The Office of General Counsel issued the following informal opinion on February 16, 2000, representing the position of the New York State Insurance Department.
Commission sharing among brokers, N.Y. Insurance Law §§2114(a)(3) and 2128
(McKinney 1985 and Supp.1999-2000).
Question 1: Are there any restrictions under the New York Insurance Law, or under the applicable regulations, restricting an insurer from recognizing two brokers, who jointly sell group disability insurance, as each being the broker of record on the policy, with each entitled to a percentage of the commissions payable under that policy?
Question 2: If an insurer recognizes the two brokers as each being the broker of record on a policy of group disability insurance and each broker is entitled to a percentage of the commissions payable under that policy, may one of the brokers, pursuant to a written agreement between the brokers, deliver to the insurer a conditional assignment that reduces that broker's percentage interest in the commissions upon delivery of notice from the other broker?
Question 3: If an insurer recognizes the two brokers as each being the broker of record on a policy of group disability insurance and each broker is entitled to a percentage of the commissions payable under the policy, may one of the brokers, pursuant to a written agreement between the brokers, deliver to the other broker an unconditional assignment that reduces the former broker's percentage interest in the commissions which unconditional assignment is held by the latter broker until such time as the latter broker has determined, in the latter broker's sole discretion, that the former broker is no longer entitled to the commission under the terms of the agreement?
(1). No, there is generally no such statutory or regulatory prohibition.
(2). Yes, the broker may do this.
(3). Yes, the broker may do this.
Broker A is interested in contracting by Agreement with another licensed insurance broker ("Broker B) to jointly sell group disability insurance. Broker B will also provide services to insureds solicited under the Agreement. The two brokers agree to be designated as co-brokers of record by the insurer. The commissions from such sales would be shared on a 50-50 basis. Broker A would have sole discretion to determine that Broker B is not adequately servicing the accounts and may adjust the allocation of commissions to be 75% allotted to Broker A and 25% to Broker B. Other circumstances may alter the allocation so that Broker A would receive all of the commissions and none would be paid to Broker B.
In the Agreement, both brokers will be named as being of record on each policy under the Agreement, with each entitled to share half the commissions payable. Simultaneously, Broker B would execute and deliver to the insurer an assignment of its rights to the commissions to be reduced to the percentage indicated in any future notice to the insurer from Broker A. As an alternative to this contingent assignment, Broker B may deliver to Broker A an unconditional assignment of its rights to the commission which Broker A may later deliver, pursuant to the Agreement, to the insurer to reduce or eliminate Broker B's percentage of the commissions.
N.Y. Insurance Law §2114(a)(3) concerns, in part, commissions payable to agents or brokers on contracts of accident or health insurance. In general, there is no Insurance Law statute that precludes a sharing of commissions between brokers except where the commissions to be shared come from insurance coverages or services rendered to New York governmental entities as indicated in N.Y. Insurance Law §2128 and Department Regulation 87 (N.Y. Comp. Codes R. & Regs. tit. 11, §§29.1 - 29.6 (1980)). The lack of statutory prohibition to shared commissions from non-state business implies that such brokerage commission sharing is permissible.
The nature of the agreement to share commissions between the two brokers is a matter of contract between the parties. Both proposals outlined in the inquiry appear to be consistent with New York Insurance Law.
For further information you may contact Associate Attorney Jeffrey A. Stonehill at the New York City Office.