The Office of General Counsel issued the following opinion on June 14, 2004, representing the position of the New York State Insurance Department.
Re: Automobile Glass Repair and Replacement Service
Company & Donations on Behalf of Agents for Referrals
If members of an insurance agent association refer motor vehicle repair business to a motor vehicle repairer, which specializes in glass repair and replacement, may the repairer donate, on behalf of the association, a portion of the resulting income to a charity that the association sponsors?
No. The donations would violate N.Y. Ins. Law § 322 because the agent members of the association, although not receiving the payment directly, are, by agreeing to participate in the proposed program, indirectly requesting that a payment be made in return for their referrals.
After learning that an association of New York insurance agents sponsors a particular charity, a New York motor vehicle repairer, which specializes in automobile glass repair and replacement, proposes to donate to the charity, on behalf of the association and in exchange for referrals by association insurance agents, a portion of its income (equal to $25 for every glass replacement and $5 for every glass chip repair) that originates from association member referrals of motor vehicle repair business to the repairer.
Under the referral arrangement described above, the pool of potential insurers that will compensate the repairer for its glass repair and replacement services is limited to certain insurers that have contracted with the repairer. The amount that the repairer may charge one of these insurers is limited by contract. Please note that the inquirer does not know if the insurers and insureds are aware of the proposed arrangement of repairer donations.
N.Y. Ins. Law § 322 (McKinney 2000) prohibits motor vehicle repairers from making referral payments to Insurance Department licensees by providing that: "[n]o licensed insurance agent, licensed insurance broker, licensed adjuster, authorized insurer or representative of such insurer shall directly or indirectly request, procure or accept any payment from a motor vehicle repairer for referring any motor vehicle repair business to such repairer."
Under the facts presented here, the repairer proposes to donate, on behalf of the association, a portion of the income derived from the agents referrals to a charity. The language in N.Y. Ins. Law § 322 does not limit its applicability to situations in which the Department licensee or its representative directly requests, procures or accepts the payment for the referral. Accordingly, the proposed program would violate N.Y. Ins. Law § 322 because the agent members of the association, although not receiving the payment directly, are, by agreeing to participate in the proposed program, indirectly requesting that a payment be made in return for their referrals.
For further information you may contact Senior Attorney Kristian Earl Lynch at the New York City Office.