The Office of General Counsel has issued the following informal opinion on May 5, 2000 representing the current position of the New York State Insurance Department.
Incentives for Auto Glass Windshield Repairs
May an auto glass windshield repair and replacement company that is referred to insureds by insurers, offer an incentive, such as movie tickets, to insureds in order to encourage them to use its company for repairs?
It depends upon whether an insurer is randomly referring insureds to different glass repair shops or referring insureds to only one specific glass repair shop. If the insurance company randomly refers insureds to different glass repair shops, then the offer of an incentive, such as movie tickets, would be permitted. However, if the insurance company refers an insured to only one specific glass repair shop offering the incentive, then a violation of N.Y. Ins. Law § 2324 (McKinney 1985) would occur.
Company G would like to aid insurance companies by increasing the number of windshields that are repaired rather than replaced for an insureds vehicle, since repairs are more cost effective than replacement glass and are guaranteed for the life of the vehicle as long as it is owned by the insured. Company G would get business from insurers who refer insureds, but not require them, to use Company Gs auto glass windshield repair and replacement company.
Company G would like to offer to the insured an incentive to take his vehicle to G for purposes of repairing the windshield. The incentive would be an item with a nominal value, such as movie tickets. Moreover, if the repair was unsuccessful, the windshield would be replaced and only the cost of replacement would be charged. It was not specified whether the charge would be to the insurer or the insured.
In a situation where an insurer randomly refers glass repair companies to insureds, such as via a telephone system allocator, no violation of the Insurance Law would occur.
However, in a situation where an insurer refers insureds to only one specific glass shop that offers an incentive, such as movie tickets, then a violation of N.Y. Ins. Law § 2324 (McKinney 1985) would occur.
N.Y. Ins. Law § 2324(a) (McKinney 1985), which is applicable to property and casualty insurance 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 five dollars in value which shall have conspicuously stamped or printed thereon the advertisement of the insurer, agent or broker. . . .(emphasis added).
According to the express language of N.Y. Ins. Law § 2324 (McKinney 1985), insurers, insurance agents, brokers and employees or other representatives of such entity are prohibited from directly or indirectly offering rebates, inducements, or valuable consideration, other than an article of merchandise not exceeding five dollars in value, in connection with the sale of insurance or after the insurance has been purchased, when such rebates, inducements, or valuable consideration are not specified in the policy or contract of insurance.
Although the insurer here would not be directly offering the rebate, inducement or valuable consideration, the insurer, by referring the insured to Company G and knowing that G would be providing the inducement, would be encouraging the insured to use G to repair the window glass, thereby indirectly offering to the insured after insurance has been effected, any valuable consideration or inducement of any kind, directly or indirectly, which is not specified in such policy. This action would violate of N.Y. Ins. Law § 2324 (McKinney 1985).
Moreover, the insurer would incur a monetary benefit by its referral to G since the insurer most likely gets the advantage of a cheaper repair for its referring potential customers to G, as opposed to a different glass company.
Furthermore, an offer of movie tickets would not come within the five dollar exception, as the price exceeds the five dollar value, is not considered merchandise, and presumably would not have the name of the insurer conspicuously printed on it. It has been the opinion of this Department in the past that movie tickets are similar to gift certificates, mileage coupons, certificates redeemable for film, and other valuable consideration, and as such, are not merchandise within the meaning of Section 2324.
In addition, you state that the windshield repairs are guaranteed so long as the vehicle is owned by the insured. The guarantee, however, must comply with N.Y. Comp. Codes R. & Regs. tit. 11, § 216.7(15)(1986) (Regulation 64) (copy enclosed), which states, in relevant part, that:
(15) If the insureds motor vehicle is repaired at a repair shop recommended by the insurer, for a sum estimated by the insurer as the reasonable cost to repair the vehicle, the insurer:
shall select a repair shop that issues written guarantees that any work performed in repairing damaged motor vehicles meets generally accepted standards for safe and proper repairs;
shall cause the damaged vehicle to be restored to its condition prior to the loss, at no additional cost to the insured and within a reasonable time, if the repair shop it recommended does not repair the damaged motor vehicle in accordance with generally accepted standards for safe and proper repair; . . .
Therefore, if the insurer referred the insured to G, the insured may not be obligated to pay for any additional costs for work that may be necessary if the repair is unsuccessful.
For further information you may contact Attorney Meredith S. Katz at the New York City office.