The Office of General Counsel issued the following opinion on August 31, 2001, representing the position of the New York State Insurance Department.

Re: N.Y. Ins. Law § 4224 (McKinney 2000), Discrimination and Rebating


1.May an insurance company institute a program whereby it assesses monetary fines against its agent whom it deems in violation of its policies?

2. Would an insurance company have to obtain the Department’s approval prior to instituting such a program?

3. Would such a program violate N.Y. Ins. Law §§ 2324 and 4224 (McKinney 2000) which prohibit discrimination and rebating by insurers?


1.Yes, an insurance company may institute a program whereby it assesses fines against its agent whom it deems in violation of its internal company policies.

2. No. An insurance company does not have to obtain the Department’s approval prior to instituting such a program.

3. No. Such a program would not violate N. Y. Ins. Law §§ 4224 and 2324 (McKinney 2000) which prohibit discrimination and rebating by insurers.


The inquirer is a licensed agent with The XXX Life Insurance Company ("XXX"). The inquirer submitted correspondence which shows he received a letter of reprimand from XXX advising him that a monetary fine had been imposed on him for an alleged repeat violation of XXX’s agents’ compliance policies. Specifically, the fine was based on a compliance evaluation which indicated that he had allegedly failed to document suitability in his clients’ files for two yearly audits. The inquirer was advised by XXX that failure to pay the fine would result in a suspension of his National Association of Securities Dealers ("NASD") registration.

The inquirer stated that failure to pay the fine would also result in a refusal by XXX to underwrite an "insured’s application that was procured by that agent." The inquirer wanted to know if such a refusal by the insurance company to underwrite an application would constitute a "de facto" discrimination. The inquirer also opined that the fine levied against an agent could constitute a "forced direct or indirect rebate" to the insurance company.


Neither the Insurance Laws nor Department Regulations prohibits an insurance company from instituting performance guidelines that, if violated, would result in a fine levied against its agent. The requirements of N.Y. Ins. Law § 4228 (f)(1) (McKinney 2000), which prescribe the filing requirements by an insurer of its agents’ compensation plan, do not apply to such a program.

N.Y. Ins. Law § 2324 (McKinney 2000) does not deal with life insurance policies. It states specifically that:

(e) This section shall not apply to any policy or contract of reinsurance nor to any contract or policy of life insurance, accident insurance or health insurance which is subject to the provisions of section four thousand two hundred twenty-four of this chapter, ... .

New York Ins. Law §2324 (e) (McKinney 2000).

However, N.Y. Ins. Law § 4224 (McKinney 2000) deals with discrimination and rebating as it pertains to life insurance, annuities and accident and health insurance and states in relevant part that:

(a) No life insurance company doing business in this state ... shall:

(1) make or permit any unfair discrimination between individuals of the same class and of equal expectation of life, in the amount or payment or return of premiums, or rates charged for policies of life or annuity contracts, or in the dividend or other benefits payable thereon, or in any of the terms and conditions thereof;

* * *

(3) knowingly permit, and no agent thereof shall offer to make or make, any policy of life insurance or annuity contract or agreement as to such policy or contract other than as plainly expressed in the policy or contract.

New York Ins. Law § 4224 (a) (1) and (3) (McKinney 2000).

Though § 4224 deals with discrimination and rebating, it is not implicated in the facts of this situation. N.Y. Ins. Law § 4224 prohibits unfair discrimination in terms of policies sold to individuals in the same rating class and with the same life expectancy. Refusing to underwrite a policy for which the agent has not adhered to the insurer’s rules would not fall within the ambit of § 4224.

N.Y. Ins. Law § 4224 (McKinney 2000) also prohibits rebating. In this case, there is no evidence of any violation of § 4224, absent proof that the insurer is using the money penalty program levied against its agents to reduce the policyholder’s premium. This would be impossible in this situation since the insurance company refuses to underwrite the policy if the agent does not adhere to the company’s policies.

Please note that the above analysis is based on the Insurance Law. One may find it prudent to also consult with the NASD on interpretation of its suitability rules.

For further information you may contact Senior Attorney Adiza Mohammed at the New York City Office.