The Office of General Counsel issued the following opinion on November 4, 2005, representing the position of the New York State Insurance Department.

RE: Fees Charged by an Insurance Agent to Members of a Purchasing Group

Question Presented

May an insurance agent that sells liability insurance to members of a purchasing group require all the members to pay a standard fee for providing them with additional services such as a monthly newsletter and loss control seminars?


No. An insurance agent may not require that all members of a purchasing group pay a fee for providing additional services because it would violate § 2119 and § 2324 of the New York Insurance Law (McKinney 2005).


The inquirer states that the inquirer's company, (hereinafter Company A), is an expert in realtor's errors and omissions insurance and is an agent for an insurance company, (hereinafter Company B), which sells insurance to members of a purchasing group. Company A is domiciled in Illinois and licensed as an insurance agent in the State of New York. The inquirer did not give the name of the purchasing group but represents that it was formed by Company A and that it is registered to do business in New York.

In addition to selling insurance to members of the purchasing group, Company A requires each purchasing group member to purchase additional services for which it proposes to charge a standard mandatory annual fee of $35.

These additional services are a monthly newsletter that gives insureds tips on how to keep their errors and omissions insurance claims down, and loss control seminars. The newsletter can be accessed on Company A's internet website by the insured and the general public but is mailed in hard-copy only to the purchasing group member's homes. The inquirer states that Company A also offers the insured access to legal counsel for insurance related legal advice. In a telephone conversation with a representative of the Department, the inquirer's predecessor had clarified that the insured can get access to legal counsel. In order for the insured to get access to legal counsel, the insured must call a number provided by Company A and speak to the insurer's claims manager and not to an attorney. Depending on the inquiry by the insured, the claims manager decides whether an attorney needs to be contacted. The attorneys and the claims managers are all employed by Company B.


Company A proposes to charge a standard mandatory annual fee of $35 to each member of the purchasing group for providing the members with monthly newsletters, loss control seminars, and access to legal counsel.

Section 2119(a)(1) of the New York Insurance Law (McKinney 2005), in pertinent part, states:

(a) (1) No person licensed as an insurance agent, broker or consultant may receive any fee, commission or thing of value for examining, appraising, reviewing or evaluating any insurance policy, bond, annuity or pension or profit-sharing contract, plan or program or for making recommendations or giving advice with regard to any of the above, unless such compensation is based upon a written memorandum signed by the party to be charged and specifying or clearly defining the amount or extent of such compensation.

Unlike insurance brokers who may charge service fees pursuant to § 2119(c), insurance agents may not charge fees except as permitted under § 2119(a)(1). Company A may not charge a fee for these services under N.Y. Ins. Law § 2119(a)(1) because it is not examining, appraising, reviewing or evaluating any insurance policy or giving recommendations on any insurance policy. Rather, the newsletter and loss control seminars that Company A provides informs the insureds how to lower or stabilize error and omissions insurance claims.

Moreover, N.Y. Ins. Law § 2324(a) (McKinney 2005) prohibits sales in which consumers can buy one product only if they purchase another product, and in pertinent part, states:

No authorized insurer, no licensed insurance agent, no licensed insurance broker, and no employee or other representative of any such insurer, agent or broker shall . . . give or offer to give any valuable consideration or inducement of any kind, directly or indirectly, which is not specified in such policy or contract, other than any article of merchandise not exceeding fifteen dollars in value which shall have conspicuously stamped or printed thereon the advertisement of the insurer, agent or broker, or shall give, sell or purchase or offer to give, sell or purchase, as an inducement to the making of such insurance or in connection therewith, any stock, bond or other securities or any dividends or profits accrued thereon, . . .

An agent selling insurance to a purchasing group may not require members of the purchasing group to purchase additional services not specified in the policy because such a tie-in would violate N.Y. Ins. Law § 2324(a).

Accordingly, Company A may not require the purchasing group members to pay a fee for the newsletter and loss control seminars or provide these services to purchasing group members only. However, Company A may offer these services to the general public, including its insurance clients, so long as the services are provided independent of the purchase of insurance and there is no obligation or inducement placed upon the recipients of these services to purchase insurance.

As to Company A's claim that it provides access to legal counsel, this appears not to be the case. Company A merely provides a phone number to insureds so that they can contact claims managers at Company B. Both the claims managers and the attorneys are employed by the insurer. Since Company A is only providing information to lead the insured to claims resources that the insurer already provides under its insurance policy and for which the insurer has charged a premium, Company A may not charge a fee for this service.

For further information one may contact Supervising Attorney Barbara A. Kluger at the New York City Office