The Office of General Counsel issued the following informal opinion on February 23, 2005 representing the position of the New York State Insurance Department.
Re: Rebates and Unfair Competition
Question Presented:
1) Does N.Y. Ins. Law prohibit a licensed insurance agent or broker from offering a rebate to an insured from the premiums for property/casualty insurance and if so, what are the penalties for violating the law?
2) What options, if any, are available to other agents/brokers whose businesses are being affected by the rebates?
Conclusion:
1) Yes, N.Y. Ins. Law § 2324 (McKinney Supp. 2005) prohibits a licensed insurance agent or broker from offering a rebate to an insured from the premiums for property/casualty insurance and provides a penalty of $500 for each violation. In the alternative, the Superintendent may decide to either refuse to renew, revoke or suspend the license of the agent or broker engaging in illegal rebating activity pursuant to N.Y. Ins. Law § 2110(a)(1) (McKinney Supp. 2005) or impose "a penalty in a sum not exceeding five hundred dollars for each offense, and a penalty in a sum not exceeding twenty-five hundred dollars in the aggregate for all offenses," pursuant to N.Y. Insurance Law § 2127(a) (McKinney 2000). Furthermore, N.Y. Ins. Law § 109 provides that "[e]very violation of any provision of [the Insurance Law] shall, unless the same constitutes a felony, be a misdemeanor."
2) An agent or broker with knowledge of a violation of N.Y. Ins. Law § 2324 (McKinney Supp. 2005) should report such information to the Superintendent. Whether an agent or broker, whose business has been affected by the illegal rebate activity of another agent or broker, has a private cause of action is a question best directed to a private attorney.
Facts:
No specific facts were presented.
Analysis:
N.Y. Ins. Law § 2324 (McKinney Supp. 2005), entitled "Rebating and discrimination," is applicable to property and casualty insurance, and it provides in pertinent part as follows:
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 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)
Thus, according to the express language of N.Y. Ins. Law § 2324(a) (McKinney Supp. 2005), property/casualty insurers, brokers, agents and their employees and representatives are prohibited from paying, allowing or offering to pay or allow, to the insured, a rebate from the premium specified in a policy for property/casualty insurance. An agent or broker with information about illegal rebating activity of another agent or broker should report such information to the Superintendent.
N.Y. Ins. Law § 2324(f) (McKinney Supp. 2005) provides that "[a]ny person or corporation violating the provisions of this section shall, in addition, to all other penalties provided by law, pay to the people of the state as a penalty the sum of five hundred dollars for each violation." (emphasis added). The phrase "each violation" means each time an insured shall pay, allow or offer to pay or allow a rebate to the insured. Furthermore, N.Y. Ins. Law § 109 provides that "[e]very violation of any provision of [the Insurance Law] shall, unless the same constitutes a felony, be a misdemeanor."
In the alternative, the Superintendent may either refuse to renew, revoke or suspend the license of the agent or broker engaging in illegal rebating activity pursuant to N.Y. Ins. Law § 2110(a)(1) (McKinney Supp. 2005) or impose both "a penalty in a sum not exceeding five hundred dollars for each offense, and a penalty in a sum not exceeding twenty-five hundred dollars in the aggregate for all offenses," pursuant to N.Y. Insurance Law § 2127(a) (McKinney 2000) (emphasis added).
The Superintendent of Insurance has the authority to investigate possible violations of N.Y. Ins. Law § 2403 (McKinney 2000). N.Y. Ins. Law § 2403 prohibits unfair methods of competition or unfair and deceptive acts or practices. A violation of N.Y. Ins. Law § 2324 (McKinney Supp. 2005) is a defined definition pursuant to N.Y. Ins. Law § 2402(a). Upon a finding that a defined violation has been committed, the Superintendent, after a hearing, shall require the person to cease and desist from engaging in the wrongful activities. N.Y. Ins. Law §§ 2402(b), 2406(a) (McKinney 2000). The penalty for violating any such cease and desist order is an amount up to $5000. N.Y. Ins. Law § 2406(e) (McKinney 2000).
Finally, whether an agent or broker, whose business has been affected by the illegal rebate activity of another agent or broker, has a private cause of action is a question best directed to a private attorney.
For further information you may contact Assistant Counsel Brenda M. Gibbs at the Albany Office.