OGC Opinion No. 06-09-09
The Office of General Counsel issued the following opinion on September 18, 2006 representing the position of the New York State Insurance Department.
Re: Inducement to Purchase Insurance under § 4224
Question Presented:
May a licensed insurance agent in New York pay a consulting firm for providing its customers with services?
Conclusion:
No, a licensed insurance agent in New York may not pay a consulting firm for providing its customers with services.
Facts:
The inquirer is currently licensed as an insurance agent for life insurance and accident and health insurance and a licensed insurance broker for property/casualty insurance. The inquiry is in reference to life insurance and accident and health insurance coverage.
The company is considering a business relationship with a consulting firm in human resources to provide specific services to one or more insurance clients. Specifically, the company is considering paying the consulting firm for providing its clients with an audit in how the client complies with state and federal laws in the area of human resources. The audits would alert clients to necessary steps they may need to take to insure compliance with labor laws and recognize best practices in their human resources department. After the audit, additional services would be offered directly to the client through a direct contract between the consulting firm and the client and paid directly by the client.
Analysis:
N.Y. Ins. Law § 4224(c) (McKinney Supp. 2006), which applies to contracts of life insurance, and accident and health insurance,1 states:
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.
An insurance agent or broker subject to the provisions of § 4224(c) may not provide "any valuable consideration or inducement" in connection with the sale of life insurance or accident and health insurance not specified in the insurance policy. Therefore, by paying a consulting firm for providing services, such as an audit, to clients at no additional charge to them, the company would be improperly inducing clients to purchase life insurance or accident and health insurance in violation of N.Y. Ins. Law § 4224(c).
For further information you may contact Senior Attorney Elizabeth Barrett at the New York City Office.
1 N.Y. Ins. Law § 2324(a) (McKinney 2006), which generally applies to contracts of property/casualty insurance, has a similar provision.