The Office of General Counsel issued the following opinion on December 13, 2006, representing the position of the New York State Insurance Department.
May an insurance agent conduct a raffle for a prize worth approximately $1,000 for his current policyholders?
Under N.Y. Ins. Law §§ 2324 and 4224, a raffle is permitted with no dollar limitation as long as it is open to the public and it is not tied either to the sale or solicitation of insurance.
The inquirer states that he/she is a licensed insurance agent who wishes to conduct a raffle with a prize that costs approximately $1,000 for his/her policyholders. The inquirer wants to know if this type of raffle is legal under the New York Insurance Law.
N.Y. Ins. Law § 2324(a) (McKinney 2006) prohibits unlawful rebates in connection with property/casualty insurance and states in relevant part:
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 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
Additionally, N.Y. Ins. Law § 4224(c) (McKinney 2006) adopts a similar rule in the context of life, accident and health insurance and annuity contracts. This section states:
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.
Under Section 4224(c) an agent or broker of life, accident and health insurance, and annuity contracts may not distribute promotional novelties unless it is specified in the policy or contract. Under Section 2324(a) an insurance agent or broker for property/casualty insurance may distribute merchandise, not exceeding $15.00 in value, as long as the producers name is clearly stamped thereon. However, neither a raffle ticket nor prize falls within this exception provided by N.Y. Ins. Law § 2324.
A raffle would not violate Section 2324 or 4224 if it is: (1) open to the public (i.e. anyone may enter it; not just your existing customers); and (2) the raffle is not tied to the sale or solicitation of insurance. If these conditions are not met, however, a raffle would be considered an unlawful rebate.
Since the raffle that the inquirer wishes to conduct will only be open to the producers existing customers, it would not be considered an open raffle and would be violative of Sections 2324 and/or 4224. Additionally, the raffle would not be changed to an "open raffle" by merely stating that anyone could enter it because the target audience would remain the existing insurance customers. The raffle would have to be made public in order for it to be considered to be an "open raffle."
Finally, it should be noted that there is no dollar limitation on an open raffle. See Opinion of General Counsel No. 05-05-31 (May 31, 2005).
For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.