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

George E. Pataki
Governor

Howard Mills
Superintendent

The Office of General Counsel issued the following opinion on January 24, 2006, representing the position of the New York State Insurance Department.

Re: Insurance Agent's Proposed Contest -- N.Y. Ins. Law §§ 4224(c) and 2324(a).

Question Presented:

May an insurance agent offer a prize of an iPod to a random current client who submits answers in response to questions posed in the agent's quarterly newsletter that is distributed to the insurance agent's current clients?

Conclusion:

No. Based on the facts presented this type of contest would constitute an improper inducement under N.Y. Ins. Law §§ 2324(a) or 4224(c) (McKinney Supp. 2006).

Facts:

The insurance agent sends a newsletter every quarter year to its current clients. We assume that the insurance agent's current "clients" are insureds who had their insurance placed by the insurance agent. The proposed contest would provide a means to market additional kinds of insurance, including flood insurance that was referred to in the inquiry, to the insurance agent's current clients.

Analysis:

With respect to property/casualty insurance N.Y. Ins. Law § 2324(a) (McKinney Supp. 2006) states in relevant part:

(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 . . . .

With respect to life, accident and health insurance N.Y. Ins. Law § 4224(c) (McKinney Supp. 2006) states:

(c) No such life insurance company and no such savings and insurance bank and no officer, agent, solicitor or representative thereof and no such insurer doing in this state the business of accident and health insurance and no officer, agent, solicitor or representative thereof, and no licensed insurance broker and no employee or other representative of any such insurer, agent or broker, shall pay, allow or give, or offer to pay, allow or give, directly or indirectly, as an inducement to any person to insure, or shall give, sell or purchase, or offer to give, sell or purchase, as such inducement, or interdependent with any policy of life insurance or annuity contract or policy of accident and health insurance, any stocks, bonds, or other securities, or any dividends or profits accruing or to accrue thereon, or any valuable consideration or inducement whatever not specified in such policy or contract; nor shall any person in this state knowingly receive as such inducement, any rebate of premium or policy fee or any special favor or advantage in the dividends or other benefits to accrue on any such policy or contract, or knowingly receive any paid employment or contract for services of any kind, or any valuable consideration or inducement whatever which is not specified in such policy or contract.

The Department has opined that a licensee may run a promotional contest if the contest is open to the general public, meaning anyone can enter the contest, regardless of current or potential insured status, and the ability to win the contest must not be an inducement for, or interdependent with the purchase or solicitation of an insurance product. See OGC Opinions 04-11-14 (November 19, 2004) and 03-10-30 (October 31, 2003).

It is clear from the inquirer's proposal that the contest is not open to the general public because entry to the contest is limited to only the agency's current clients. Moreover, the contest is not permissible for property/casualty insurance pursuant to the Section 2324(a) exception with respect to "any article of merchandise not exceeding fifteen dollars in value which shall have conspicuously stamped or printed thereon the advertisement of the . . . agent . . . ."

If a contest by an insurance agent or broker were organized so that anyone can enter, regardless of current or potential insured status, and winning the contest is not tied in to the purchase or solicitation of an insurance product, neither Section 4224(c) nor Section 2324(a) would be violated.

For further information you may contact Senior Attorney Robert Freedman at the New York City Office.