OGC Opinion No. 07-09-19

The Office of General Counsel issued the following opinion on September 20, 2007 representing the position of the New York State Insurance Department.

RE: Broker/Agent Activity – Alleged Misrepresentation of Rate of Return

Questions Presented:

1. Must an agent or broker substantiate a claimed rate of return on life insurance or annuities?

2. May an agent/broker continue to advertise a rate of return that is unattainable?

3. Does the evidence presented indicate that the described conduct constitutes any violation of the New York Insurance Law?


1. Although there exists no affirmative requirement that an agent or broker substantiate a claimed rate of return, the Insurance Law prohibits the making of misleading statements or misrepresentations regarding life insurance and annuities.

2. If the rate of return claimed is unlikely, unrealistic or unattainable, the continued advertisement of such rate would constitute a prohibited misrepresentation and would reflect negatively on the trustworthiness of the licensee.

3. The evidence presented has been referred to the Department’s Consumer Services Bureau for further investigation. The Department will not characterize the conduct pending the outcome of such investigation.


ABC Consulting (hereinafter “ABC”) is engaged in the business of putting together structured settlements in the context of lawsuits.1 The principals of ABC are licensed insurance brokers, and setting up structured settlements typically involves the sale or placement of an annuity product. You have brought to the Department’s attention certain language contained in ABC’s promotional material that states as follows:

The focus for attorney fees on any case can be negotiated to effectuate tax deferral. Depending on the time of the deferral, the sole benefit results in an equivocated, guaranteed rate of return at approximately 15%.

In addition, the front page of ABC’s website’s “Structured Attorney Fees” brochure reads as follows: “Structured Attorney Fees. A guaranteed 10-15% equivalent return.”

It is claimed that the above-quoted statements are inaccurate and misleading, and the inquiry focuses on their permissibility under the New York Insurance Law. It is stated that none of ABC’s competitors advertise such a rate of return. It is further asserted that ABC may be the only entity advertising any rate for annuities used in structured attorney fee arrangements. Finally, it is stated that rate-sensitive attorney consumers may be unfairly drawn to ABC because of the claimed rate of return, only to find that such a rate is unattainable.


This inquiry is more in the nature of a complaint than a pure legal inquiry. Accordingly, it has been referred to the Department’s Consumer Services Bureau for further handling.

Nevertheless, with respect to the legal issues raised, the New York Insurance Law prohibits misrepresenting the benefits of any policy or contracts. Section 2123 specifically provides:

No agent or representative of any insurer or health maintenance organization authorized to transact life, accident or health insurance or health maintenance organization business in this state and no insurance broker, and no other person, firm, association or corporation, shall issue or circulate or cause or permit to be issued or circulated, any illustration, circular, statement or memorandum misrepresenting the terms, benefits or advantages of any policy or contract of life, accident or health insurance, any annuity contract or any health maintenance organization contract, delivered or issued for delivery or to be delivered or issued for delivery, in this state, or shall make any misleading estimate as to the dividends or share of surplus or additional amounts to be received in the future on such policy or contract, or shall make any false or misleading statement as to the dividends or share of surplus or additional amounts previously paid by any such insurer or health maintenance organization on similar policies or contracts, or shall make any misleading representation, or any misrepresentation, as to the financial condition of any such insurer or health maintenance organization, or as to the legal reserve system upon which such insurer or health maintenance organization operates.

N. Y. Ins. Law § 2123(a)(1) (McKinney 2006).

11 NYCRR § 219.1 et seq. (Regulation 34-A) sets forth rules governing advertisements of life insurance and annuity contracts. It is aimed at preventing the dissemination of misleading or deceptive information to the public. The term “advertisement” is defined, in pertinent part, in § 219.3 as follows:

(a)(1) Advertisement shall include, but not necessarily be limited to the following, when designed to be used or are actually, to induce the public to purchase, increase, modify, reinstate or retain a policy:

(i) printed and published material, audio visual material and descriptive literature of an insurer used indirect mail, newspapers, magazines, radio scripts, television scripts, billboards and similar displays;

(ii) 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;

(iii) prepared sales talks, presentations and material for use with the public by agents, brokers and solicitors... .

* * * *

The standard for determining whether an advertisement is misleading or deceptive also is set forth in the regulation:

Whether an advertisement has the tendency or capacity to mislead or deceive shall be determined by the superintendent from the overall impression that the advertisement may be reasonably expected to create upon a person not knowledgeable in insurance matters.

11 NYCRR § 219.4(a)(3) (2006).

The regulation’s broad definition of “advertisement” encompasses the type of material reported to be published on ABC’s website. As noted above, however, the inquiry has been referred to the Department’s Consumer Service Bureau for further investigation to determine whether the advertisement in question is misleading or deceptive. Pending such investigation, the Department’s Office of General Counsel will defer opining on whether the material presented violates the New York Insurance Law or regulations promulgated thereunder, or whether the broker is engaging in untrustworthy activity within the meaning of Insurance Law § 2110.

For further information you may contact Supervising Attorney Michael Campanelli at the New York City Office.

1 A structured settlement is generally a series of periodic payments made to an injured party. It is typically used to settle a claim under a liability policy. The payments may last either for a predetermined period of years or for the life of the plaintiff. Structured settlements arrangements also may be used for the payment of the injured plaintiff’s attorney’s fees over time. This is done to minimize the attorney’s income tax liability. See Childs v. Commissioner,103 T.C. 634 (1994), aff'd without opinion, 89 F.3d 856 (11th Cir. 1996) (holding that the recipient of attorney’s fees received periodically through a structured settlement are taxed on such payments each year in which payments are received, and not on the lump sum awarded at the termination of the suit).