New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

The Office of General Counsel issued the following informal opinion on March 30, 2001, representing the position of the New York State Insurance Department.

RE: Permissible Duties of Unlicensed Employees of an Insurer

Questions Presented:

Under New York Insurance Law, is an unlicensed employee of an insurer permitted to:

(a) explain elements of a property/casualty insurance policy to an insured or a prospective insured?

(b) provide a verbal property/casualty quote and explanation of said quote to a prospective insured?

(c) provide a verbal explanation of coverages relating to property/casualty insurance?

(d) effect changes or bind coverages on an existing property/casualty insurance policy?

(e) bind coverages on a new property/casualty insurance policy?

Conclusions:

Yes to all of the above, under certain circumstances. N. Y. Ins. Law § 2102(a)(1) (McKinney 2000) prohibits a person or firm from acting as an insurance agent or broker without a license. N.Y. Ins. Law § 2101(a)(1) (McKinney 2000) defines an insurance agent as a person who solicits, negotiates, procures or makes an insurance contract. Therefore, anyone who engages in any of the above activities is considered to be acting as an insurance agent and must be licensed. The Insurance Law, however, provides various exceptions to the licensing requirement contained in N. Y. Ins. Law § 2102(a)(1) (McKinney 2000). One of these exceptions provides that a licensed insurer may delegate certain duties and responsibilities to its unlicensed employees. Note, however, that the licensed insurer will be fully responsible for the actions of its employees.

Facts:

The Department was asked to clarify the permissible scope of activity of an unlicensed employee of an insurer.

Analysis:

N. Y. Ins. Law § 2102(a)(1) (McKinney 2000) prohibits any person or firm from acting as an insurance agent or broker without a license.

Specifically, N. Y. Ins. Law § 2102(a)(1) (McKinney 2000) states:

(a)(1) No person, firm, association or corporation shall act as an insurance agent, insurance broker, reinsurance intermediary 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.

N. Y. Ins. Law § 2101(a) defines an insurance agent as:

[a]ny authorized or acknowledged agent of an insurer, fraternal benefit society or health maintenance organization issued a certificate of authority pursuant to article forty-four of the public health law, and any sub-agent or other representative of such an agent, who acts as such in the solicitation of, negotiation for, or procurement or making of, an insurance, health maintenance organization or annuity contract, other than as a licensed insurance broker.

Therefore, anyone who engages in any of the above activities is considered to be acting as an insurance agent and must be licensed pursuant to N. Y. Ins. Law § 2102(a)(1) (McKinney 2000). The Insurance Law, however, has delineated various exceptions to the otherwise applicable licensing requirement.

Specifically, N. Y. Ins. Law § 2101(a)(1) and (2) (McKinney 2000) exempts the following persons from licensing as an insurance agent:

(1) any regular salaried officer or employee of a licensed insurer, fraternal benefit society or health maintenance organization or of a licensed insurance agent, who does not solicit or accept from the public, outside of an office of such insurer, health maintenance organization or agent, applications or orders for any such contract, if such officer or employee does not receive a commission or other compensation for his services which commission or other compensation is directly dependent upon the amount of business done.

(2) any regular salaried officer or employee of any insurer or health maintenance organization, who devotes substantially all of his services to activities other than the solicitation of insurance business and health maintenance organization contracts from the insuring public, and who receives for the solicitation of such insurance and health maintenance organization contracts no commission or other compensation directly dependent upon the amount of business obtained.

In addition, N.Y. Ins. Law § 2102(b)(4)(C) (McKinney 2000) which relates to consulting, also exempts the following persons from the licensing requirements:

regular salaried officers or employees of an insurer who devote substantially all of their services to activities other than the rendering of consulting services to the insuring public while acting in their capacity as such in discharging the duties of their employment.

Thus, a licensed insurer may delegate certain duties and responsibilities to its unlicensed employees if they fit within any of the above exemptions. It is, however, incumbent on the licensed insurer to exercise reasonable judgment when delegating such duties. In addition, I note that the exemptions do not permit such unlicensed employees to be compensated on a commission basis or to be compensated in a manner that is directly dependent upon the amount of business done by the unlicensed employees. The insurer remains fully responsible for the actions of its employees.

For further information you may contact Attorney D. Monica Marsh at the New York City Office.