The Office of General Counsel issued the following informal opinion on January 12, 2001, representing the position of the New York State Insurance Department.
RE: Promotional Discounts
Question Presented:
May an insurance agency offer a $500 discount to existing customers on new vehicles purchased or leased from a car dealership, with whom it has a commercial account?
Conclusion:
No. The $500 discount on vehicles purchased or leased from the car dealership is violative of the statutory prohibitions contained in N.Y. Ins. Law §§ 2324 and 4224 (McKinney 2000).
Facts:
An insurance agency currently has a commercial account with a car dealership. It desires to "partner" with this dealership to offer a discount to current agency customers on new vehicles purchased or leased from the dealership. However, the insurance agency has not specified whether a financial arrangement exists between its agency and the dealership in connection with making this referral. Therefore, for the purposes of this response, it will be assumed that there is no such arrangement. Additionally, the insurance agency asserted that it did not wish to offer the same discount to prospective customers or to non-agency customers to entice business. The sample offer was set forth as follows:
"We are pleased to announce an exciting benefit now being offered to our customers.
We have partnered with XYZ dealership to offer our customers a $500 discount on the purchase or lease of a new vehicle from XYZ. XYZ dealership has established a reputation of excellence in the area of sales and service of new and pre-owned vehicles.
How do you take advantage of this exclusive offer? Simply visit the XYZ dealership. Tell the salesperson you are a customer of Richardson & Stout and you will receive a $500 discount off the purchase or lease of a new vehicle.
We thank you for your continued business and look forward to serving you for many years."
Thus, the pivotal question is whether this offer complies with the proscriptions of the Insurance Law.
Analysis:
At the outset, it is significant to note that the insurance agency is engaged in the sale of property/casualty and life insurance policies. Thus, the restrictions imposed pursuant to N.Y. Ins. Law §§ 2324 and 4224 (McKinney 2000) are applicable to the situation at hand.
N.Y. Ins. Law § 2324 (McKinney 2000), entitled "Rebating and discrimination", is applicable to property/casualty insurance and provides in pertinent part as follows:
(a) 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 . . 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 fifteen dollars in value which shall have conspicuously stamped or printed thereon the advertisement of the insurer, agent or broker . . . (emphasis added).
N.Y. Ins. Law § 4224 (McKinney 2000), imposes a similar prohibition relative to life, accident and health insurance and closely parallels the language of § 2324. Subsection (c) provides in relevant part that:
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 business 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, 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 . . . (emphasis added).
Subsection (d)(1) of the statute provides in pertinent part as follows:
No insurer authorized to do one or more of the kinds of insurance business specified in paragraphs one, two, or three of subsection (a) of section one thousand one hundred thirteen of this chapter or authorized to do the kind of insurance business specified in section three thousand two hundred twenty-two of this chapter shall directly or indirectly, or by any of its agents or representatives, participate in any plan to offer or effect any kind or kinds of such insurance business in this state as an inducement to or interdependent with the purchase by the public of any goods, securities, commodities, housing, services or subscriptions to periodicals. . . (emphasis added).
In the present case, the $500 discount violates both §§ 2324 and 4224 of the Insurance Law because it is a cash incentive that constitutes an inducement to the insured, which is not specified in the insurance policy. This arrangement clearly induces existing customers to stay with this insurance agency because it offers the added benefit of receiving a discount from the car dealership. Additionally, it constitutes valuable consideration because a $500 discount from the price of a new car or lease can not be perceived as being negligible in value.
Although the insurance agency is not directly offering the discount, the offer refers the insured to a car dealership, which does offer the inducement. N.Y. Ins. Law §§ 2324 and 4224 (McKinney 2000) prohibits both direct and indirect inducements, which are not specified in the insurance policy.
Moreover, the $500 discount is not an article of merchandise, within the purview of the Insurance Law. The article of merchandise that § 2324 contemplates is a "keepsake" not exceeding $15 in value, which conspicuously bears the agencys name and is designed to keep the insurers name before the customer. Inasmuch as the $500 discount is not a "keepsake", within the meaning of the statute, it is impermissible under the Insurance Law.
In the past, this Department has had numerous opportunities to interpret these provisions in connection with similar offers. For example, in an opinion letter dated May 5, 2000, this Department ruled that it was impermissible for an insurance agency to refer its insureds to a glass repair shop that offered movie tickets as an incentive.
In circumstances where an insurance agency has provided direct inducements to its customers this Department has held that these inducements have also violated the Insurance Law. See Opinion Letter dated December 13, 2000 ($15 reduction in the cost of a defensive driving course to its existing and prospective clients violated the Insurance Law); see also Opinion Letter dated April 18, 1996 (frequent flier miles constituted an illegal rebate under the Insurance Law).
The offer is also violative of N. Y. Ins. Law § 4224 (d)(1) (McKinney 2000) in that the insurance policy is interdependent with or related to the purchase or lease of a new vehicle. N.Y. Ins. Law § 4224 (d)(1) (McKinney 2000) expressly prohibits offering or effecting insurance interdependent with the purchase of goods. Here, the purchase of the vehicle constitutes a purchase of goods within the meaning of the statute. Thus, pursuant to the clear language of the statute the offer falls squarely within the prohibitions contained in the Insurance Law.
For further information you may contact Attorney Pascale Joasil at the New York City Office.