The Office of General Counsel issued the following informal opinion on November 16, 2001, representing the position of the New York State Insurance Department.
Re: N.Y. Ins. Law § 4224 and Rebating
What is the responsibility of an insurance agency-employer with respect to an employees violation of the N.Y. Ins. Law § 4224(c) (McKinney 2000) prohibition against rebating?
N.Y. Ins. Law § 2101(a)(1) (McKinney 2000) permits a licensed insurance agent to act through, and delegate activities to, its officers or employees inside the office, provided that the insurer or other principal does not prohibit the delegation, and the law does not otherwise prohibit the delegated activity. At all times, the licensee (and any sublicensee) remains fully responsible for the actions of its officers and employees. An insurance agency-employer that delegates to its employee the authority to solicit, negotiate and place insurance is accountable for its employees violation of the N.Y. Ins. Law § 4224(c) (McKinney 2000) prohibition against rebating.
An insurance agency provided the following scenario, upon which it based its inquiry. The inquirer is the principal of an insurance agency that sells life insurance. Unbeknownst to the inquirer, an employee offered a rebate to an applicant for life insurance for the purpose of inducing the sale of a life insurance policy. After the policy was issued, the inquirer was apprised of the employees conduct, and the employee requested payment for the purpose of providing the rebate to the insured. The inquirer refused to provide the rebate payment and reprimanded his employee.
Pursuant to N.Y. Ins. Law § 2102 (McKinney 2000), no person, firm, association or corporation may act as an insurance agent in this state without having authority to do so by virtue of a license issued and in force pursuant to the provisions of the Insurance Law.
N.Y. Ins. Law § 2101(a) (McKinney 2000) defines an insurance agent to mean, in relevant part:
(a) In this article, "insurance agent" means any authorized or acknowledged agent of an insurer, fraternal benefit society or health maintenance organization issued a certificate of authority pursuant to article forty-four of the public health law, and any sub-agent or other representative of such an agent, who acts as such in the solicitation of, negotiation for, or procurement or making of, an insurance, health maintenance organization or annuity contract, other than as a licensed insurance broker, except that such term shall not include:
(1) any regular salaried officer or employee of a licensed insurer, fraternal benefit society or health maintenance organization or of a licensed insurance agent, who does not solicit or accept from the public, outside of an office of such insurer, health maintenance organization or agent, applications or orders for any such contract, if such officer or employee does not receive a commission or other compensation for his services which commission or other compensation is directly dependent upon the amount of business done[.]
The statute permits a licensed insurance agent to act through, and delegate activities to, its officers or regularly salaried employees in the office (where the compensation is not directly dependent upon the amount of business) but does not specify particular agency functions that may be so delegated. Provided that the insurer or other principal does not prohibit the delegation, and the law does not otherwise prohibit the delegated activity, any such in-office delegation is within the discretion of the licensee, who must exercise reasonable judgment based upon considerations such as: (1) the nature and complexity of the task being delegated; (2) the education, training, experience and other personal qualifications of the officer or employee who will be performing the task; and (3) the type and extent of supervision and internal controls that will be in place. At all times the licensee (and any sublicensee) remains fully responsible for the actions of the licensees officers and employees.
An unlicensed officer or employee that engages in any delegated activity does so only on behalf, and in the name, of the licensee, via the authority so delegated by the licensee. It is incumbent upon the licensee (and sublicensee) to ensure that the unlicensed person is adequately trained, trustworthy, and aware of the limits on his or her ability to act on behalf of the licensee. The licensed agent (and any sublicensee of a corporate or partnership agency) must properly supervise the non-licensee and will be held strictly accountable by the Department for the activities of the unlicensed person. Therefore, an insurance agency-employer that delegates to its employee the authority to solicit, negotiate and place insurance is accountable for its employees violation of the N.Y. Ins. Law § 4224(c) (McKinney 2000) prohibition against rebating.
N.Y. Ins. Law § 4224(c) (McKinney 2000) states:
(c) 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)
N.Y. Ins. Law § 4224(c) prohibits an insurance agency, and its employees, from providing, or offering to provide, a rebate of premium or other valuable consideration not provided in the insurance policy to any person for the purpose of inducing the sale of life insurance. The statute also prohibits any insured from knowingly receiving a rebate of premium or policy fee or receiving any valuable consideration not provided in the insurance policy, for purchasing life insurance.
Violation of N.Y. Ins. Law § 4224(c) may result in the imposition of a penalty pursuant to N.Y. Ins. Law § 109 (McKinney 2000), and with respect to a licensed insurance agent, suspension, revocation or non-renewal of such license pursuant to N.Y. Ins. Law § 2110 (McKinney 2000). Additionally, a violation of N.Y. Ins. Law § 4224(c) constitutes a N.Y. Ins. Law § 2402(b) (McKinney 2000) "defined violation". A violator of N.Y. Ins. Law § 2402(b) may be subject to the provisions of, and additional penalties provided under, N.Y. Ins. Law Article 24 (McKinney 2000) regarding unfair methods of competition and unfair and deceptive acts and practices.
For further information you may contact Senior Attorney Sally Geisel at the New York City Office.