The Office of General Counsel issued the following informal opinion on November 19, 2004, representing the position of the New York State Insurance Department.
RE: Promotional Contest
Is an Insurance Company, (hereinafter IC) violating N.Y. Ins. Law § 2324 (McKinney 2000 and Supp. 2004) by mailing a brochure to its existing New York and California policyholders that offers the opportunity to enroll in IC's electronic transfer billing option, (hereinafter ETBO) and states that upon enrollment policyholders automatically will be entered into a sweepstakes that is only open to IC policyholders that are legal residents of California?
Yes, with respect to IC's existing New York policyholders, unless such policies fall under the exception in N.Y. Ins. Law § 2324(e) (McKinney 2000 and Supp. 2004). It is unclear why IC is mailing this brochure to its New York policyholders, when the brochure specifies that it is open only to IC policyholders that are legal residents of California. This aspect of the inquirers inquiry is being forwarded to the Consumer Services Bureau for further investigation.
The inquirers clients who are assigned to IC under the New York Automobile Insurance Plan are receiving a brochure from IC regarding enrollment in IC's direct pay service. The brochure states that upon enrollment they will automatically be entered into a sweepstakes. According to the brochure, the ETBO offers policyholders the convenience of having their premium payments paid through an automatic deduction from the policyholder's checking account. If the policyholder signs up for the ETBO, the policyholder will not only benefit from hassle-free billing, but will be automatically entered into a sweepstakes. The grand prizewinner of the sweepstakes will receive a $3,000 major charge card gift card that may be used for gasoline purchases or for purchases anywhere else the major charge card is accepted. The brochure also states that sweepstakes is open only to IC policyholders who are legal residents of California. Although the inquirer's clients are New York residents, they are also receiving this brochure. The inquirer questions whether this offer violates the New York Insurance Law.
Pursuant to N.Y. Ins. Law § 2324(a) (McKinney 2000 and Supp. 2004) (which applies to property/casualty insurance), insurers, brokers, agents and their representatives are prohibited in New York 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, or after the insurance has been effected, which such inducements or valuable consideration are not specified in the insurance policy. The article of merchandise that § 2324 contemplates is a "keepsake," not exceeding $15 in value, which is designed to keep the name of the insurer or producer before the customer by embossing the insurer's or producer's name on the item.
The Department has previously opined that a licensee may run a promotional contest if the contest is open to the general public, meaning that anyone can enter into this contest, regardless of insured status and entry into the contest is not tied to the purchase or solicitation of an insurance product.
Here, since the sweepstakes is open only to IC's existing policyholders, it would not be considered an open sweepstakes. Moreover, the offer to enroll in the direct pay program and to enter the sweepstakes serves as an inducement to renew insurance through IC, which is not specified in the insurance policy. Nor would the grand prize of a major charge card gift card, which is worth $3,000 constitute an article of merchandise not exceeding $15 in value as contemplated by the statute. Consequently, the offer would be impermissible under Section 2324.
However, pursuant to N.Y. Ins. Law § 2324(e) (McKinney 2000 and Supp. 2004), Section 2324 does not apply to:
(e) [A]ny policy or contract or reinsurance nor to any contract or policy of life insurance, accident insurance or health insurance which is subject to the provisions of section four thousand two hundred twenty-four of this chapter, nor to any contract or policy of marine insurance, other than contracts or policies of automobile insurance, or of marine protection and indemnity insurance, nor to any insurance contract, or rate of insurance in connection with any insurance contract either against loss or damage to, or legal liability in connection with, any property located wholly outside of this state or any activity carried on outside of this state or any motor vehicle or aircraft principally garaged and used outside of this state.
Hence, if IC's New York's policyholders who are receiving this brochure have policies that fall within Section 2324(e), Section 2324(a) would not apply and IC would not be prohibited from sending them this brochure (for example, a policy covering property in California). This is a limited exception and, unless the policies in question come within the purview of Section 2324(e), IC would be in violation of Section 2324(a) when it sends these brochures to its New York policyholders.
It is unclear why IC is mailing the brochure to its New York policyholders when the brochure clearly states that only its policyholders who are legal residents of California are eligible to participate in the sweepstakes. Accordingly, the inquirer's inquiry is being forwarded to our Consumer Services Bureau for further investigation.
Please note that this opinion is strictly limited to the New York Insurance Law, we offer no opinion on any other laws. The inquirer may also wish to make the inquiry of the California Insurance Department for further guidance.
For further information one may contact Senior Attorney Pascale Jean-Baptiste at the New York City Office.