New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

The Office of General Counsel issued the following informal opinion on May 14, 2002, representing the position of the New York State Insurance Department.

Re: N.Y. Ins. Law § 2324(a) (McKinney 2001-2002 Interim Pocket Part) and free phone card

Question Presented:

If a property/casualty insurance company (hereinafter "insurer") were to give its insureds a phone card that has the name and address of the insurer printed on the front, does the phone card qualify under the N.Y. Ins. Law § 2324(a) (McKinney 2001-2002 Interim Pocket Part) "keepsake" exception for an "article of merchandise" not exceeding $15 in value?

Conclusion:

The phone card does not qualify as an "article of merchandise"1 pursuant to the "keepsake" exception of § 2324(a).

Facts:

The insurer would like to give its insureds a phone card, which provides ten minutes of free calling anywhere in the continental United States. The insurer's name and address would be printed on the front of the phone card. The cost of the card is approximately $1.24. It is not clear whether the cost is the insurer's cost or whether the cost is the retail value of the phone card.

Analysis:

N.Y. Ins. Law § 2324(a) (McKinney 2001-2002 Interim Pocket Part) is quoted in pertinent part below:

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 . . . pay or allow or offer to pay or allow to the insured . . . either as an inducement to the making of insurance or after the insurance has been effected . . . 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 . . . nor shall the insured, his agent or representative knowingly receive directly or indirectly, any such rebate or special favor or advantage . . . ." (Emphasis added)

The insurer's proposal to give its insureds the phone card after the insurance has been effected would be valuable consideration not plainly expressed in the policy. Thus, after the insurance has been effected the insurer would give its insureds an inducement to renew the customer relationship when the policy period ends. Moreover, after the insurance has been effected the insurer's insureds would knowingly receive a special favor or advantage. Therefore, unless the phone card would qualify as an "article of merchandise" not exceeding $15 in retail value, the insurer and its insureds would violate § 2324(a).

The "article of merchandise" that § 2324(a) contemplates is a "keepsake", not exceeding $15 in retail value, that is designed to keep the name of the insurer or producer before the customer through the embossing of the insurer's or producer's name. It is typical that a phone card is used shortly after receipt in exchange for calling and then would be discarded. Thus, the phone card does not qualify as an "article of merchandise" pursuant to the "keepsake" exception of § 2324(a).

The above opinion is informal and not binding on any court. For further information you may contact Senior Attorney Robert Freedman at the New York City Office.


1Note that if the phone card were an "article of merchandise" pursuant to the "keepsake" exception of § 2324(a) its "value" could not exceed $15. The Office of General Counsel has consistently construed compliance with the "value" element of the "keepsake" exception to be retail value.