The Office of General Counsel issued the following opinion on June 4, 2007, representing the position of the New York State Insurance Department.
RE: Promotional Discounts and Gifts N.Y. Ins. Law § 4224 (McKinney Supp. 2007)
May an insurer, or a third party on behalf of an insurer, provide a non-insurance promotional discount, gift, or services in connection with the solicitation or sale of life or health insurance?
Is the proposed policy rider reproduced below acceptable to the Department to allow third parties to provide gifts or discounted goods or services to prospective insureds or insureds?
N.Y. Ins. Law § 4224(c) (McKinney Supp. 2007) prohibits an insurer, insurance agent or broker or representative thereof from offering any valuable consideration or inducement, directly or indirectly, in connection with the sale of insurance that is not specified in the policy or contract.
No. The proposed policy rider would not be acceptable for a number of reasons, including the fact that the consideration is not sufficiently specified. Moreover, there is no nexus between the non-insurance goods and services being offered to the prospective insureds, and the insurance provided under the policy. Further, the insurer may not disclaim, as the proposed policy rider seeks to do, responsibility for the goods and services so provided.
The firm consults with insurers, one of which seeks guidance about providing inducements or gifts to prospective insureds or those who become insured under New York law.
The proposed policy rider reads as follows:
The policy/certificate to which this rider is attached is hereby amended to include the following provision.
Non-Insurance Goods and/or Services
From time to time, We (the Company) may offer or provide certain persons who inquire about coverage, apply for coverage or become policyholders with us with informational booklets or novelty items, such as pens or flashlights. In addition, we may arrange for third party service providers, such as pharmacies, optometrists or dentists, to provide discounted goods or services to certain persons who inquire about coverage, apply for coverage or become policyholders. While we may arrange for such goods, services and/or third party provider discounts, the third party service providers are liable to the inquirers/applicants/policyholders for the provision of such goods and/or services. We are not responsible for the provision of such goods and/or services nor are we liable for the failure of the provision of the same. Further, we are not liable to the inquirers/applicants/policyholders for the negligent provision of such goods and/or services by third party service providers.
This rider is effective and terminates concurrently with the policy/certificate to which it is attached and shall not otherwise vary, alter or extend any of the terms thereof.
With respect to life, accident and health insurance, and annuities, the prohibition against inducements and rebating is set forth in Insurance Law § 4224(c). That statute 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. (Emphasis added.)
Insurance Law § 2324(a) contains a similar anti-rebating provision applicable to property/casualty insurance. However, § 2324 also permits a licensee to give an article of merchandise, i.e., a “keepsake,” that does not exceed $15 in retail value, even though it is not specified in the policy. There is no such exception set forth in § 4224 for life insurance, accident and health insurance, and annuities.
The proposed policy rider–the subject of the second question - does not satisfy § 4224 because it is too general and non-specific. Instead of describing a particular good or service that the insured would receive, the non-committal language vaguely describes a number of different benefits that might be provided by third parties. Hence, the policy fails to specify clearly the
valuable consideration or inducement that may be provided.
Moreover, the proposed policy rider refers to offering the goods and services only to “certain persons” who inquire about coverage. Limiting the availability of the benefit to certain persons fails to comply with § 4224(a)(1) of the Insurance Law. That statute provides that while an insurer may classify and select risks using appropriate underwriting standards, an insurer may not unfairly discriminate between individuals of the same class and of equal expectation of life. (See, e.g., Department letter dated December 13, 2000.) In order to adhere to § 4224(a)(1), the benefit in the proposed rider would need to be made available to all persons of the same class and equal expectation of life.
Although Insurance Law § 4224(c) by its terms prohibits an insurer, insurance agent or broker or representative thereof from offering any valuable consideration or inducement, directly or indirectly, in connection with the sale of insurance when it is not specified in the policy or contract, and even if the policy specifies a particular good or service and makes it available to all persons of the same class, the Superintendent still may find the endorsement unacceptable. Some of the Department’s Office of General Counsel’s opinions have suggested that the benefit need only be specified in the policy or contract as provided in § 4224(c) (see, e.g., Department letters dated November 15, 2005 and December 13, 2006), but the policy or contract, as well as the insurer’s activities, must nevertheless also satisfy all other relevant provisions of the Insurance Law, separate and apart from Insurance Law § 4224.
Life and health insurance policy forms are subject to the Department’s prior approval pursuant to Insurance Law § 3201(b)(1). In reviewing policy or contract forms to ensure that the goods or services relate or are connected to the insurance risk, the Department looks to see that the goods and services offered in the policy or contract have a legitimate nexus to the insurance coverage provided under the policy or contract, and are necessary or properly incidental to the insurer’s insurance business. (See New York Ins. Law §§ 1106 and 4205, which provide that insurers have limitations in doing the business authorized by its license.)
Furthermore, because any benefits provided in the policy constitute activities of the insurer, the insurer may not, as the proposed policy rider presented proposes to do, disclaim responsibility for benefits promised under the policy or the failure to perform such services. If the insurer seeks to include certain benefits in the policy, it becomes the responsibility of the insurer to see that the policy benefits are afforded in accordance with the provisions of the policy.
For further information you may contact Associate Attorney Jeffrey A. Stonehill at the New York City Office.