Th Office of General Counsel issued the following informal opinion on October 13, 2000, representing the position of the New York State Insurance Department.
Re: Licensing Status for Sales Staff
1. Is it a violation of the Insurance Law for a person to solicit applications on behalf of the State Insurance Fund ("Fund") and sell workers compensation coverage from the Fund without an insurance license?
2. Is it a violation of the Insurance Law for a person to sell workers compensation coverage under a "group self-insurance" arrangement without an insurance license?
1. Yes, a person violates the Insurance Law when he/she solicits applications on behalf of the Fund and sells workers compensation coverage without an insurance license, unless the person is exempted from licensing pursuant to N.Y. Ins. Law § 1108 (McKinney 1985 & Supp. 2000).
2. Yes, a person violates the Insurance Law when he/she sells workers compensation coverage under a "group self-insurance" arrangement without an insurance license, unless the person is employed by the group.
A company is licensed as a broker and sells memberships in self-insurance groups. It also serves as a "Safety Group Manager" for the State Insurance Fund and sells workers compensation coverage and memberships in their safety groups. The company wishes to hire a salesperson who is not licensed as a broker.
The Company also inquires whether its sales staff needs to be licensed when they sell workers compensation coverage under self-insurance trust funds since they believe it is regulated by the Workers Compensation Board and not the Insurance Department.
Insurance broker is defined in New York Insurance Law § 2101(c) (McKinney Supp. 2000) in relevant part as: "any person, firm, association or corporation who or which for any compensation, commission or other thing of value acts or aids in any manner in soliciting, negotiating or procuring the making of any insurance or annuity contract. . . ."
The solicitation by an unlicensed entity is a violation of New York Insurance Law § 2102(a)(1) (McKinney 1985), which states in part: "No person, firm, association or corporation shall act as an insurance agent, insurance broker, reinsurance intermediary or insurance adjuster in this state without having authority to do so by virtue of a license issued and in force. . . ."
New York Insurance Law § 1108 (McKinney 1985 & Supp. 2000) exempts certain insurers from licensing and other requirements. It states in part:
The following insurers, their officers, agents representatives and employees shall be exempt from licensing and other requirements imposed by the provisions of this chapter (except article seventy-four hereof) to the extent specified below: . . . (c) The state insurance fund of this state. . . .
New York Workers Comp. Law § 76 (McKinney 1995 & Supp. 2000) creates the State Insurance Fund, "for the purpose of insuring employers against liability for personal injuries or death sustained by their employees. . . ."
The Fund, although a state agency, was intended by the legislature to be treated the same as a private insurance company. Commissioners of State Insurance Fund v. Low, 285 App. Div. 525, 138 N.Y.S.2d 437 (3rd Dept 1955).
The State Insurance Fund (SIF) is a state agency technically under the jurisdiction of the State Labor Department, which may be more closely equated to an insurance company than to a typical state agency . . . The SIF is completely self sustaining, acquiring all of its operating and reserve funds from the premiums it collects from its policyholders and its investment income . . . The SIF will process, pay or reject the payment of claims in the same manner as any insurance company. Its attorneys and representatives will appear at Board hearings and proceedings when necessary to controvert a claim . . . The SIF is a state agency, but its functions are akin to that of a private insurance company." Martin Minkowitz, Practice Commentaries, N.Y. Work. Comp. § 76 (McKinney 1994 ).
Here, the company is selling workers compensation coverage from the Fund. The company does not have binding authority with the Fund, and states that it simply solicits applications for the Fund and submits the applications to the Fund. The company is not an employee, agent or representative of the Fund, and therefore, N.Y. Ins. Law § 1108 (McKinney 1985 & Supp. 2000) does not exempt its sales staff from licensing requirements.
Accordingly, the company must be licensed as a broker, as must its sales staff. The sales people are acting as brokers, that is, they are selling workers compensation coverage to prospective insureds, just as if the Fund were a private insurer. The definition of an insurance broker specifically states that a person who solicits the making of any insurance or annuity contract is an insurance broker. This is exactly the activity of the companys sales staff.
A similar situation exists with a self-insured group. Section 50(3-a) of the Workers Compensation Law (McKinneys 1994) allows for "group self-insurance" as one of the ways in which an employer may secure compensation to its employees. The Workers Compensation Law does not require self-insured groups to be licensed pursuant to the New York Insurance Law, nor does the Insurance Law contain an exception from licensing. However, the Department has considered self-insured groups to be exempt from licensing under the Insurance Law since they are authorized to be formed pursuant to the Workers Compensation Law.
Nonetheless, a person who sells this coverage is required to be licensed as a broker. The self-insured group is analogous to the State Insurance Fund, in that it is an unlicensed entity that is exempt from the licensing requirement. However, in order to sell workers compensation coverage, one must be licensed as a broker for the reasons stated above, unless a specific exemption exists in the statute. Since no statutory exemptions exist, a license is necessary in order to sell workers compensation coverage under a self-insured group.
For further information, you may contact Attorney Meredith S. Kaufer at the New York City office.