Websites and Electronic Commerce

Most uses of a website will be perfectly appropriate unless the Department of Financial Services (DFS) believes a broker is selling, soliciting or negotiating E&S insurance to the general public or advertising unauthorized insurers to the general public in violation of Insurance Law §2117, §2118 and §2122. The DFS has issued cease and desist orders for such violations.

Jurisdiction

Courts have said that mere access to a passive website by New York residents is insufficient contact to create jurisdiction over the website’s out-of-state owner. Where sales, quotes, applications and other processes occur, the result may be different. When activities have occurred over the internet, state courts have exercised jurisdiction in some instances.

In Circular Letter No. 5 (2001), the DFS states:

"The Department does not consider the mere maintenance of a passive web site that is accessible to New York residents containing information about specific insurance products or services to constitute solicitation under New York Insurance Law."

Licensing Requirements and Websites

The DFS’ OGC Opinion of March 6, 2000, states "...[t]he Department’s position is that insurance business conducted on the internet or using any other method of electronic commerce is no different from other insurance transactions. Transactions conducted on the internet are, therefore, subject to the Department’s jurisdiction to the same extent as the same insurance business conducted by other means of communications." In Circular Letter No. 5 (2001), the DFS states, "[h]owever, if the insurance products or services are not being offered by a New York authorized insurer, the advertisements or the web sites upon which the advertisements appear must contain a clear and conspicuous disclaimer indicating that the advertised products or services are not available in New York State, and such products and services cannot, in fact, be made available in New York. For example, a disclaimer stating 'not available in all states' would be sufficient."  Disclosures on a sidebar or banner at the bottom of a website can set forth appropriate information, such as states where a broker is licensed, license numbers and what type of licenses are held. For a wholesale broker, a paragraph asserting that it is dedicated exclusively to providing retail insurance producers access to its exclusive or specialty markets for difficult/complex/unique/hard-to-place risks can also be set forth. Language such as "we are not licensed in the following states" or "we do not do business in the following states" is another approach to avoiding problems. Brokers should take care not to subject themselves to jurisdiction and discipline for selling insurance in a state where they are not licensed. Websites must comply with advertising limitation laws and should not post forms or coverage that are not available or approved in certain states.

There is a fine line between advertising and solicitation of potential insureds. New York Insurance Law §2101(o) defines solicitation as "attempting to sell insurance or asking or urging a person to apply for a particular kind of insurance from a particular licensed insurer, fraternal benefit society or health maintenance organization." Does a radio station or publisher with advertisements have to be licensed? In response to this question, the Department notes in its OGC Opinion of July 14, 2000, that an advertisement does not constitute solicitation in and of itself but can be considered solicitation "when the writer or spokesperson departs from the relative objective role of information provider and introduces his own reputation or credibility to promote a sale."

States will likely consider website outreaches to their residents to be solicitation without certain required caveats. Since brokers may want to be expansive in communicating on their websites, obtaining nonresident broker licenses in states where they intend to solicit is one option.

Advertising

Circular Letter No. 5 (2001) offers guidance on advertising. The DFS notes that internet advertising for insurance products and services can appear in many forms, including banner ads, tiles, hypertext links, frames and embedded links. The Department states that such ads can appear even on the website of a non-licensee where solicitation takes place as long as the advertisement is clearly delineated as such, and the advertisement is not framed by recommendations, endorsements or promotion by the non-licensee. Conceptually, it becomes more complex when a broker acts as an excess line licensee.

Insurance Law §2122 states:

Advertising by insurance producers

    1. (1) No insurance producer shall make or issue in this state any advertisement, sign, pamphlet, circular, card or other public announcement purporting to make known the financial condition of any insurer, unless the same shall conform to the requirements of section one thousand three hundred thirteen of this chapter.

      (2) No insurance producer or other person, shall, by any advertisement or public announcement in this state, call attention to any unauthorized insurer or insurers.

    2. Every agent of any insurer and every insurance broker shall, in all advertisements, public announcements, signs, pamphlets, circulars and cards, which refer to an insurer, set forth therein the name in full of the insurer referred to and the name of the city, town or village in which it has its principal office in the United States.

