The Office of General Counsel issued the following opinion on August 31, 2005, representing the position of the New York State Insurance Department.

Re: Permissibility of Agent Inducing Residents to Purchase Insurance from Him in Exchange for His Donation of $50-$100 from Each Purchased Policy to a Specific Organization

Question Presented:

Is it a violation of the Insurance Law for an insurance agent to inform residents of his community that, if they purchase insurance from him, he will donate $50-$100 from each purchased policy to a specific community organization?

Conclusion:

Such activity is a violation of N.Y. Ins. Law § 2324 (McKinney Supp. 2005).

Facts:

The inquirer is an agent of ABC Insurance Company and lives in Long Island.  The inquirer states that his town's budget has been rejected twice and, as a result, its middle school sports have been eliminated.  Consequently, parents have set up an organization and a website and some local businesses have donated money to this organization.  One restaurant agreed to donate 50% of every dinner check on August 8, 2005 to the organization.  In an attempt to assist, the inquirer would like to inform town residents that if they purchase personal automobile and/or home insurance from the inquirer, the inquirer would donate $50-$100 from each policy purchased to the organization. The inquirer would like to know if he may engage in such activity.

Analysis:

The rebating and discrimination section of the Insurance Law that applies to property/casualty insurance¹ can be found in N.Y. Ins. Law § 2324(a) (McKinney Supp. 2005).  That section states, 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 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 fifteen dollars in value which shall have conspicuously stamped or printed thereon the advertisement of the insurer, agent or broker, or shall give, sell or purchase, or offer to give, sell or purchase, as an inducement to the making of such insurance or in connection therewith, any stock, bond or other securities or any dividends or profits accrued thereon, nor shall the insured, his agent or representative knowingly receive directly or indirectly, any such rebate or special favor or advantage, provided, however, a licensed insurance agent or a licensed insurance broker may retain the usual commission or underwriting fee on insurance placed on his own property or risks, if the aggregate of such commissions or underwriting fees will not exceed five percent of the total net commissions or underwriting fees received by such licensed insurance agent or insurance broker during the calendar year.

The inquirer would like to inform town residents that if they purchase automobile and/or home insurance from him that he will donate $50-$100 from each policy purchased to an organization that is set up by parents in the town's school district to assist its middle school sports program.  Section 2324(a) prohibits insurance agents and insurance brokers 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.  The inquirer's offer to donate an amount from each policy sold to town residents to the organization is an improper inducement to those residents to utilize the inquirer's agency to obtain insurance coverage.  

Therefore, the offer to donate an amount to the organization, if the residents purchase insurance from the inquirer, constitutes a benefit or valuable consideration to the insured as an inducement to the making of an insurance contract, which is a violation of Section 2324.

For further information please contact Associate Attorney D. Monica Marsh at the New York City Office.

¹  See similar prohibition with respect to life, accident and health insurance in N.Y. Ins. Law § 4224(c) (McKinney Supp. 2005)