The insurance industry has fired the first legal salvo against the Department of Labor in a bid to both pause and vacate the fiduciary rule the agency approved just last week.

The Federation of Americans for Consumer Choice (FACC) and several insurance agents filed a lawsuit in U.S. District Court for the Eastern District of Texas, asking the court to vacate the rule and provide a temporary and permanent injunction against its enforcement. The rule is set to take effect September 24.

The court was chosen strategically because it is within the jurisdiction of the Fifth Circuit Court of appeals, which vacated a similar rule put into place by the Obama administration in 2018, a trade group attorney who requested anonymity said.

FACC, a nonprofit trade group for representing the independent distribution of life insurance and annuities, is also challenging the department’s 2020 guidance on who is considered a fiduciary.

“FACC is disappointed that the DOL has chosen to go down this same tired path with yet another proposal that blatantly violates the 2018 ruling by the Fifth Circuit and arrogantly ignores limitations of its authority under ERISA,” FACC’s CEO Kim O’Brien  said in a statement. O’Brien told reporters on Wednesday that the association is coordinating with other trade groups.

FACC and its attorneys, Figari & Davenport, are using a strategy that was cited by the Fifth Circuit Court of Appeals as grounds for vacating the DOL’s Obama fiduciary rule: FACC is alleging the agency overstepped its congressional authority “by improperly encompassing sales conduct on the part of stockbrokers and insurance agents that had historically never been considered as fiduciary in nature.”

As a result, the new fiduciary rule conflicts with the precedent set by the Fifth Circuit in its 2018 decision, FACC argued.

“The key trigger for lawsuits is the DOL’s redefinition of fiduciary, which will pretty much trigger the rule for every sales transaction,” Scott Sinder, a partner with the law firm of Steptoe LLP, said.

The rule will create the most disruption for the insurance industry, especially independent agents, Sinder said.

“Under the current rule, you have to have ongoing relationship with a client to which you’re providing advice," he said "But the DOL changed that in the new rule. Going forward, if you make investment recommendations on a regular basis to a variety of clients as part of your own business model, that will trigger the rule if the client can feel like you’re making a recommendation customized to them. This will pretty much trigger the rule for every sales transaction in which independent agents are engaged."

Accepting commissions or compensation of any kind will also “almost always trigger the requirements,” he said. The rule states that fiduciary status applies to any professional who makes recommendations for a fee or other compensation.

During congressional testimony on Tuesday, DOL Acting Secretary Julie Su said the agency is prepared to successfully battle a lawsuit. “We are very confident that the rules not only are within our authority but that they take into account the existing case law about why the prior rules were struck down,” Su told the House Education and Workforce Committee during a hearing on the agency’s budget request.

Under intense questioning from Republican Rep. Tim Walberg, who represents Michigan, Su said the rule is different from the vacated 2016 rule because it “takes into account what the court said about why the prior rules could not stand, and they’re different. ... For example, the definition of a fiduciary in the rule is different. What is covered under it is different.”

To which Walberg replied, “I don’t read it that way at all and I don’t know how the court will read it that way at all.”

Other trade groups that have hinted at potential lawsuits against the DOL, including those that were previously plaintiffs in case against the Obama rule, remained silent about the FACC lawsuit and their plans for legal challenges. 

“We don’t typically comment on lawsuits we aren’t involved in, nor do we discuss our advocacy strategy,” Allison Mutschler, a spokesman for the Financial Services Institute said.

“Sorry ... I won’t have anything for you on this,” Dan Zielinski, spokesman for the Insured Retirement Institute said.