OGC Opinion No. 08-02-03

The Office of General Counsel issued the following opinion on February 7, 2008, representing the position of the New York State Insurance Department.

RE: Obtaining Renewal Commissions from Insurer

Question Presented:

Is an insurer obligated to pay renewal commissions directly to an insurance agent after the agent has resigned from a licensed insurance agency, when there was an agreement between the insurer and the agency that the insurer would pay the commissions directly to the agency, and the agency in turn would pay the agent commissions pursuant to a verbal agreement between the agency and the agent?

Conclusion:

No. Absent a contractual provision to the contrary, an insurer that contracts to pay all commissions to the insurance agent’s licensed employer is not obligated to pay renewal commissions directly to the agent after the agent has resigned from the agency where the agent was employed.

Facts:

The inquirer, a licensed insurance agent, stated that he was employed by an insurance agency licensed in New York to sell life, disability and long-term care insurance policies. The inquirer also noted that the insurers with whom these policies were placed paid the commissions and renewal commissions on these policies to the agency, and the agency in turn paid the inquirer his commissions. The inquirer recently left the agency and requested that the insurers directly forward his renewal commissions to his home address. However, some of the insurers have failed to comply with this request.

In response to the Department’s request for more information, the inquirer stated that he entered into a verbal agreement with an insurance agency to establish a life & health division for which the inquirer solicited insurance. Also, the inquirer reported that the insurers appointed him as individual producer and the agency as corporate producer, and that, in most cases, as vice president of the agency the inquirer “signed” on behalf of the agency with respect to the agency’s appointment. Although the inquirer did not so state, it appears that the inquirer was the sub-licensee of the agency for purposes of the health and life business.

The inquirer also noted that for “bookkeeping purposes” the insurers paid all commissions on New York policies to the agency, and then the agency paid the inquirer the agreed upon portion of the commissions. The inquirer did not know the specific details of the agreement between the insurers and the agency regarding the payment of commissions, except that it was “some type of assignment.”

With respect to out-of-state policies, the insurers appointed the inquirer individually as producer rather than appointing the agency, since the agency was not licensed in the respective states. Since the inquirer was appointed as producer regarding these out-of-state policies, the insurers paid the inquirer the commissions directly, and the inquirer in turn paid the agency its fee.

Subsequently, the inquirer and the agency reached an agreement to terminate the business relationship, and this gave rise to the instant issue of payment of the inquirer’s renewal commissions. The inquirer reported that two insurers have agreed to pay him directly the renewal commissions, but other insurers have not agreed to do so. The insurers who have refused to pay the inquirer the commissions directly asserted that they will continue to pay commissions to the same “tax ID” (belonging to the agency) as customary, unless they receive a release from the agency permitting them to pay the inquirer the commissions directly. Additionally, the agency refuses to pay the inquirer any renewal commissions, but the inquirer did not suggest a reason for the agency’s refusal.

Analysis:

The New York Insurance Law and regulations promulgated thereunder do not specifically address an insurance agent’s entitlement to renewal commissions on policies under these circumstances.

As stated in the inquirer’s correspondence to the Department, the inquirer did not have contractual agreements with the insurers regarding the payment of commissions and renewal commissions on New York policies. Instead, the insurers entered into contractual agreements with the insurance agency with respect to the payment of commissions and renewal commissions on the New York policies, and the inquirer entered into a separate oral agreement with the insurance agency with respect to the payment of his commissions. Based on this fact, it is likely that the insurance agency is the agent of record, and therefore entitled to receive all commission payments. In this regard, the insurers would be under no obligation, contractual or otherwise, to forward any renewal commissions to the inquirer directly. Moreover, the insurers could be held liable to the insurance agency under their existing agreements for breach of contract if they were to pay the inquirer the renewal commission payments, unless the insurers were to receive the agency’s consent to do so, or their contracts with the insurance agency were to so provide. As such, the inquirer’s recourse for obtaining his commissions would be the enforcement of his agreement with the agency.

As a general matter, the inquirer, as a licensed insurance agent, would be entitled to receive commissions on the policies he has placed, as well as any commissions from the renewals thereof, pursuant to any agreement the inquirer made with the insurance agency and/or with the insurer. ¹

It should be noted however, in asserting any claims against the agency, that New York courts generally have held that oral agreements to pay commissions on new policies and on policy renewals may be enforceable, if such policies are placed or renewed within one year, and therefore not required to be in writing pursuant to General Obligations Law § 5-701(a)(1) (McKinney 2001) (the “statute of frauds”). See Gold v. Benefit Plan Adm’rs, Inc., 233 A.D.2d 421, 649 N.Y.S.2d 482 (2nd Dep’t 1996); Apostolos v. R.D.T. Brokerage Corp., 159 A.D.2d 62, 559 N.Y.S.2d 295 (1st Dep’t 1990). However, the courts have deemed unenforceable any oral agreements to pay renewal commissions that extend beyond one year. Apostolos, 159 A.D.2d at 64-65, 559 N.Y.S.2d at 297.

Furthermore, the courts have ruled unenforceable any oral agreement to pay renewal commissions after the termination of an at-will employment relationship. See Caruso v. Malang, 250 A.D.2d 800, 673 N.Y.S.2d 470 (2nd Dep’t 1998); I. Levine & Sons, Inc. v. Physicians’ Reciprocal Insurers, 246 A.D.2d 577, 667 N.Y.S.2d 279 (2nd Dep’t 1998). Therefore, if, as the inquirer stated in his correspondence, the inquirer’s entitlement to receive renewal commissions was based upon an oral agreement with the insurance agency, such an agreement may be unenforceable. However, we offer no opinion on this issue, which is outside the purview of this Department.

In sum, this is a matter that requires interpretation of the contractual agreement between the agency and the inquirer, to be resolved by a court of competent jurisdiction. Accordingly, the inquirer may wish to seek private counsel regarding the matter.

For further information you may contact Senior Attorney Camielle A. Campbell at the New York City Office.

¹ Pursuant to NY Ins. Law § 2114, an insurer or its agent may pay only a licensed insurance agent commissions with respect to life insurance, accident and health insurance and annuities. Insurance Law §§ 2115 and 2116 set forth similar provisions with respect to property/casualty insurance agents and insurance brokers.