OGC Opinion No. 08-03-18
The Office of General Counsel issued the following opinion on March 26, 2008, representing the position of the New York State Insurance Department.
RE: What Constitutes a Rebate by an Automobile Collision Repair Facility?
Question:
After automobile repair work is finished, does an automobile collision repair facility’s payment to the insured of all or part of the insurance deductible constitute a rebate program in violation of New York Insurance Law?
Conclusion:
Based upon the facts described below, such a payment would not be a rebate within the meaning of N.Y. Ins. Law § 2324 (McKinney 2007) because: (1) there is no apparent relationship between the automotive repair shop and any insurance company; and (2) the automotive repair shop is neither a licensee under the Insurance Law, nor acting on the part of a licensee.
Facts:
In the inquirer’s inquiry that prompted this office’s issuance of the October 11, 2007 opinion, the inquirer reported that the inquirer works for a law firm, and that the inquirer became aware that an automobile collision repair facility is advertising that it will pay the deductible, or a portion of it, to customers that use its service to repair automobiles that are subject to New York automobile policy collision or comprehensive coverage deductible. The inquirer had noticed advertisements that use the following language: "XYZ - Home of the Deductible Rebate"; "XYZ - will pay your deductible"; and "XYZ - will actually pay a portion of your deductible." The inquirer inquired whether such a company was violating New York laws by offering to pay insurance deductibles for its customers before any work is actually done.
In response, the October 11, 2007 opinion stated that there may be circumstances in which a plan to waive or reduce a deductible by an automobile collision repair facility could be permissible under New York law. The inquirer then submitted a second request for an opinion. During a telephone conversation with Department representatives, the inquirer explained that the inquirer wants to know, based upon the same facts as before, whether an automobile collision repair facility’s payment of the deductible to the insured after work is done constitutes an unlawful rebate.
Analysis:
Insurance Law § 2324, which addresses impermissible rebates with respect to property/casualty insurance, is germane to this inquiry. That statute reads in pertinent part as follows:
(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, 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, provided, however, a licensed insurance agent or a licensed insurance broker may retain the usual commission or underwriting fee on insurance placed on his own property or risks, if the aggregate of such commissions or underwriting fees will not exceed five percent of the total net commissions or underwriting fees received by such licensed insurance agent or insurance broker during the calendar year. (Emphasis added.)
There is nothing in the facts before the Department to suggest that the insurer knows that the automobile collision repair facility has waived the insured's deductible, or is in any way a party to the arrangement. Hence, Insurance Law § 2324 is not implicated, because of the lack of any relationship between the automobile collision repair facility and any particular insurer - an essential element of Section 2324. Indeed, the automobile collision repair facility entices any and all automobile owners to use its services, irrespective of the insurance that the automobile owner utilizes. Nor is the automotive repair shop a licensee, nor acting on the part of a licensee.
In the hypothetical included in the inquirer’s request for the present opinion, which was similar to the hypothetical published in the opinion issued on October 11, 2007, the inquirer states: “With a rebate program, it is highly improbable that an insurer would be aware that a rebate will be provided to an insured out of the amount it pays to the repair facility.” If the inquirer means that, with this particular program, it is highly improbable that the insurer knows that a rebate will be provided to an insured, then it only highlights the absence of a relationship between the insurer and the facility. However, please be advised that, here for the reasons stated in the October 11, 2007 opinion, the failure to inform an insurer of the actual fee may, in certain cases, constitute insurance fraud.
For further information, one may contact Senior Attorney Susan A. Dess at the New York City office.