In the last few months it is evident that a number of licensed insurance agents or brokers, whether individuals or firms, that are Partners For Justice with the New York State Trial Lawyers Association have begun to offer discounts for services. This post explores some of the ethical considerations and potential pitfalls of such practice.
Consider that:
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The James Street Group advertises for example that it offers structured settlements (primarily funded with annuities), 468B qualified settlement fund creation and administration (which upon information and belief ultimately leads to the sale of annuities) and structured attorney fees (which involves the placement of annuities for the attorney members of the New York State Trial Lawyers Association.
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The Lien Resolution Group which is separated from The James Street Group only by a grammatical slash "/" in the NYSTLA Partnership for Justice advert, is offering NYSTLA members discounts of 33% plus on standard liens. The listing states The Lien Resolution/ James Street Group
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In addition to these discounts the firm/(s) donate $18,000 per year to NYSTLA P4J.
Further consider that:
Forge Consulting, a $60,000 donor to NYSTLA, offers a 75% discount to NYSTLA members for "50A/B analysis pre-post verdict". It is unclear whether or not the firm waives such fees if Forge Consulting earns a commission from a structured settlement placed for the NYSTLA member on behalf of a client of the NYSTLA member or shares in the commission. Either way the fact that a discount is offered establishes that the service has a price that is the basis for the discount on offer. Do either Forge Consulting, The James Street Group or any other firm offering dollar value discounts expect to get annuity or insurance business from the NYSTLA member or the clients of the NYSTLA member as a result of the "tie in" discounts that are part of its advertising? The answer appears obvious to this author but, judge for yourself.
The New York State Insurance Department (a "scrapbook" of related opinion)
On September 24, 2007 the New York State Insurance Department issued an opinion in response to this author's questions concerning the manner in which Forge Consulting was advertising to NYSTLA (see background in link to September 28, 2007 blog post below).
The conclusion of the OGC was "where, as here an agent or broker advertises that an agent makes contributions to a not-for profit corporation 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 Section 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".
Insurance brokers and agents licensed in New York State need to be mindful of the September 24, 2007 opinion and among others, those set forth below:
September 24, 2007 OGC opinion (No cost qualified settlement funds or advertising contributions to trial lawyer associations) and our accompanying blog post of September 28, 2007
In the same opinion "A bank that is affiliated with an insurance agent or broker may not provide a lower interest rate, loan approval or reduced banking fees to a banking client who purchases insurance from the agent or broker, as that would constitute a rebate or inducement that violates Insurance Law § 4224.
A broker may not sell non‑insurance services or products in his capacity as insurance broker. Nor may the broker tie the solicitation of a non-insurance service or product to the sale of insurance. Rather, the broker must act independently in each capacity. Opinion of General Counsel No. 05-04-14 (April 15, 2005).
The OGC however, has also opined generally speaking that, "an insurance agent or broker MAY provide or arrange to provide certain administrative services in connection with administering a purchased insurance policy, at no cost to an insurance client, without running afoul of Insurance Law § 4224, but only if the services are of the type normally provided or arranged by agents or brokers in connection with the sale of insurance, and the same services are provided to ALL similarly situated insureds. See Opinions of General Counsel No. 07-03-10 (March 15, 2007), 05-05-07-16 (July 13, 2005), 04-08-23 (August 23, 2004) and 05-06-34 (June 28, 2005). Such “normally provided or arranged” services include only those that pertain to insurance, as opposed to ancillary or auxiliary services that do not directly relate to the broker’s insurance activities.
Note that a temporary exception to the anti-rebating law that ostensibly permitted a discretionary reduction in commissions paid to structured settlement firms for structured settlement annuities placed in resolution of claims against the September 11th Victims Compensation Fund required a special amendment to the New York State Law (see New York State General Obligations Law 5-1708(a). The express language of the statute carves out this benefit solely for victims of those terrorist attacks, who are defined as
a
decedent who died as a result of wounds or injury incurred as a result
of the terrorist attacks against the World Trade Center or the Pentagon
on September eleventh, two thousand one, or the terrorist-related
aircraft crash in Pennsylvania on such date, but shall not include any
individual identified by the United States attorney general to have been
a participant or conspirator in such attack or a representative of such
an individual".
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