The Office of General Counsel issued the following opinion on September 19, 2005, representing the position of the New York State Insurance Department.
Re: Alarm System Rebates for Clients.
May an insurance agent or an insurer distribute rebate certificates for the installation of alarm systems to homeowners' insurance policyholders?
No, the rebate would constitute an improper rebate in violation of N.Y. Ins. Law § 2324 and/or § 4224 (McKinney Supp. 2005).
The inquirer would like to know if it's legal to distribute rebate certificates for alarm systems to its homeowners' policy holders. The inquirer wants an interpretation of N.Y. Ins. Law § 2324 to answer this question.
With respect to property/casualty insurance, N.Y. Ins. Law § 2324 (a) (McKinney Supp. 2005) provides in relevant 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, N.Y. Ins. Law § 4224 (c) (McKinney Supp. 2005) provides:
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)
A property and casualty insurer is prohibited from offering an inducement or valuable consideration not specified in the insurance policy, other than a "keepsake" item not exceeding $15. A life, accident, and health insurer is prohibited from offering an inducement or valuable consideration of any kind that is not specified in the insurance policy.
The alarm rebate would constitute a valuable consideration as within the meaning of the statute, falling within the anti-rebate provision of the statute.
This Department has had numerous opportunities to interpret these statutes and has consistently held that insurers or agents cannot offer rebates in like circumstances. In a January 18, 2001 (OGC Opinion # 01-01-12) letter the Department held that an offer to assist insureds in videotaping their possessions so as to assist in recovering them if damaged or stolen was in violation of the anti-rebate statute.
Since the alarm rebate is offered "outside of the terms of the homeowners' policy it would constitute an improper rebate in violation of § 2324.
For further information please contact Supervising Attorney Sam Wachtel at the New York City Office.