OGC Op. No. 06-12-14
The Office of General Counsel issued the following opinion on December 20, 2006 representing the position of the New York State Insurance Department.
Re: Insurance Agent Purchasing an Independent Adjuster
May an insurance agent purchase an insurance adjuster?
Yes, an insurance agent may purchase an independent adjuster. There is no prohibition against an agent owning an adjuster. Pursuant to N.Y. Ins. Law § 2108 (McKinney 2006) and N.Y. Comp. Codes R. & Regs. tit. 11, Part 26 (Regulation 25), the adjuster may not share commissions or fees with any party that is not a licensed adjuster, but the owners of an adjuster may share in the overall profits of the company. There are some general restrictions pursuant to N.Y. Ins. Law § 2111 (McKinney 2006) and Regulation 25 as to who may not own or associate with a licensed adjuster.
An employee of a licensed insurance agent inquired whether the agent may purchase an independent adjuster.
There is no specific prohibition against an insurance agent owning an independent adjuster. However, N.Y. Ins. Law § 2108 (McKinney 2006) defines the licensing and duty requirements of an independent adjuster and states in pertinent part:
(a)(4) No insurer, agent or other representative of an insurer shall pay any fees or other compensation to any person, firm, association or corporation for acting as an independent adjuster except to a licensed independent adjuster or to a person excepted from the licensing requirement pursuant to subsection (g) of section two thousand one hundred one of this article.
Section 26.5 of N.Y. Comp. Codes R. & Regs. tit. 11, Part 26 (Regulation 25) states in pertinent part:
No independent adjuster licensee or sublicensee shall divide any fee or give any fee, commission or other compensation to any person, firm or corporation for procuring or assisting in procuring the adjustment of any loss for such licensee or sublicensee, unless the person, firm or corporation to whom such fee, commission or other compensation is given or paid had at the time when the loss occurred, an independent adjuster's license issued and in force pursuant to section 2108 of the Insurance Law. No such licensee or sublicensee shall be employed or associated with any person, partnership, corporation, member, officer, director or stockholder, whose license as an independent adjuster has been revoked by the Superintendent of Insurance of New York. Any violation of this Part shall be deemed a ground for refusal to issue or renew, or for revocation or suspension of, an independent adjuster's license.
An unlicensed person or entity may own all or part of an insurance adjuster and share in the companys profits. However, the unlicensed person or entity may not be compensated based upon a percentage of fees earned by the adjuster. The compensation must be based on ownership interest or other methodology provided that the methodology is not based on the fees earned by the adjuster. The unlicensed person or entity who owns all or part of an adjuster may not act as an adjuster as it would constitute acting without a license in violation of N.Y. Ins. Law § 2102 (McKinney 2006).
N.Y. Ins. Law § 2111 (McKinney 2006) prohibits ownership of insurance businesses by certain parties and states in pertinent part:
(a)(3) No corporation or partnership subject to the provisions of this chapter shall knowingly permit any person whose license issued under this article has been revoked, or whose license to engage in the business of insurance in any capacity has been revoked by any other state, or territory of the United States, to be a shareholder or have an interest in such corporation or partnership, nor shall any such person become a shareholder or partner in such corporation or partnership, without the prior written approval of the superintendent.
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(c) The provisions of this section shall not apply to the ownership of shares of any corporation licensed pursuant to this article if the shares of such corporation are publicly held and traded in the over-the-counter market or upon any national or regional securities exchange.
N.Y. Ins. Law § 2111 generally prohibits an independent adjuster from being owned by a person or entity whose license to engage in the insurance business in any capacity has been revoked. An exception may be made with the Superintendents prior written approval. The prohibition does not apply if the stock of the company is publicly held and traded.
For further information you may contact Principal Attorney Paul Zuckerman at the New York City office.