OGC Opinion No. 06-05-10

The Office of General Counsel issued the following opinion on May 30, 2006, representing the position of the New York State Insurance Department.

Re: Policy or contract and company comparisons in sale and replacement of life insurance and annuities

Question Presented:

What New York laws and regulations apply to policy or contract and company comparisons in the sale and replacement of life insurance policies and annuity contracts?


Please see analysis below.


No specific fact pattern was presented.


The New York Insurance Law protects insureds or potential insureds of life insurance policies and annuity contracts from being wrongly induced to purchase new coverage or surrender existing coverage. The law prohibits certain kinds of misrepresentations and misleading statements or incomplete policy or contract comparisons made by insurance agents, insurance brokers, or insurers; and compels disclosure of certain kinds of information when an insured is considering the purchase of one such product to replace another.

N.Y. Ins. Law § 2123 (McKinney 2001) prohibits misrepresentations, misleading statements and incomplete comparisons by insurance agents and insurance brokers. Section 2123 (a)(1) provides in pertinent part:

No agent or representative of any insurer . . . in this state and no insurance broker, and no other person, firm, association or corporation, shall issue or circulate or cause or permit to be issued or circulated, any illustration, circular, statement or memorandum misrepresenting the terms, benefits or advantages of any policy or contract of life, accident or health insurance, any annuity contract. . . delivered or issued for delivery or to be delivered or issued for delivery, in this state, or shall make any misleading estimate as to the dividends or share of surplus or additional amounts to be received in the future on such policy or contract, or shall make any false or misleading statement as to the dividends or share of surplus or additional amounts previously paid by any such insurer or health maintenance organization on similar policies or contracts . . .

N.Y. Ins. Law § 4226 (McKinney 2001) prohibits insurers from making misrepresentations, misleading statements and incomplete comparisons.

In addition, N.Y. Comp. Codes R. and Regs. tit. 11, pt. 51 (2005) (Reg. 60), which governs the sale of replacement life insurance policies and annuity contracts, was promulgated to prevent unfair methods of competition and practices in the replacement of life insurance policies and annuity contracts by providing applicants with enough information to make an informed decision regarding replacements.

Specifically, Section 51.5 (c)(3) of N.Y. Comp. Codes R. and Regs. tit. 11, pt. 51 (2005) (Reg. 60) provides that where a replacement is involved the agent must, inter alia, provide the insured with the "IMPORTANT Notice Regarding Replacement or Change of Life Insurance Policies or Annuity Contracts" and a completed "Disclosure Statement" signed by the agent. Thus, a disclosure statement should provide the insured with accurate comparative information about significant features of the replaced and replacing policies or annuity contracts. 1

This Department has opined that under circumstances surrounding the sale of life insurance policies or annuity contracts, where fees and charges may be a significant factor in a determination by a client to purchase or replace a life insurance policy or annuity contract, an illustration of applicable fees and charges is an essential element in the disclosure. Opinion of General Counsel No. 01-07-13 (July 11, 2001).

N.Y. Ins. Law § 1313 (McKinney 2000) regulates the statements made by insurers in advertisements and other public announcements concerning their financial condition. N.Y. Ins. Law § 2122 (a)(1) (McKinney 2000), provides that insurance agents and insurance brokers must also comply with the statutory requirements of Section 1313 in advertisements or other public announcements concerning the financial condition of an insurer. N.Y. Comp. Codes R. and Regs. tit. 11, pt. 219 (2005) (Reg. 34-A) governs advertisements of life insurance and annuity contracts.

Under N.Y. Ins. Law § 1322 (McKinney 2000), while life insurers are required to file a risk-based capital report ("RBC report") to the Superintendent of Insurance, an insurance agent, insurance broker, or insurer may not advertise the RBC Levels of the insurer. Section 1322 (i)(2)(B) states in relevant part:

[N]o authorized insurer, licensed insurance agent, licensed insurance broker, or any person on behalf of the insurer, agent or broker, or any other person licensed pursuant to this chapter shall, make, publish, disseminate, circulate or place before the public, or cause, directly or indirectly, to be made, published, disseminated, circulated or placed before the public, in a newspaper, magazine or other publication, or in the form of a notice, circular, pamphlet, letter or poster, or over any radio or television station, or in any other way, an advertisement, announcement or statement containing an assertion, representation or statement with regard to the RBC Levels of any insurer, or of any component derived in the calculation.