Paragraph 2 of subsection (a) prohibits "calling attention to" unauthorized insurers. A broker can tout its own skills and specialties and note that it acts as a licensed excess line broker. Although the law is not concrete, the DFS generally has not objected to ads where a broker states it places business on both an admitted and an excess line basis with more than 20 insurers rated "A" or better by a named rating agency.

Subsection (b) requires brokers to identify an insurer by full name and principal U.S. address when referred to in an advertisement. This appears to be directed toward ads that state such specifics as a price quote for insurance based on a set of rating criteria. If the ad, or in this case the website, offers such specifics, the law requires a broker to identify the carrier whose rates were used to calculate the quote. However, a broker is prohibited from doing this in New York with respect to a specific nonadmitted carrier because of §2122(a)(2). Comparative quotes, general comments about an insurer’s financial condition or a competitor’s financial condition, and even stating "we can obtain the lowest premium" should be avoided. This does not prevent a broker from stating it shops the markets for the most competitive quotes to serve its customers, assuming the statement is true.

In OGC Opinion of January 11, 2006, the DFS opined that an advertisement stating that an insurance agency "provides affordable policies for all trade contractors" was misleading and, therefore, improper. It reasoned that the company did not provide every type of contractor policy, nor could the company assert that coverage for every contractor would be affordable even for those types that it did provide.

The best practical rule for advertising content across state borders is to offer nothing that can be deemed false and misleading. Specifics as to insurers, pricing, benefits and the like are a minefield to navigate, so it is safest to avoid this advertising approach.

Here are a few scenarios that highlight valuable considerations:

  1. A broker wants to contract with a third-party website for a banner ad and will pay them a fee for each account bound. New York noted in Circular Letter No. 5 (2001) that a broker can make such an arrangement with a hyperlink to its website and pay a percentage of revenues for the advertising fee, as long as the banner ad does not cross the line from advertising to a recommendation, endorsement or solicitation by the website. The Circular Letter states that “a non-licensee may make a referral to a licensed insurance agent or broker provided there is no discussion of specific insurance policy terms and conditions and the compensation to the non-licensee for the referral is not based upon the purchase of insurance by the referred person.”

  2. A wholesaler broker wants to directly target certain businesses with a specialized line of insurance products on its website and then refer businesses to a retailer or offer to work with their retailer. In all probability, most states will consider referrals or recommendations to be a form of solicitation. Soliciting excess line business is not permissible, and brokers should be careful not to cross that line.

Electronic and Web-Based Insurance Applications and Documents in the E&S Market

Circular Letter No. 5 (2001) states, "[if] the insurance products or services are not being offered by a New York authorized insurer, the websites must contain a clear and conspicuous disclaimer and such products or services cannot, in fact, be made available in New York." While the circular referenced the "mail order" exception for excess line brokers later in the text, ELANY sought and obtained an OGC Opinion of April 26, 2001 to clarify some issues.

The opinion provides:

  1. An unauthorized insurer may electronically transmit its application only to the excess line broker.

  2. The excess line broker may electronically transmit an unauthorized insurer’s application to either the broker or to the potential insured.

  3. An unauthorized insurer’s application may be placed on the excess line broker’s web site for completion by the excess line broker, a broker or a potential insured.

  4. Although a completed application can be electronically transmitted by the broker to the excess line broker, the completed application may only be electronically transmitted to the unauthorized insurer by the excess line broker.

  5. A policy or contract, as well as non-premium bearing endorsements and certificates of insurance, may be electronically transmitted to the excess line broker who may then deliver it either directly to the insured or to the broker for delivery to the insured.

Whether the documents in question are applications or insurance policies, certificates, endorsements or the like, the unauthorized insurer must deliver the documents to the excess line broker, and the excess line broker is the only party that should be delivering applications and other documents to the unauthorized insurer.

***

ELANY DISCLAIMER:
This is not intended to be nor should it be construed as legal advice. Consult with your own legal counsel.
Last Reviewed/Revised: September 1, 2021