The Office of General Counsel issued the following opinion on July 13, 2007, representing the position of the New York State Insurance Department.
RE: Free car washes as unlawful rebating
May an insurance agency offer a free car wash to prospective clients to whom the agent is providing an automobile and home insurance quote?
No. Such an offer would constitute an unlawful inducement in violation of N.Y. Insurance Law § 2324 (McKinney 2006).
No facts were provided other than those encompassed in the question.
Insurance Law § 2324(a), which pertains to property/casualty insurance, provides in pertinent 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 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 plain meaning of the statutory text proscribes insurers, brokers, agents and their representatives from directly or indirectly offering inducements or valuable consideration, other than an article of merchandise not exceeding $15 in value, in connection with the sale of insurance, unless such inducement or valuable consideration is specified in the insurance policy.
In the present case, the offer of a free car wash violates Insurance Law § 2324 because it provides an inducement for prospective insureds to procure insurance through the particular insurer by offering the added benefit of receiving a free car wash, which is not specified in the insurance policy. See OGC Opinion No. 01-11-07 dated November 7, 2001.
Furthermore, a car wash is not an article of merchandise, within the meaning of Insurance Law § 2324. The “article of merchandise” that the statute 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. See OGC Opinion No. 02-05-17 dated May 14, 2002. Because a gift certificate for a free car wash is typically used shortly after receipt and then would be discarded, it does not qualify as an “article of merchandise” pursuant to the “keepsake” exception of § 2324(a).
For further information you may contact Supervising Attorney Michael Campanelli at the New York City Office.