The Office of General Counsel issued the following opinion on February 28, 2003, representing the position of the New York State Insurance Department.
Re: Sharing of Commissions For Referrals
Question Presented:
May a licensed insurance agent or broker who makes a referral to another licensed insurance agent or broker who does the actual selling of the policy, share in the commissions for the referral?
Conclusion:
A New York licensed insurance agent or broker may share the commission with another New York licensed insurance agent or broker for the referral of business on the placement of an insurance policy if the referring agent is licensed to sell that kind of insurance and is a licensed agent of the insurer that wrote the policy, or if the referring broker is licensed to write that kind of insurance, pursuant to N.Y. Ins. Law § § 2114, 2115 and 2116 (McKinney Supp. 2003). Otherwise, such referring agent or broker must be treated as any other non-licensed person under sections 2114, 2115 and 2116.
However, pursuant to N.Y. Ins. Law § 2128 (McKinney 2000) and N.Y. Comp. Codes R. & Regs. tit. 11 § § 29.1-29.6 (2002) (Regulation 87), an insurance agent or broker is prohibited from receiving commissions or fees that arise from insurance placements or insurance services rendered to a New York State governmental unit unless the insurance agent or broker actually places the insurance or renders the services to that New York State governmental unit.
Facts:
No additional facts were given.
Analysis:
A New York licensed insurance agent or broker may share the commission with another New York licensed insurance agent or broker for the referral of business on the placement of an insurance policy if the referring agent is licensed to sell that kind of insurance and is a licensed agent of the insurer that wrote the policy, or if the referring broker is licensed to write that kind of insurance, pursuant to N.Y. Ins. Law § § 2114, 2115 and 2116 (McKinney Supp. 2003). Otherwise, such referring agent or broker must be treated as any other non-licensed person under sections 2114, 2115 and 2116.
N.Y. Ins. Law § 2114 (McKinney Supp. 2003) applies to life, accident and health insurance agents and brokers and provides, in relevant part, as follows:
(a)(1) No insurer or fraternal benefit society doing business in this state shall pay any commission or other compensation to any person, firm or corporation, for any services in obtaining in this state any new contract of life insurance or any new annuity contract, except to a licensed life insurance agent of such insurer or of such society or to an insurance broker licensed under subparagraph (A) of paragraph one of subsection (b) of section two thousand one hundred four of this article, and except to a person described in paragraph two or three of subsection (a) of section two thousand one hundred one of this article.
(2) No agent or other representative of any such life insurer or fraternal benefit society shall pay any commission or other compensation to any person for any services of the kind specified in paragraph one hereof, except to a licensed life insurance agent of such insurer or of such society as the case may be.
(3) No insurer, fraternal benefit society or health maintenance organization doing business in this state and no agent or other representative thereof shall pay any commission or other compensation to any person, firm, association or corporation for services in soliciting or procuring in this state any new contract of accident or health insurance or any new health maintenance organization contract, except to a licensed accident and health insurance agent of such insurer, such society or health maintenance organization, or to a licensed insurance broker of this state, and except to a person described in paragraph two or three of subsection (a) of section two thousand one hundred one of this article.
(4) Services of the kind specified in this subsection shall not include the referral of a person to a licensed insurance agent or broker that does not include a discussion of specific insurance policy terms and conditions and where the compensation for referral is not based upon the purchase of insurance by such person. . . .
N.Y. Ins. Law § 2115(a) (McKinney Supp. 2003) applies to property/casualty insurance agents and states in relevant part:
No insurer doing business in this state, and no agent or other representative thereof, except as provided in subsection (b) hereof, shall pay any commission or other compensation to any person, firm, association or corporation for acting as insurance agent in this state, except to a licensed insurance agent of such insurer or to a person described in paragraph two or four of subsection (a) of section two thousand one hundred one of this article or except as provided in subsection (c) of this section. For the purposes of this section, "acting as insurance agent" shall not include the referral of a person to a licensed insurance agent or broker that does not include a discussion of specific insurance policy terms and conditions and where the compensation for referral is not based upon the purchase of insurance by such person.
N.Y. Ins. Law § 2116 (McKinney Supp. 2003) applies to insurance brokers. Section 2116 governs the payment of commissions and other compensation to persons, firms, associations and corporations for services in obtaining, soliciting, or procuring new life insurance, annuity, accident and health insurance, and health maintenance organization contracts. It provides:
No insurer authorized to do business in this state, and no officer, agent or other representative thereof, shall pay any money or give any other thing of value to any person, firm, association or corporation for or because of his or its acting in this state as an insurance broker, unless such person, firm, association or corporation is authorized so to act by virtue of a license issued or renewed pursuant to the provisions of section two thousand one hundred four of this article. For the purposes of this section, "acting as insurance broker" shall not include the referral of a person to a licensed insurance agent or broker that does not include a discussion of specific insurance policy terms and conditions and where the compensation for referral is not based upon the purchase of insurance by such person.
The exception to the general rule that insurance agents and brokers are permitted to share commissions or fees is contained in N.Y. Ins. Law § 2128 (McKinney 2000) and N.Y. Comp. Codes R. & Regs. tit. 11 § § 29.1-29.6 (2002) (Regulation 87). N.Y. Ins. Law § 2128(a) (McKinney 2000) states, in pertinent part:
[N]o insurance agent, insurance broker . . . shall receive any commissions or fees or shares thereof in connection with insurance coverages placed for or insurance services rendered to the state, its agencies and departments, public benefit corporations, municipalities and other governmental subdivisions in this state, unless such insurance agent, insurance broker . . . actually placed insurance coverages on behalf of or rendered insurance services to the state, its agencies and departments, public benefit corporations, municipalities and other governmental subdivisions in this state.
Thus, the sharing of commissions or fees by an insurance agent or broker from a New York State governmental unit is permissible only if such activity is in compliance with N.Y. Ins. Law § 2128 (McKinney 2000) and N.Y. Comp. Codes R. & Regs. tit. 11 § § 29.1-29.6 (1980) (Regulation 87), and the agent or broker has actively placed the coverage on rendered services. Hence, an agent or broker may not share commissions with an agent or broker merely for referring. If the insurance agent or broker receives a fee or commission arising from insurance placements or insurance services rendered to a New York State governmental unit, the insurance agent or broker must complete a "Governmental Insurance Disclosure Statement" pursuant to N.Y. Comp. Codes R. & Regs. tit. 11 § § 29.5 and 29.6 (2002) (Regulation 87).
Regarding referrals from non-licensees, N.Y. Ins. Law § § 2114, 2115 and 2116 specifically exclude from the services specified therein referrals that do not include a discussion of specific insurance policy terms where the compensation for the referrals are not based on whether a sale is made. Therefore, referrals from non-licensees and the compensation for such referrals are permissible if they fall within the parameters of sections 2114, 2115 and 2116. Please be advised that these exceptions are due to expire on September 10, 2003, unless the Legislature extends these provisions.
For further information you may contact Associate Attorney Meredith S. Kaufer at the New York City Office.