The Office of General Counsel issued the following opinion on January 10, 2008, representing the position of the New York State Insurance Department.
RE: Insurance Agency or Brokerage Firm Placing an Advertisement with an Insured Client
May a firm licensed as a property/casualty insurance agent and an insurance broker pay one of its insured clients to place an advertisement on the insured client’s property?
The answer depends upon whether paying an insured client to place an advertisement on the insured client’s property violates Insurance Law § 2324, which applies to property/casualty insurance and prohibits insurers, insurance agents, insurance brokers, and their representatives from directly or indirectly offering rebates or inducements other than an article of merchandise not exceeding $15 in value, when the rebates or inducements are not specified in the insurance policy or contract. In the situation presented here, the Department lacks sufficient information to determine whether paying an insured client to place an advertisement on the insured client’s property would violate Insurance Law § 2324.
The inquirer is the marketing director at a firm that is licensed as an insurance broker and an insurance agent, and that is licensed to sell property/casualty insurance. The inquirer asks about the lawfulness of placing an advertisement for the firm on a piece of real estate undergoing development that is owned by one of the firm’s insureds.
N.Y. Ins. Law § 2324 (McKinney 2006) is relevant to the inquirer’s inquiry. That statute applies to rebating and discrimination in connection with the sale of property/casualty insurance,1 and reads in relevant part as follows:
(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….(Emphasis added.)
According to the express language of Insurance Law § 2324(a), insurers, insurance agents, insurance brokers, and their representatives are generally prohibited from directly or indirectly offering rebates or inducements, other than an article of merchandise not exceeding $15 in value, in connection with the sale of property/casualty insurance, when the rebates or inducements are not specified in the insurance policy or contract.
In the situation presented here, the Department lacks sufficient information to determine whether paying an insured client to place an advertisement for the inquirer’s firm on the insured client’s property would violate Insurance Law § 2324. The answer to the inquirer’s inquiry turns on a number of factors, including whether any benefit inures in a manner that relates to the purchase of insurance; whether any benefit functions as an inducement to, or compensation for, the purchase or retention of insurance; the amount charged for the advertisement; and whether the inquirer’s firm’s advertisement would be the only advertisement placed on the insured client’s property.
The inquirer was directed to review other opinions construing the Insurance Law, with regard to rebates and inducements, by visiting the Department’s website at http://www.ins.state.ny.us.
For further information you may contact Assistant Attorney Joana Lucashuk at the New York City office.
1 Insurance Law § 4224 applies to rebating and discrimination in connection with the sale of life and accident and health insurance, and annuities.