by John Darer CLU ChFC MSSC RSP CLTC
Is it legal in New York for lawyers who are both licensed insurance agents and practicing lawyers to offer free legal services in connection with the placement of structured settlement annuities in New York?
In recent years the structured settlement planning industry has seen an infusion of lawyers. What is noteworthy is that some are still practicing law, some use their legal credentials as a reason to do business with them and some are offering legal services for free. What is being communicated, and is it legal in the eyes of the New York State Insurance Department?
A published opinion, at the beginning of the Millennium, entitled "Rebating and illegal Inducement by agent" may be instructive:
1. Does an attorney violate the Insurance Law when he waives legal fees for attorney work in exchange for a client’s life insurance business and, in lieu of these fees, accepts the commission from the sale of such life insurance?
2. Does the policyholder violate the Insurance Law when he accepts an inducement on the purchase of a life insurance policy that is not specified in the policy?
In the March 10,2000 published opinion of the State of New York Insurance Department Office of General Counsel
"According to the express language of the statute, insurance agents and brokers are prohibited from offering rebates or other inducements in connection with the sale of life insurance, health insurance or annuities, when such rebates or inducements are not specified in the policy or contract of insurance. The purpose of the statute is to prohibit agents and brokers from offering a contract other than what is expressly stated in the policy. Therefore, if it is not in the contract, it cannot be used as an inducement to purchase the policy.
It is clear that in this instance, the attorney’s offer of free legal service was an inducement for the client to purchase life insurance through her. The attorney’s actions are in violation of N.Y. Ins. Law Section 4224(c)(McKinney 1985).
Additionally, any insured who knowingly receives any such inducement, premium rebate, policy fee, special favor or advantage in the dividends or benefits that accrue under a life insurance policy or annuity contract, is in violation of the Insurance Law".
- Lawyers who practice in the structured settlements (and those agencies that affiliate with them), need to be aware of this opinion and proceed with caution.
- Structured annuities are contracts issued by a life insurance company. Inasmuch as the placement of such contracts requires a life insurance agent or life broker license to sell, agents/brokers, whether they are lawyers, economists, or accountants etc, are subject to the same rules