The Office of General Counsel issued the following opinion on June 9, 2005, representing the position of the New York State Insurance Department.
Re: Unlicensed Bank Representative & Rebating
1. Under the facts presented, did the insurance agent or representative violate N.Y. Ins. Law § 2324 (McKinney Supp. 2005) by offering the insured favorable mortgage loan terms during the insurance quote presentation?
2. Under the facts presented, if the representative was not licensed as a New York insurance agent or broker, did the representative violate N.Y. Ins. Law § 2102 (McKinney Supp. 2005) by attending the insurance quote presentation and offering favorable mortgage loan terms to the client?
1. Yes. The agent and the representative violated N.Y. Ins. Law § 2324 by offering favorable mortgage loan terms during the insurance quote presentation as an inducement for the client to purchase an insurance policy from the agent.
2. Yes. If unlicensed, the representative violated N.Y. Ins. Law § 2102 because the representative was soliciting insurance from the client without a New York insurance agent's or broker's license by offering favorable mortgage loan terms to the client in exchange for the client purchasing insurance from the agent.
An insurance producer ("producer"), who is licensed in New York as both an insurance agent and broker, has a client who owns several real estate properties. The client sought competing quotes from different insurers for an insurance policy to replace an expiring insurance policy that covered one of the client's commercial properties. The client received one such competing quote from a New York licensed insurance agent ("agent") whose firm is owned by a bank. A bank representative ("representative") accompanied the agent when the agent presented the quote to the client. During the presentation, the representative informed the client that he would receive favorable mortgage loan terms for the insured property if the client elected to purchase insurance from the agent.
N.Y. Ins. Law § 2324(a) (McKinney Supp. 2004) prohibits rebating and discrimination in contracts of property/casualty insurance by stating that:
(a) 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, or shall give, sell or purchase, or offer to give, sell or purchase, as an inducement to the making of such insurance or in connection therewith, any stock, bond or other securities or any dividends or profits accrued thereon, nor shall the insured, his agent or representative knowingly receive directly or indirectly, any such rebate or special favor or advantage, provided, however, a licensed insurance agent or a licensed insurance broker may retain the usual commission or underwriting fee on insurance placed on his own property or risks, if the aggregate of such commissions or underwriting fees will not exceed five percent of the total net commissions or underwriting fees received by such licensed insurance agent or insurance broker during the calendar year.
Accordingly, N.Y. Ins. Law § 2324 (McKinney Supp. 2004) prohibits insurers, brokers, agents and their representatives from directly or indirectly offering inducements or valuable consideration (other than an article of merchandise not exceeding $15 in value) in connection with the sale of property/casualty insurance when such inducements or valuable consideration are not specified in the insurance policy.
Under the facts provided, both the agent and the representative (whether licensed or not) violated § 2324 by offering favorable mortgage loan terms as an inducement for the client to purchase an insurance policy from the agent when such inducement was not present within the insurance policy.
N.Y. Ins. Law § 2101(o) (McKinney Supp. 2005) defines "solicit" or "solicitation" as; "attempting to sell insurance or asking or urging a person to apply for a particular kind of insurance from a particular licensed insurer, fraternal benefit society or health maintenance organization."
Thus, the representatives offer to provide favorable mortgage loan terms as an inducement for the client to purchase insurance from the agent constituted solicitation.
N.Y. Ins. Law § 2102(a)(1) (McKinney Supp. 2005) provides that: "[n]o person, firm, association or corporation shall act as an insurance producer or insurance adjuster in this state without having authority to do so by virtue of a license issued and in force pursuant to the provisions of this chapter." N.Y. Ins. Law § 2101(k) (McKinney Supp. 2005) defines an insurance producer as, inter alia, an insurance agent or insurance broker.
N.Y. Ins. Law § 2101(a) (McKinney Supp. 2005) provides the following definition of an insurance agent:
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 sale of, an insurance, health maintenance organization or annuity contract, other than as a licensed insurance broker . . . .
N.Y. Ins. Law § 2101(c) (McKinney Supp. 2005) provides the following definition of an insurance broker:
In this article, "insurance broker" means any person, firm, association or corporation who or which for any compensation, commission or other thing of value acts or aids in any manner in soliciting, negotiating or selling, any insurance or annuity contract or in placing risks or taking out insurance, on behalf of an insured other than himself, herself or itself or on behalf of any licensed insurance broker . . . .
Therefore, under the facts presented, if the representative was not licensed as an insurance agent or broker at the time of the solicitation (i.e., the offer of favorable mortgage loan terms), the representative violated the Insurance Law by acting as an insurance agent or broker without a license to do so.
For further information you may contact Senior Attorney Kristian Earl Lynch at the New York City Office.