The Office of General Counsel issued the following opinion on February 4, 2005, representing the position of the New York State Insurance Department.
Re: Commission Sharing Between Agents and Brokers Not Permitted Where the Referring Agent is Not a Licensed Agent of the Insurer That Writes Policy
Question Presented:
May a licensed insurance broker and a licensed insurance agent share commissions from insurance business referred by the agent to the broker where both the agent and broker are licensed to sell the type of insurance referred but the agent is not a licensed agent of the insurer who wrote the policy?
Conclusion:
No. N.Y. Ins. Law §§ 2114, 2115 and 2116 (McKinney Supp. 2005) permit licensed insurance agents and licensed insurance brokers to share commissions for the referral of business only if both the agent and broker are licensed to sell the type of insurance referred, and the agent is a licensed agent of the insurer that wrote the policy.
Facts:
A licensed insurance agent referred insurance business to a licensed insurance broker. The agent and broker are both licensed to sell the type of insurance referred, but the agent is not a licensed agent of the insurer that wrote the policy. The inquirer asked the Department whether agents and brokers are permitted to share commissions in transactions as described above.
Analysis:
The inquirer indicated that the Departments past opinion letters on the subject of commission sharing between insurance agents and insurance brokers might be contradictory. Specifically, the inquirer asked the Department to clarify our position on whether a licensed insurance agent and a licensed insurance broker may share commissions from business referred by the agent to the broker where the agent and broker are licensed to sell the type of insurance referred, but the agent is not a licensed agent of the insurer that wrote the policy. The position of the Department in the cited letters is consistent, namely, licensed insurance agents and licensed insurance brokers are permitted to share commissions from the placement of an insurance policy only if both the agent and broker are licensed to write the type of insurance sold and the agent is a licensed agent of the insurer who wrote the policy.
N.Y. Ins. Law § 2112 (McKinney Supp. 2005) provides:
(a) Every insurer, fraternal benefit society or health maintenance organization doing business in this state shall file a certificate of appointment in such form as the superintendent may prescribe in order to appoint insurance agents to represent such insurer, fraternal benefit society or health maintenance organization.
N.Y. Ins. Law § 2114 (McKinney Supp. 2005), which applies to compensation to agents for life and accident and health insurance, provides in relevant part:
(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. (emphasis added).
(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. (emphasis added).
(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, negotiating or selling 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. (emphasis added).
(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. 2005), which applies to compensation to agents for all other kinds of insurance other than as specified in Section 2114 and title insurance, provides as follows:
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. (emphasis added).
N.Y. Ins. Law §§ 2114, 2115 and 21161 permit licensed insurance agents and licensed insurance brokers to share commissions from the placement of an insurance policy, if both the agent and broker are licensed to write the type of insurance procured and the agent is a licensed agent of the insurer who wrote the policy. Thus, an agent who is licensed to sell the type of insurance referred but is not a licensed agent of the insurer who writes the policy is prohibited from sharing commissions with the broker to whom the agent made the referral. As a result, the agent must be treated as an unlicensed person and therefore is not permitted to share in the resulting commission. However, such agent may be compensated for the referral pursuant to Sections 2114 and 2115 provided there is no discussion of specific insurance policy terms and conditions and the compensation for the referral is not based upon the purchase of insurance.
Please note, while the general rule is that agents and brokers may share commissions, where both the agent and broker are licensed to sell the type of insurance procured and the agent is a licensed agent of the insurer that wrote the policy, in regard to insurance coverage placed or rendered on behalf of governmental units, N.Y. Ins. Law § 2128 (McKinney Supp. 2005) and N.Y. Comp. Codes R. & Regs. tit. 11 §§ 29.1-29.6 (2002) (Regulation 87) prohibit commission sharing between agents and brokers, unless such insurance agent or broker actually placed the insurance coverage on behalf of, or rendered insurance services to the governmental unit. N.Y. Ins. Law § 2128 (McKinney Supp. 2005) provides, in pertinent part, as follows:
[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.
For further information please contact Associate Attorney D. Monica Marsh at the New York City Office.
1 N.Y. Ins. Law § 2116 (McKinney Supp. 2005) applies to compensation for brokers.