The Office of General Counsel issued the following informal opinion on November 13, 2002, representing the position of the New York State Insurance Department
Fees to an Association for a Membership List
This is in response to your recent request for an opinion.
May an authorized insurer purchase membership lists from several nonprofit membership organizations and pay for these lists if:
1. The insurer pays each membership organization a flat fee per member based on the insurers profitability (its loss ratio) in the state in which the membership organization is located (the flat fee per member would be adjusted on an annual or a monthly basis)?
2. The fee is based on the insurers premium in that state?
3. The annual fee represents a flat fee for each member of the organization that is an insured?
Any of the above methods of payment by the authorized insurer would be permissible under N.Y. Ins. Law § 2324 (McKinney 2000 & Supp. 2002) or N.Y. Ins. Law § 4224 (McKinney 2000).
A Casualty Insurance Company and a Life Insurance Company (the "insurers") are parties to Membership List Purchase Agreements (the "agreements") with each of ten state Farm Bureaus. The Farm Bureaus are nonprofit membership organizations that traditionally seek to advance the interests of the agricultural community.
Pursuant to these agreements, the Farm Bureaus provide the insurers with the right to utilize the Farm Bureaus membership lists in connection with the marketing of both insurance products and financial services, and to use Farm Bureau names and service marks in connection with the marketing of insurance products. The insurers now pay the Farm Bureaus an annual fee based upon a flat fee per Farm Bureau member. The insurers would like to change the form of payment as described above.
In 2001, the Department issued Circular Letter 2001-5 dated February 1, 2001 which stated the Departments position that the sale of membership lists does not constitute a solicitation or a referral and, accordingly, compensation for such list could be contingent upon the sale of insurance. Circular Letter 2001-5 provides:
(T)he New York Insurance Law does not prohibit licensees from purchasing lists of customer names and related information from non-licensees for the purposes of soliciting insureds. The compensation payable to non-licensees for such lists may be contingent upon the successful placement by the licensee of the insurance and may be a percentage of the insurance commission the licensee earned from placing the business.
However, in the case of membership organizations, such as the Farm Bureaus, because it is possible that the compensation will inure to the benefit of the insureds, the question of rebating still remains. Previous Office of General Counsel opinions have stated that payment to a membership organization for its membership list based upon a percentage of the commission earned from the sale of insurance inures to the benefit of the insureds and, thus, violates either N.Y. Ins. Law § 2324 (McKinney 2000 & Supp. 2002) or N.Y. Ins. Law § 4224 (McKinney 2000). However, these opinions also stated that Farm Bureaus could be paid a fee for the use of their membership lists, provided that the agreements only address the sale of the membership list and the form of payment for such list, which must either be a flat annual fee or a fee based upon usage by the licensee. Although the payment could not be contingent upon the purchase of insurance, it could be determined by the number of members on the list, irrespective of the purchase of insurance. An addendum to the list could be purchased in the same manner.
The inquirer asked whether there has been a change in the Departments interpretation of the rebating statutes and, if so, whether any of the alternatives posed above would be permissible. In General Counsel Opinion 2-26-2001, the Department re-examined its interpretation of N.Y. Ins. Law § 2324 (McKinney 2000 & Supp. 2002) and N.Y. Ins. Law § 4224 (McKinney 2000) with respect to their application to a credit union 1. The opinion stated that in a true rebate scenario, an identifiable quid pro quo exists, and it is that evil which the statute was intended to prevent. Accordingly, the opinion provided that the relevant standards to evaluate whether there is any rebating are:
1. whether there is any readily identifiable or quantifiable benefit possibly gained by the members;
2. whether any such benefits inure in a manner that is related to the purchase of insurance by any given member, i. e., whether there is proportionality or relationship between the amount of insurance purchased by an individual member and the degree of benefit enjoyed by that member; and
3. whether any benefit derived functions as an inducement to purchase or retain the insurance.
The Department concluded that an indeterminate and nonquantifiable benefit that may inure to the entire membership of a credit union would not constitute an impermissible rebate or incentive under N.Y. Ins. Law § 2324 2. Accordingly, provided that the answer to each of the above standards is no, a membership organization may be compensated in a manner that is contingent upon the sale of insurance.
During a meeting of the Department with the Inquirer, the Inquirer stated that you believe that the farm bureaus use the payments they receive for providing the membership lists for general purposes such as lobbying expenses and that the money is not being returned specifically to the individual members of the farm bureaus who purchase the insurance. This being the case, the Department would conclude that the rebating statutes would not apply in this case. First, any benefit possibly gained by the members of the farm bureau cannot be readily identified or quantified. Second, any such benefits inure in a manner that is wholly unrelated to the purchase of insurance by any given member, i.e., there is no proportionality or relationship between the amount of insurance purchased by an individual member and the degree of benefit (such as it may be) enjoyed by the member. Finally, any benefit derived does not, as a practical matter, function as an inducement to purchase or retain insurance there is no quid pro quo. Accordingly, any of the payment methods proposed above would be permissible.
I trust this is responsive to your inquiry.
For further information you may contact Supervising Attorney Joan Siegel at the New York City Office
1 The principles enunciated in that opinion would apply to all membership organizations.
2 The same conclusion would be reached under N.Y. Ins. Law § 4224 (McKinney 2000).