OGC Opinion No. 08-06-05: Rebates – Gift Cards | Department of Financial Services

OGC Op. No. 08-06-05

The Office of General Counsel issued the following opinion on June 10, 2008, representing the position of the New York State Insurance Department.

RE: Rebates – Gift Cards

Question Presented

May a New York licensed property/casualty insurance agent lawfully offer a ten dollar gift card for purchasing gas to currently insured clients who refer non-clients to an insurance company for an insurance quote on personal lines property/casualty insurance?

Conclusion

No. Although N.Y. Ins. Law § 2115(a)(1) (McKinney’s 2007) permits an agent to compensate non-licensed individuals for referrals so long as the referral does not include a discussion of specific insurance policy terms and conditions and is not based upon whether a sale is executed, the gift card here would constitute an unlawful rebate within the meaning of Insurance Law § 2324.

Facts

The inquirer reports that the inquirer is a New York licensed property/casualty insurance agent for an insurance company, and that the inquirer is considering offering a ten dollar gift card for purchasing gas to currently insured clients to encourage them to refer people they know to the insurance company for an insurance quote. The inquirer asks whether implementing this program is lawful.

Analysis

A person who is not licensed in New York as an insurance producer but who makes insurance referrals is generally considered to be acting as an unlicensed insurance producer in violation of Insurance Law § 2102, which states that “[n]o person, firm, association or corporation shall act as an insurance producer . . . in this state without having authority to do so by virtue of a license . . . ”. However, Insurance Law § 2115(a)(1) provides an exception to Insurance Law § 2102, and permits an agent to compensate non-licensees for insurance referrals if the referrals do not include a discussion of specific insurance policy terms and conditions, and so long as any compensation for such referrals is not based on whether a sale is executed. That statute, which applies to property/casualty insurance agents, reads in pertinent part as follows:

(a)(1) [Eff. until Sept. 10, 2009, pursuant to L.2000, c. 418, § 12, and L.1997, c. 3, § 7. See, also, par. (1) below.] No insurer doing business in this state, and no agent or other representative thereof, except as provided in subsection (b) hereof, shall pay any commission or other compensation to any person, firm, association or corporation for acting as insurance agent in this state, except to a licensed insurance agent of such insurer or to a person described in paragraph two or four of subsection (a) of section two thousand one hundred one of this article or except as provided in subsection (c) of this section For the purposes of this section, “acting as insurance agent” shall not include the referral of a person to a licensed insurance agent or broker that does not include a discussion of specific insurance policy terms and conditions and where the compensation for referral is not based upon the purchase of insurance by such person. (Emphasis added.)¹

However, Insurance Law § 2324, which addresses impermissible rebates with respect to property/casualty insurance, is germane to the portion of the inquirer’s question that proposes giving a ten dollar gift card for purchasing gas to current clients who refer non-clients to the insurance company for an insurance quote. That statute reads in pertinent 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 . . . (Emphasis added.)

The inquirer’s plan to offer the ten dollar gift card only to current clients would violate Insurance Law § 2324 because it would constitute an unlawful rebate not specified in the insurance policy of those current insureds. Nevertheless, there is an exception to this prohibition, highlighted above, that allows a licensed agent to give an “article of merchandise not exceeding fifteen dollars in value which shall have conspicuously stamped or printed thereon the advertisement of the . . . agent . . . ”. The “article of merchandise” that Insurance Law § 2324(a) contemplates is a keepsake, not exceeding $15 in retail value, which is designed to keep the name of the insurer or producer before the consumer by embossing of the insurer’s or producer’s name on it.

However, a ten dollar gift card does not qualify as a keepsake -- even if the insurer’s or producer’s name is embossed upon the card -- because the card is intended to be traded away for a tangible gift – gas -- and therefore not designed to keep the company’s name before the consumer. See Office of General Counsel Opinions dated March 12, 2008; April 22, 2005; May 14, 2002 and August 2, 2004.

For further information, one may contact Senior Attorney Susan A. Dess, at the New York City office.

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