The Office of General Counsel issued the following informal opinion on December 13, 2000, representing the position of the New York State Insurance Department.
Re: Defensive Driving Course Refund
Questions Presented:
1. May an insurance agency that is the approved instructor for a defensive driving course, give a $15 reduction in the cost of the course to its existing clients?
2. May an insurance agency offer a $15 refund to the students of the defensive driving course who take its course and then become clients of that insurance agency?
Conclusions:
1. No. The $15 reduction in cost of the Defensive Driving Course to the agencys existing clients would constitute an improper inducement in violation of N.Y. Ins. Law § § 2324 and/or 4224 (McKinney 2000).
2. No. The offer of a $15 refund to the students of the defensive driving course who then become clients of the insurance agency would constitute an improper inducement in violation of N.Y. Ins. Law § § 2324 and/or 4224 (McKinney 2000).
Facts:
An insurance agency was approved as an instructor of a driving course by the National Safety and Health Council of Northeastern, NY. The insurance agency would like to offer a $15 reduction in the cost of its defensive driving course to its existing clients. It would also like to give a $15 refund as an incentive to students of its driving course to become clients of its insurance agency.
Analysis:
With respect to property/casualty insurance, N.Y. Ins. Law Section 2324(a) (McKinney 2000) provides in relevant part:
No authorized insurer, no licensed insurance agent, no licensed insurance broker, and no employee or other representative of any such insurer, agent or broker shall make, procure or negotiate any contract of insurance other than as plainly expressed in the policy or other written contract issued or to be issued as evidence thereof, or shall directly or indirectly, by giving or sharing a commission or in any manner whatsoever, pay or allow or offer to pay or allow to the insured or to any employee of the insured, either as an inducement to the making of insurance or after insurance has been effected, any rebate from the premium which is specified in the policy, or any special favor or advantage in the dividends or other benefit to accrue thereon, or shall give or offer to give any valuable consideration or inducement of any kind, directly or indirectly, which is not specified in such policy or contract, other than any article of merchandise not exceeding five [15] dollars in value which shall have conspicuously stamped or printed thereon the advertisement of the insurer, agent or broker. . . . (emphasis added)
According to the express language of Section 2324, insurance agents and brokers are prohibited from directly or indirectly offering rebates or inducements other than an article of merchandise not exceeding $15 in value, in connection with the sale of insurance, when such rebates or inducements are not specified in the policy or contract of insurance.
With respect to property/casualty insurance, N.Y. Ins. Law § 2324(a) (McKinney 2000) allows for the presentation of a "keepsake" which costs less than $15 and is designed to keep the name of the insurer or producer before the customer through the embossing of the insurers or producers name. A $15 refund or rebate is not equivalent to a pen or other item of merchandise, as contemplated under this section.
In the past, this Department has had several opportunities to interpret this statute in connection with other sales promotions. In an August 10, 1967 opinion letter, the Department stated that a vacation gift certificate offered to prospective insureds was not an article of merchandise. Accordingly, the offer would violate Section 188 (now Section 2324) of the Insurance Law.
In a 1974 letter, the Department opined:
The giving of a $5.00 gift certificate . . . as an inducement to prospective insureds would be subject to and violative of the prohibitions in Section 188 . . . because a gift certificate is not an article of merchandise permitted as an exception to the prohibitions therein contained.
Similar conclusions were reached in letters dated November 1, 1995 (movie passes are not merchandise and the act of offering them to prospective insureds, no matter their value, is violative of Section 2324); August 9, 1988 and January 13, 1982 (a raffle ticket is not merchandise within the meaning of the Section); and March 27, 1980 (a book of certificates redeemable for 100 rolls of film is not merchandise within the contemplation of the statute).
In this instance, a prospective insured would receive a direct benefit, the $15 refund, for the purpose of inducing the prospective insured to place his/her insurance business through the company. For an existing client, a $15 reduction in price of the driving course would constitute valuable consideration not specified in the policy, to place business through the agency.
In both cases, a violation of the Insurance Law would occur.
With respect to life and accident and health insurance, the prohibition is contained in N.Y. Ins. Law § 4224(c) (McKinney 2000), and states:
No such life insurance company and no such savings and insurance bank and no officer, agent, solicitor or representative thereof and no such insurer doing in this state the business of accident and health insurance and no officer, agent, solicitor or representative thereof, and no licensed insurance broker and no employee or other representative of any such insurer, agent, or broker, shall pay, allow or give, or offer to pay, allow or give, directly or indirectly, as an inducement to any person to insure, or shall give, sell or purchase, or offer to give, sell or purchase, as such inducement, or interdependent with any policy of life insurance or annuity contract or policy of accident and health insurance, any stocks, bonds, or other securities, or any dividends or profits accruing or to accrue thereon, or any valuable consideration or inducement whatever not specified in such policy or contract; nor shall any person in this state knowingly receive as such inducement, any rebate of premium or policy fee or any special favor or advantage in the dividends or other benefits to accrue on any such policy or contract, or knowingly receive any paid employment or contract for services of any kind, or any valuable consideration or inducement whatever which is not specified in such policy or contract. (emphasis added).
N.Y. Ins. Law Section 4224 prohibits an agent or broker from offering any inducement directly or indirectly not specified in the policy or contract. In this instance, the prospective insured would receive a direct benefit, the $15 refund or rebate, for the purpose of inducing the prospective insured to place his/her insurance business through your company. For an existing client, a $15 reduction in price of the driving course would constitute valuable consideration not specified in the policy, to place business through your agency.
With respect to life and accident and health insurance, this action would violate the prohibition contained in N.Y. Ins. Law § 4224(c) (McKinney 2000), that no insurer, agent, or broker, shall pay, allow or give, or offer to pay, allow or give, directly or indirectly, as an inducement to any person to insure, any valuable consideration or inducement whatever not specified in such policy or contract.
For further information, you may contact Attorney Meredith S. Kaufer at the New York City Office.