OGC Opinion No. 11-04-02

The Office of General Counsel issued the following opinion on April 25, 2011 representing the position of the New York State Insurance Department.

Re: Assessment Cooperative Premium Credit

Question Presented:

May an assessment cooperative offer a “marketing incentive,” such as an insurance discount, to encourage a customer of a bank to become insured by the assessment cooperative through a particular insurance agent?

Conclusion:

No. An assessment cooperative may not offer a discounted assessment to encourage a bank customer to become insured by the assessment cooperative through a particular insurance agent because an assessment cooperative’s assessment must be based upon the amount of insurance held by each cooperative member. An assessment cooperative also may not give to its insurance clients or prospective clients any other inducement or valuable consideration not specified in the policy, except where the item is a “keepsake” with a retail price of less than $15, as such inducement would run afoul of N.Y. Ins. Law § 2324 (McKinney 2007).

Facts:

The inquiry is of a general nature, without reference to specific facts.

Analysis:

An assessment cooperative is an insurer formed under and regulated pursuant to Article 66 of the Insurance Law. An assessment cooperative “levies upon its members regular assessments, the amount of which is determined by giving due cognizance, along with other relative factors either to the incurred liabilities of such insurer, or to its estimated liabilities likely to become incurred before the next regular assessment, or both . . . .” N.Y. Ins. Law § 6602(b)(2). A cooperative’s assessment must be “sufficient to provide for the payment of losses, expenses, and other obligations, incurred or likely to be incurred during the fiscal year for which the assessment is levied.” N.Y. Ins. Law § 6615(a)(1). Such assessment must be charged to each member in an amount proportional to the “several amounts of insurance held by [the] member.” N.Y. Ins. Law § 6615(a)(2) & (3). The discounted assessment for some insureds would run contrary to the requirement that each assessment be proportional to the insurance held by the member.

Further, Insurance Law § 6612 makes an assessment cooperative subject to Insurance Law § 2324, which in connection with most property/casualty insurance, prohibits an insurer, and insurance producers and other persons acting on behalf of an authorized insurer, from offering a rebate or inducement that is not specified in the policy, other than a “keepsake item.” Insurance Law § 2324 states in pertinent part as follows:

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 . . . .

The express language of § 2324 precludes insurers, brokers, agents and their employees and representatives from directly or indirectly offering inducements or valuable consideration (other than an article of merchandise, or “keepsake”, not exceeding $15 in value), in connection with the offer of insurance, unless the inducement or valuable consideration is specified in the insurance policy. ¹ See Office of General Counsel (“OGC”) Opinion 07-07-10 (July 18, 2007). And, pursuant to Insurance Law § 6615(a), an assessment cooperative must base its assessments upon the amount of insurance and not some other basis. Thus, an assessment cooperative may not offer a discounted assessment to encourage a customer of a bank to become insured by the assessment cooperative through a particular insurance agent because an assessment cooperative’s assessment must be based upon the amount of insurance held by each cooperative member.

The “article of merchandise” that the statute contemplates is a “keepsake,” not exceeding $15 in retail value, designed to keep the name of the insurer or producer before the customer through the embossing, conspicuous printing or stamping of the insurer, producer, agent or broker’s name. OGC Opinion No. 02-05-17 (May 14, 2002); OGC Opinion 06-12-07 (December 8, 2006).

For further information you may contact Senior Attorney Brenda M. Gibbs at the Albany Office.

¹ A discounted assessment is not an inducement that may be specified in an assessment cooperative’s insurance policy.