The Office of General Counsel issued the following informal opinion on November 7, 2001, representing the position of the New York State Insurance Department.
RE: N.Y. Ins. Law § 2324 (McKinney 2000) and Free Cellular Phone Device.
May an insurance company, agent or broker offer a free cellular phone device only to those that complete an insurance application?
No. Such an offer would constitute an unlawful inducement in violation of N.Y. Ins. Law § 2324 (McKinney 2000).
The inquirer stated that an insurance company offered a free item to be used in a car so that the cell phone could be used hands free. The offer is directed to all those that complete an application for car insurance. The inquirer questioned whether this offer violates N.Y. Ins. Law § 2324 (McKinney 2000).
N.Y. Ins. Law § 2324 (McKinney 2000), entitled "Rebating and discrimination", is applicable to property/casualty insurance and provides 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 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, provided, however, a licensed insurance agent or a licensed insurance broker may retain the usual commission or underwriting fee on insurance placed on his own property or risks, if the aggregate of such commissions or underwriting fees will not exceed five percent of the total net commissions or underwriting fees received by such licensed insurance agent or insurance broker during the calendar year. (emphasis added).
Thus, in accordance with the express language of N.Y. Ins. Law § 2324 (McKinney 2000), insurers, brokers, agents and their representatives are prohibited from directly or indirectly offering inducements or valuable consideration, other than an article of merchandise not exceeding $15 in value in connection with the sale of insurance, when such inducements or valuable consideration are not specified in the insurance policy.
In the present case, the offer of the free cellular phone device violates N.Y. Ins. Law § 2324 (McKinney 2000) because it clearly induces prospective insureds to procure insurance through the insurer by offering the added benefit of receiving a free cellular phone device, which is not specified in the insurance policy.
Moreover, the cellular phone device is not an article of merchandise, within the meaning of N.Y. Ins. Law § 2324 (McKinney 2000). The article of merchandise that § 2324 contemplates is a "keepsake", not exceeding $15 in value, which conspicuously bears the agencys name and is designed to keep the insurers name before the customer. Inasmuch as the device being offered is not a "keepsake", within the meaning of the statute, it does not fall under the keepsake exception of N.Y. Ins. Law § 2324 (McKinney 2000).
For further information, you may contact Attorney Pascale Joasil at the New York City office.