The Office of General Counsel issued the following informal opinion on January 25, 2002, representing the position of the New York State Insurance Department.

RE: Executive Officer Compensation

Question Presented:

May a Board of Directors and/or a Chief Executive Officer of a co-operative property/casualty insurance company provide hearing aids to an executive officer who works for the insurer if the officer’s health insurance fails to cover this cost?


Assuming that this co-operative property/casualty insurance company is organized and licensed pursuant to the requirements set forth in N.Y. Ins. Law, Art. 66 (McKinney 2000), the Board of Directors may be allowed to provide the hearing aids.


Your client is a co-operative property/casualty insurance company, which employs an executive officer who needs hearing aids to perform his duties; however, the health insurance provided by the employer fails to pay for this. You wanted to know if the co-operative insurer could pay for the hearing aids.


This analysis assumes that your client is a properly organized and licensed co-operative property/casualty insurance company pursuant to Article 66 of the N.Y. Ins. Law (McKinney 2000). Generally, N.Y. Ins. Law § 108(a) (McKinney 2000) describes the application of the Business Corporation Law to insurance corporations, and situations where New York Insurance Law prevails. N.Y. Ins. Law § 108(a) (McKinney 2000) states in the relevant part:

The business corporation law applies to every corporation heretofore or hereafter formed under:

this chapter . . .

(b)(1) If any provision of the business corporation law conflicts with any provision of this chapter, the provision of this chapter shall prevail, and the conflicting provision of the business corporation law shall not apply.

N.Y. Ins. Law § 6613 (McKinney 2000) states in the relevant part:

(a) The expenses of management of any co-operative property/casualty insurance company shall not exceed in any one calendar year forty-two and one-half percent of its net premiums written for such year. The term "net premiums written" means direct premiums written plus reinsurance assumed less return premiums and reinsurance ceded.

(b) Management expenses shall include all the expenses of such company, except expenses incurred in the investigation, adjustment and settlement of claims, taxes, fees, expenses of examination, and taxes, repairs, and expenses on real estate.

The N. Y. Business Corporation Law § 715(g) (McKinney 2002) states that "[a]ll officers as between themselves and the corporation shall have such authority and perform such duties in the management of the corporation as may be provided in the by-laws or, to the extent not so provided, by the board." Furthermore, "[e]ach corporation, . . . shall have power in furtherance of its corporate purposes: . . . [t]o elect or appoint officers, . . . , fix their compensation. . . ." N.Y. Business Corporation Law § 202(a)(10) (McKinney 2002). The N.Y. Business Corporation Law (McKinney 2002) is silent as to the allowable compensation for performance of such duties.

N.Y. Ins. Law § 6613(b) (McKinney 2000) defines by exclusion "management expenses." Since it fails to exclude salaries of officers, such salaries are included in the amount of overall management expenses which are defined above in N.Y. Ins. Law § 6613(a) (McKinney 2000), which states that such expenses ". . . shall not exceed in any one calendar year forty-two and one-half percent of its net premiums written for such year. . . ." Within this overall limitation of expenses for co-operative property/casualty insurance, generally, "compensation for corporate officers is a matter for the discretion of the board of directors and will not be interfered with by the courts ‘in the absence of a factual showing of misconduct amounting to bad faith’." Schwartz v. Rosenthal, 10 Misc. 2d 85, 171 N.Y.S.2d 698 (Sup. N.Y. Co. 1958) (the court dismissed a stockholders’ derivative action for failure to plead facts that compensation of a corporation’s president constituted an illegal bonus).

This hearing aid would be considered as part of this executive officer’s compensation. There is nothing under Insurance Law prohibiting the resulting increase to the officer’s compensation, as long as it falls within the total allowed for management expenses as defined by N.Y. Ins. Law § 6613 (McKinney 2000).

This opinion is limited to an interpretation of the Insurance Law. No opinion is rendered regarding any other laws.

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