The Office of General Counsel issued the following opinion on July 28, 2005, representing the position of the New York State Insurance Department.
Re: Referral Fee
Would an arrangement, where a steamship cargo company refers its customers to a licensed insurance broker to insure cargo against loss or damage, in exchange for a referral fee contingent on the purchase of insurance, require the cargo company to be licensed as an insurance producer in New York?
Yes. Pursuant to N.Y. Ins. Law §§ 2102 and 2116 of the N.Y. Ins. Law (McKinney 2005), the cargo company would be required to be licensed as an insurance agent or broker because a non-licensee may not be compensated for referrals to a broker that are contingent upon the placement of insurance. Furthermore, since the cargo company would be acting as a broker without a license, the licensed broker may be found to be acting in an untrustworthy manner pursuant to § 2110(a)(4) of the N.Y. Ins. Law (McKinney 2005).
In its normal course of business, a steamship cargo company, which imports and exports cargo to and from the United States, takes bookings from customers through its website. As a service to its customers, the cargo company provides a check box on its website where, after a customer has filled in the booking information, the customer can opt to purchase insurance to insure the cargo against loss or damage that may occur during transport. By clicking on the "yes" icon, the customer is directed to the website of a licensed insurance broker. Under the agreement, the cargo company will receive a referral fee from the insurance broker upon the purchase of insurance by the customer. The cargo company does not discuss any policy terms of the insurance with the customer.
N.Y. Ins. Law § 2116 (McKinney 2005), which refers to insurance brokers, in pertinent part states:
No insurer authorized to do business in this state, and no officer, agent or other representative thereof, shall pay any money or give any other thing of value to any person, firm, association or corporation for or because of his or its acting in this state as an insurance broker, unless such person, firm, association or corporation is authorized so to act by virtue of a license issued or renewed pursuant to the provisions of section two thousand one hundred four of this article. For the purposes of this section, "acting as insurance broker" 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 §§ 2114 and 2115 prohibit such activities as it relates to life, accident & health insurance agents and property casualty insurance agents, respectively.
Under § 2116, a non-licensee may be compensated for referrals by an insurance agent so long as the referral does not include a discussion of specific insurance policy terms and conditions, and where the compensation for the referral is not contingent upon the sale of insurance. Although the non-licensed cargo company does not discuss specific insurance policy terms and conditions, the compensation for referral is based on the sale of insurance. Therefore, the referral program as described here would be in violation of the New York State Insurance law unless the cargo company was licensed as an insurance agent or broker pursuant to the provisions of New York Insurance Law § 2102 (McKinney 2005). Please note that the cargo company could be compensated for referrals if the compensation was not based upon the purchase of insurance.
N.Y. Ins. Law § 2102(a)(1) (McKinney 2005) defines "acting without a license," and states:
No person, firm, association or corporation shall act as an insurance producer or insurance adjuster in this state without having authority to do so by virtue of a license issued and in force pursuant to the provisions of this chapter.
The term "producer" includes insurance broker, agent, reinsurance intermediary, excess line broker or any other person required to be licensed under the laws of this state to sell, solicit or negotiate insurance. N.Y. Ins. Law § 2101(k) (McKinney 2005).
Furthermore, in accordance with N.Y. Ins. Law § 2110(a)(4) (McKinney 2005), since the cargo company would be acting as a broker without a license, the Superintendent may determine that the broker is acting in an untrustworthy manner by paying the cargo company and facilitating the unlicensed activity. As a result, the Superintendent may refuse to renew, revoke, or suspend the insurance broker's license.
For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.