The Office of General Counsel issued the following informal opinion on February 27, 2001, representing the position of the New York State Insurance Department.
RE: Promotional Discounts - N.Y. Ins. Law §§ 2324 and 4224 (McKinney 2000)
May an insurance agency offer its insurance clients contractually arranged discounts from other businesses?
No. The advertising campaign promoting the distribution of discounts to the insurance agencys clients would constitute an unlawful inducement or rebate in violation of N.Y. Ins. Law §§ 2324 and 4224 (McKinney 2000).
An insurance agency proposes to distribute a permanent "preferred client card" to more than 8,000 insurance clients and to include the card in a welcome kit to new insurance clients. As part of this program the agency would like to send solicitation letters to certain of its retailer insurance clients (the "Retailers") to offer these clients free advertising on these cards and thus, the opportunity to access thousands of the agencys insurance clients. In exchange for such marketing opportunity, the agency wants these Retailers to agree to offer "a small discount, a free item, or a discount off an additional purchase" on an annual basis. The insurance clients would be able to use the discount card an unlimited number of times during the year and the card would expire at the end of each year. The agencys solicitation letter to the Retailers also contains its legal position as to the legality of this campaign:
Insurance regulations prohibit licensed insurance agents or brokers from offering inducements, rebates, payments, gifts, etc., to insureds or potential insureds in excess of $14.99 in value. It is our position that you are advertising on the back of our card which has no value and that any savings, discount or other item given to the public by your business is from your business and is not a rebate or inducement from our business.
With respect to property or casualty insurance, N.Y. Ins. Law § 2324(a) (McKinney 2000, as amended by Ch. 482 of the Laws of 2000, effective 9/20/00), provides in pertinent 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 fifteen dollars in value which shall have conspicuously stamped or printed thereon the advertisement of the insurer, agent or broker . . . (emphasis added).
With respect to life, 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).
According to the express language of N.Y. Ins. Law § 2324 (McKinney 2000), insurance agents and brokers are prohibited from directly or indirectly offering rebates, inducements or valuable consideration, 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. N.Y. Ins. Law § 4224 (McKinney 2000) prohibits an agent or broker from offering any valuable consideration or inducement, directly or indirectly, in connection with the sale of insurance when such offering is not specified in the policy or contract.
Under the proposed program, the insurance clients of the agency would only receive a discount from the Retailers because their insurance contracts were purchased through the agency. Thus, the discount would constitute a rebate or inducement under N.Y. Ins. Law §§ 2324 and 4224 (McKinney 2000) and would be a violation of the Insurance Law.
For further information you may contact Associate Attorney Jeffrey A. Stonehill.