Advertisements showing the separate financial condition of a domestic stock insurance company may show such on a generally accepted accounting principles (GAAP) basis under certain conditions. Section 84.1(d) of N.Y. Comp. Codes R. and Regs. tit. 11, pt. 84 (2005) (Reg. 69) states:

Advertisements, signs, pamphlets, circulars, cards or other public announcements purporting to make known the separate financial condition of any domestic insurer may show such condition on a GAAP basis provided that the financial condition on a statutory basis is also shown and the statement referred to in subdivision (c) of this section is presented in conjunction with the GAAP statement.

Article 26 of the Insurance Law also classifies many actions that relate to advertising as unfair business practices. N.Y. Ins. Law § 2603 (McKinney 2000) concerns the issuing and circulation of false literature and states:

No insurance corporation, or any officer, director or agent thereof, shall issue or circulate, or cause or permit to be issued or circulated, in this state any illustration, circular or statement indicating the corporation can transact in this state any business of a character except that which it is authorized to transact under its certificate of authority issued by the superintendent.

It is also considered an unfair practice to make false statements as to insurers. N.Y. Ins. Law § 2604 (McKinney 2000) states:

No person shall either (i) willfully make, circulate or transmit to another any statement written, printed or by word of mouth, which is untrue in fact and is directly or by inference derogatory to the financial condition, or affects the solvency or financial standing, of any insurer doing business in this state, or (ii) knowingly counsel, aid, procure or induce another to start, transmit or circulate any such statement.

False advertising also violates the New York Penal Law. N.Y. Penal Law § 190.20 (McKinney 1999) states:

A person is guilty of false advertising when, with intent to promote the sale or to increase the consumption of property or services, he makes or causes to be made a false or misleading statement in any advertisement or publishes any advertisement in violation of chapter three of the act of congress entitled "Truth in Lending Act" and the regulations thereunder, as such act and regulations may from time to time be amended, addressed to the public or to a substantial number of persons; except that, in any prosecution under this section, it is an affirmative defense that the allegedly false or misleading statement was not knowingly or recklessly made or caused to be made.

False advertising is a class A misdemeanor.

In addition, Article 24 of the Insurance Law enumerates those business practices that constitute defined and determined violations. Section 2402(b) lists those sections that constitute defined violations and includes all of the sections of the New York Insurance Law discussed in this letter and Penal Law § 190.20. Section 2402(c) defines a determined violation as:

any unfair method of competition or any unfair or deceptive act or practice, which is not a defined violation but is determined by the superintendent pursuant to section two thousand four hundred five of this article to be such method, act or practice.

Section 2403 prohibits any person from engaging in this state in any trade practice constituting a defined violation or a determined violation.

In as much as the inquirer did not provide the Department with a specific factual situation, this opinion is not necessarily exhaustive of all provisions of the law that may be applicable. A person may wish to review the Office of General Counsel's opinions available on the web at http://www.ins.state.ny.us/regclinx.htm regarding specific issues discussed herein.

For further information you may contact Senior Attorney Elizabeth Barrett at the New York City Office.

1 See also N.Y. Ins. Law § 3209 (McKinney 2006) (establishing disclosure requirements in the solicitation, negotiation or procurement of life insurance, annuities or funding agreements); N.Y. Comp. Codes R. and Regs. tit. 11, pt. 53 (2005) (Reg. 74) (providing rules for the content and format of sales illustrations for life insurance policies, annuity contracts, variable life insurance policies, variable annuity contracts and individual funding agreements in accordance with Section 3209 (k) of the Insurance Law). This is only a partial indication of the disclosure requirements relative to the sale of life insurance and annuity contracts.