The Office of General Counsel issued the following informal opinion on November 3, 2000, representing the position of the New York State Insurance Department.
Re: Insurance agents as co-shareholders of a separate corporate insurance agent
If "A" insurance agent and "B" insurance agent were to establish a separate "AB" corporate insurance agent, as co-shareholders with shares that would not be publicly traded, may the wrongdoing committed by "A" insurance agent with respect to his own separate insurance agency be imputed to "AB" corporate insurance agent?
No. The wrongdoing committed by "A" insurance agent with respect to his own separate insurance agency would not be imputed to "AB" corporate insurance agent.
"A" insurance agent and "B" insurance agent are contemplating the establishment of a separate "AB" corporate insurance agent as co-shareholders with shares that would not be publicly traded. You indicate that your member "B" is concerned that if "A" were to violate the Insurance Law with respect to only his own insurance agency, the new corporate insurance agent "AB", which "A" and "B" would jointly own, would be negatively affected. You indicate that your member "B" is also concerned that during an Insurance Department disciplinary proceeding applied to "A", the Insurance Department would "shut down" "AB". You ask that we assume that "AB" would not be involved in any wrongdoing.
A corporate insurance agent acts through its sub-licensee(s) as provided by N.Y. Ins. Law § 2103 (c) (McKinney 2000) which states:
(c) Any [insurance agent's] license issued to a firm or association shall authorize only the members thereof, named in such license as sub-licensees, to act individually as agents thereunder, and any such license issued to a corporation shall authorize only the officers and directors thereof, named in such license as sub-licensees, to act individually as agents there-under. Every sub-licensee, acting as insurance agent pursuant to such a license shall be authorized so to act only in the name of the licensee.
A corporate insurance agent is licensed through at least one sub-licensee and a corporate insurance agent can act only through at least one sub-licensee. You do not provide the number of sub-licensees in the "AB" corporate insurance agent. Assuming that "A" and "B" are sub-licensees of "AB", and the license of "A" is revoked because of wrongdoing committed with respect to a separate insurance agency from "AB", the presence of the remaining "innocent" sub-licensee "B" in "AB" would permit "AB" to function.
In Goldstein v. Lewis, 90 A.D.2d 748, 455 N.Y.S.2d 810 (1st Dep't 1982), aff'd, 59 N.Y.2d 706, 463 N.Y.S.2d 421, 450 N.E.2d 227 (1983), petitioner Goldstein's insurance agent and insurance broker licenses were revoked by the Insurance Department. This revocation was annulled by the Court, based in part on petitioner Goldstein's capacity as an innocent sub-licensee. Thus, the wrongdoing of other sub-licensees in the same firm was not imputed to an innocent sub-licensee. (Emphasis added). It follows that the wrongdoing of sub-licensee "A", with respect to a separate corporation from "AB", should not be imputed to "AB". (Emphasis added).
However, if the Insurance Department revoked the license of sub-licensee "A", then N.Y. Ins. Law § 2111 (McKinney 2000) would be relevant. N.Y. Ins. Law § 2111 (McKinney 2000) provides that no revoked licensee may be employed by a licensee as an officer, director, partner, manager, controlling person, or for other services in such capacity, without the prior written approval of the Superintendent of Insurance, unless such services are for maintenance or are clerical or ministerial in nature. Moreover, the revoked licensee may not be a shareholder of a licensee unless the shares are publicly traded.
For further information you may contact Senior Attorney Robert Freedman at the New York City Office.