OGC Op. No. 07-09-24
The Office of General Counsel issued the following opinion on September 24, 2007, representing the position of the New York State Insurance Department.
1) May a life insurance agent or broker pay expenses associated with a qualified settlement fund in connection with the sale or potential sale of structured settlement annuities or any other insurance?
2) May a life insurance agent or broker that sells structured settlement annuities state in its advertisements that the agent or broker makes or has made donations to a not-for-profit entity, such as an association representing trial lawyers?
1) No. Pursuant to N.Y. Ins. Law § 4224 (McKinney 2007), a life insurance agent or broker may not provide an inducement or valuable consideration of any kind that is not specified in the insurance policy or contract.
2) No. A licensed insurance agent or broker that sells structured settlement annuities may not advertise that the agent or broker makes or has made donations to a not-for-profit organization of concern and interest to potential purchasers of insurance or annuities, such as an association representing trial lawyers, because that would constitute an inducement for the purchase of annuities in violation of Insurance Law § 4224.
With respect to the first question, the inquirer reports that some insurance agents or brokers who place structured settlement annuities are advertising “no cost qualified settlement funds” in connection with the sale of structure settlements. The inquirer states that the qualified settlement funds are held by a trustee, separate and apart from the insurance agents or brokers. The inquirer asks whether these insurance agents or brokers may lawfully pay the expenses of a qualified settlement fund.
The inquirer also notes that some licensed insurance agents that place structured settlement annuities make financial contributions to state and national trial lawyers associations and advertise these contributions to current and prospective insureds. The inquirer asks whether the regular use of such advertisements to solicit business is legally permissible.
With respect to life and accident and health insurance, New York Insurance Law § 4224 (c) (McKinney 2007) prohibits an insurance agent or broker from providing an inducement or valuable consideration of any kind not specified in the insurance policy or contract. Insurance Law § 4224 (c) reads as follows:
No such life insurance company and no such savings and insurance bank and no officer, agent, solicitor or representative thereof and no such insurer doing in this state the business of accident and health insurance and no officer, agent, solicitor or representative thereof, and no licensed insurance broker and no employee or other representative of any such insurer, agent or broker, shall pay, allow or give, or offer to pay, allow or give, directly or indirectly, as an inducement to any person to insure, or shall give, sell or purchase, or offer to give, sell or purchase, as such inducement, or interdependent with any policy of life insurance or annuity contract or policy of accident and health insurance, any stocks, bonds, or other securities, or any dividends or profits accruing or to accrue thereon, or any valuable consideration or inducement whatever not specified in such policy or contract; nor shall any person in this state knowingly receive as such inducement, any rebate of premium or policy fee or any special favor or advantage in the dividends or other benefits to accrue on any such policy or contract, or knowingly receive any paid employment or contract for services of any kind, or any valuable consideration or inducement whatever which is not specified in such policy or contract.
Insurance Law § 2324 (McKinney 2007) sets forth a similar prohibition for most other kinds of insurance.
The Department will not approve any policy that provides for a life insurance agent or broker to pay expenses associated with a qualified settlement fund. Thus, pursuant to Insurance Law § 4224(c), an agent or broker may not, as in the inquirer’s example, lawfully offer any such inducement or valuable consideration in violation of N.Y. Ins. Law § 4224.
Turning to the question about advertising donations to certain not-for-profit organizations like association of trial lawyers, note as an initial matter that in Opinion of General Counsel No. 07-03-07 (March 12, 2007), the Department stated that “nothing precludes the agent or broker from making charitable contributions so long as the advertising of a charitable contribution as an incentive for new insurance business does not constitute an improper inducement in violation of Insurance Law § 2324.” This statement applies with equal force to life, accident and health insurance policies for which such an inducement would be a violation of Insurance Law § 4224.
The inquiry references an “affinity program” of an association representing trial lawyers. To participate in the program, a business must sign an agreement that provides for certain advertising-related services by the not-for-profit in exchange for a contribution from the participating business. The member businesses are responsible for providing all advertising content. The association urges its members to make purchases from any business that has joined the affinity program.
If this form of arrangement were strictly an exchange of compensation by an agent or broker for advertising services, the Department would regard the contributions as fees paid for permissible advertising, and not donations to a not-for-profit. In that circumstance, the contributions would not constitute an inducement in violation of Insurance Law § 4224.
However, where, as here, an agent or broker advertises that the agent or broker makes contributions to a not-for-profit organization of concern and interest to potential purchasers of insurance or annuities, such conduct constitutes an illegal inducement to purchase insurance that runs afoul of Insurance Law § 4224. Nor may an agent or broker evade the prohibition set forth in the Insurance Law by enlisting the aid of the not-for-profit organization to do what the agent or broker cannot do lawfully.
This opinion is limited to an interpretation of the Insurance Law alone, and offers no other opinion with respect to any other law.
For further information you may contact Senior Attorney Brenda Gibbs at the Albany Office.