cooperate in the state’s prosecution of AIG on the issue.

But, on April 8, AIG filed suit.

The suit acknowledges that New York has the authority to regulate the business of insurance issued to residents in New York, but it does not have authority to regulate the business of insurance issued to foreign insureds who live outside of New York.

In an April 15 letter to the Court, AIG said it needs accelerated handling of the case in order to “prevent irreparable harm to AIG.”

The letter, written by AIG lawyers Quinn Emanuel Urquhart & Sullivan in New York, said New York had “effectively charged” AIG with violating New York law and “adjudged it guilty by means of an out-of-court settlement with an unrelated third party,” i.e., MetLife. That agreement provided AIG “with no opportunity to be heard, no chance to confront witnesses,” and no ability to “challenge the evidence against it, no judge, and no appeal.”

But now, DFS claims that “AIG remains merely under investigation,” the letter said.

“Defendants do not couch AIG's purported violations as mere allegations subject to further investigation, but instead as conclusive findings of law and fact,” the letter said. “Defendants are thus seeking to levy substantial fines on AIG for ALICO's purported engagement in an ‘insurance business’ without a New York license during the period ALICO was owned by AIG.”

The letter was sent to Judge Alison J. Nathan, who has been assigned the case. In a response, the New York Attorney General’s Office, on April 18, responded to the court by saying the state plans to argue the AIG action is barred by the 11th Amendment, and the state is demanding AIG dismiss all claims against the New York DFS.

The state is arguing in court filings and in comments to AIG lawyers that AIG wants to stop the DFS probe of its practices regarding marketing of ALICO products, and wants to skip the state administrative process that should be the first step in the litigation.

The Shapiro and Shine legal alert says the case may turn on how and under what circumstances New York defines "resident" for purposes of the Insurance Laws' application to a multinational company.

The state alleged in the consent decree with MetLife that sales representatives of ALICO, DelAm, MetLife and AIG engaged in insurance solicitations on behalf of ALICO and DelAm without the sales representatives being licensed as insurance agents or brokers and that neither of the two subsidiaries was admitted in New York to transact insurance at the time, the alert says. According to the consent decree, the sales representatives conducted meetings in New York regarding group-insurance products and had extensive contact with multinational clients, including periodic visits, regular phone calls and e-mails, the alert says.

It adds that the consent decree does not allege any insurance policies were actually issued for delivery in New York, but it says the DFS found the MetLife parties violated the insurance producer licensing section of state law.