OGC Op. No. 08-08-07
The Office of General Counsel issued the following opinion on August 26, 2008, representing the position of the New York State Insurance Department.
Do the advertisements described in the fact pattern below conform to the New York Insurance Law and the regulations promulgated thereunder, or other relevant laws?
No. Neither advertisement is in conformity with the New York Insurance Law and the regulations promulgated thereunder, or other relevant laws.Facts:
The inquirer reports that she represents an insurance broker named XYZ (“XYZ”), which received a letter from the Insurance Department’s Consumer Services Bureau (“CSB”) regarding two advertisements that CSB found to be “misleading and deceptive.” The letter offered XYZ a settlement whereby: 1) XYZ would agree to waive formal notice and hearing on the charges; 2) concede a violation of N.Y. Ins. Law § 2122 (McKinney 2006); and 3) pay a $500 civil penalty.
The first advertisement in question specifically references “black car & taxi insurance renewals” and announces “lowest available rates” without reference to specific insurance companies. The advertisement also refers to a “free gift offer.” The second advertisement is directed to “ABC drivers.”1 It announces a “new lower rate available” and that “DEF has a special new lower rate.” The advertisement does not, however, provide the location of the principal office of the referenced insurer. The advertisement also refers to a “voucher deduction program”2 and a “free renewal gift.”
Insurance Law § 2122, which governs advertising by insurance agents and brokers, reads as follows:
(a)(1) No insurance agent or insurance broker shall make or issue in this state any advertisement, sign, pamphlet, circular, card or other public announcement purporting to make known the financial condition of any insurer, unless the same shall conform to the requirements of section one thousand three hundred thirteen of this chapter.
(2) No insurance agent, insurance broker or other person, shall, by any advertisement or public announcement in this state, call attention to any unauthorized insurer or insurers.
(b) Every agent of any insurer and every insurance broker shall, in all advertisements, public announcements, signs, pamphlets, circulars and cards, which refer to an insurer, set forth therein the name in full of the insurer referred to and the name of the city, town or village in which it has a principal office in the United States.
N.Y. Penal Law § 190.20 (McKinney 2005) also addresses false advertising, and provides that:
A person is guilty of false advertising, when, with intent to promote the sale or to increase the consumption of property or services, he makes or causes to be made a false or misleading statement in any advertisement…
In addition, N.Y. General Business Law (“GBL”) § 350 (McKinney 2005) provides:
False advertising in the conduct of any business, trade or commerce or in the furnishing of any service in this state is hereby declared unlawful.
Section 215.6 of the N.Y. Comp. Codes R. & Regs. tit. 11, Part 215 (Regulation 34) governs “Advertisements of Accident & Health Insurance.” The regulation reads in pertinent part as follows:
No advertisement shall omit information or use words, phrases, statements, references or illustrations if the omission or such information or use of words, phrases, references, or illustrations has the capacity, tendency, or effect of misleading or deceiving purchasers or prospective purchasers as to the nature or extent of any policy benefit payable, loss covered, or premium payable.
With regard to the first advertisement, Insurance Law § 2122(b) requires an advertisement that refers to an insurer to set forth “the name in full of the insurer referred to and the name of the city, town or village in which it has a principal office in the United States.” The advertisement in question names no insurer, and thus fails to satisfy Insurance Law § 2122(b).
The Department’s Office of General Counsel (“O.G.C.”) also has opined that any advertisement inviting drivers to “(1) compare rates, (2) save money, (3) take advantage of low rates; or other words to that affect,” unless such advertisement refers to an insurer or group of insurers with whom the coverage may be placed, is “deceptive and misleading.” O.G.C. Opinion No. 98-67 (September 16, 1998).3 Such an advertisement might also violate the Penal Law and GBL.4 The first advertisement also references “lowest available rates” and invites a prospective insured to both save money and take advantage of the lowest rates. The public may reasonably interpret the advertisement to mean that a potential insured can get the lowest rates available anywhere for this type of insurance from ABC. Therefore, the advertisement implicitly refers to an insurer or group of insurers, which requires that the insurer or insurers be named together with the location of its or their principal offices.
