OGC Opinion No. 06-02-06
The Office of General Counsel issued the following opinion on February 7, 2006, representing the position of the New York State Insurance Department.
Re: Insurance Agents Donating Profits to Charities.
Question Presented:
May an insurance agent donate to a charity commissions earned from the sale of an insurance policy?
Conclusion:
A New York licensed insurance agent or broker may donate to charity a portion of his or her commissions earned from the sale of life insurance policies only if: (1) prospective clients and insureds have no direct or indirect influence over which charities receive donations; (2) no donations are made in the name of an insured or prospective client or are otherwise made on behalf of an insured or prospective client; and (3) no applicable tax deductions for the charitable contributions, or any other benefits - whether tangible or intangible, direct or indirect - stemming from such donations, inure to an insured or prospective client.
Facts:
The inquirer asked whether an insurance agent may donate to a charity commissions earned from the sale of an insurance policy where the beneficiary of the policy is the charity. The charity would not be the owner. The sale of the policy came after an educational seminar on charitable giving and insurance.
Analysis:
With respect to life insurance N.Y. Ins. Law § 4224(c) (McKinney Supp. 2004) 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 supplied]
N.Y. Ins. Law § 4224(c) (McKinney Supp. 2004) prohibits insurers, brokers, agents and others from directly or indirectly paying, allowing or giving, or offering to pay, allow or give any valuable consideration or inducement in connection with life insurance policies or contracts when the valuable consideration or inducement is not specified in such insurance policies or contracts.
The Insurance Department has opined that an agent's donation to a charity, which is selected by the agent's prospective client, confers an intangible benefit or consideration to the prospective client, and acts as an inducement for the prospective client to place insurance through the agent in violation of N.Y. Ins. Law § 4224(c) (McKinney Supp. 2004). Office of General Counsel Opinions 02-12-03; 00-03-12; and 92-123.
However, a New York licensed insurance agent or broker may donate to a charity a portion of his or her commissions earned from the sale of life insurance policies if: (1) prospective clients and insureds have no direct or indirect influence over the choice of which charity receive donations; (2) no donations are made in the name of an insured or prospective client or are otherwise made on behalf of an insured or prospective client; and (3) no applicable tax deductions for the charitable contributions, or any other benefits whether tangible or intangible, direct or indirect stemming from such donations, inure to an insured or prospective client.
Under the circumstances that the inquirer presents, the inquirer has not provided us with enough information to ascertain whether his proposal would be acceptable. Accordingly, it is unclear whether his proposal would be violative of Sections 4224.
For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.