With regard to the second advertisement, DEF Insurance Company is referenced, but neither the full name of the insurer nor the location of its principal office is included. Thus, the second advertisement, too, violates Insurance Law § 2122(b).
The second advertisement’s reference to “lower rates” also may constitute a “false or misleading statement” within the meaning of Penal Law § 190.20, because it is unclear what qualifications are related to the rates’ availability. The advertisement also could constitute a violation of GBL § 350.
Both advertisements reference free gifts that are reportedly of minimal value. Insurance Law § 2324(a) sets forth the law regarding promotional gifts with respect to property/casualty insurance. In relevant part, that statute reads as follows:
No authorized insurer, no licensed insurance agent, no licensed 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,…
Therefore, an insurance agent or broker may distribute items up to $15 in value in relation to the sale or promotion of property and casualty insurance without running afoul of Insurance Law § 2324(a).5
The inquirer asserts that the second advertisement is not an advertisement because it is not directed at the public, but rather at drivers in a specific dispatch center renewing insurance that they already have. The terms “advertisement” and “public announcement” are not defined in Insurance Law § 2122. However, 11 NYCRR § 219.3(a), which sets forth rules governing life insurance policies and annuity contracts advertisements, broadly defines the term “advertisement” to include, but not be limited to the following:
(1) printed and published material, audio, visual material and descriptive literature of an insurer used in direct mail, newspapers, magazines, radio scripts, television scripts, billboards and similar displays;
(2) descriptive literature and sales aids of all kinds, including but not limited to circulars, leaflets, booklets, depictions, illustrations and form letters, issued by an insurer, agent, broker, solicitor or organization sponsoring the insurance for presentation to members of the insurance buying public;
(3) prepared sales talks, presentations and material for use by agents, brokers and solicitors;
(4) material used for recruitment, training and education of an insurer’s sales personnel, agents, brokers and solicitors.
Further, 11 NYCRR § 215.3(a), which sets forth rules governing accident and health insurance advertisements, defines “advertisement” as:
(1) printed and published material, audio-visual material, and descriptive literature of an insurer used in direct mail, newspapers, magazines, radio scripts, TV scripts, billboards and similar displays;
(2) descriptive literature and sales aids of all kinds issued by an insurer, agent or broker for presentation to members of the insurance buying public, including but not limited to circulars, leaflets, booklets, depictions, illustrations and form letters; and
(3) prepared sales talks, presentations and material for use by agents, brokers and solicitors.
Under either regulatory provision, the second advertisement constitutes an “advertisement.” The Department is currently preparing a similar regulation for property/casualty advertisements in particular, but until such regulation is adopted, the above regulations are instructive in determining what constitutes an advertisement.
O.G.C. has opined that an analysis of whether a document constitutes an advertisement turns on “whether [the ad is] designed to be used or [is] actually used, to induce the public to purchase, increase, modify, reinstate or retain a policy.” See O.G.C. Opinion No. 03-01-23 (January 7, 2003). By that measure, the second advertisement is clearly an advertisement, because current policyholders are members of the public and the document encourages the policyholder to “retain” a policy. Therefore, like the first advertisement, the second advertisement does not pass legal muster.
For further information you may contact Associate Counsel Alexander Tisch at the New York City Office.
1 “ABC” is the dispatch center from which the drivers operate.
2 The “Voucher Deduction Program” is a method by which the cost of insurance is deducted by ABC from payments due the drivers through vouchers.
3 The inquirer asserts that O.G.C. Opinion 98-67 is not publicly available. However, the opinion is available through the National Insurance Law Service and remains valid precedent for the Department.
4 O.G.C. has opined that certain advertisements fall outside of Insurance Law § 2122(b) if the following criteria are met: 1) the agent or broker represents several insurers, 2) the language in the advertisement is general, and 3) the advertisement does not mention specific prices. See O.G.C. Opinion No. 05-06-24 (June 22, 2005); O.G.C. Opinion No. 04-06-09 (June 10, 2004); O.G.C. Opinion No. 03-02-20 (February 19, 2003).
5 Insurance Law § 4224 does not permit any kind of gift in relation to the sale or promotion of life insurance, accident and health insurance, and annuities.