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 December 14, 2001, representing the position of the New York State Insurance Department.

RE: Insurer’s Obligation to do Business with a Specific Insurance Broker.

Question Presented:

Pursuant to the Insurance Law, is an insurer obligated to do business with a specific insurance broker, under the circumstances described?

Conclusion:

The Insurance Law does not obligate the insurer to do business with a specific broker, under the circumstances described. Moreover, New York courts have held that an insurance company is generally under no obligation to do business with a specific insurance broker.

Facts:

The inquirer is an insurance broker who was retained by an insured to procure marine insurance. The insured is in the business of importing caviar from Russia and distributing it in the United States and desired to obtain marine insurance to insure against the loss of its product while in transit from Russia to the United States and while in storage.

The inquirer submitted the account to an insurance company at its branch office in Long Island, New York, who declined the account. A Long Island representative of the insurance company informed the inquirer that the insurer was avoiding Russian risks and was uncomfortable with the insured’s method of using dry ice to ship the caviar. Additionally, the representative stated that the insurer did not currently have any business with the inquirer’s office and its premium threshold was $50,000 to keep a producer active. The inquirer stated that although it did not have any active accounts with the insurance company at that time, the insured’s account had a premium of $60,000 that would have satisfied the insurer’s requirement.

The insured’s bank recommended that the insured obtain insurance through ABC Company, a multi-national broker. ABC Company submitted the insured’s account to the New York City branch office of the insurance company, who accepted the account over the objections of the Long Island representative.

Analysis:

Except in certain defined circumstances that are not relevant herein, the New York Insurance Law does not obligate an insurer to do business with a specfic insurance broker. Moreover, New York courts have held that an insurance company is under no obligation to do business with a specific broker. See Califano v. Travelers Ins. Co., 63 Misc. 2d 296 (Sup. Ct. Nassau County 1970); Shaitelman v. Phoenix Mutual Life Ins. Co., 517 F. Supp. 21 (S.D.N.Y. 1980).

In Califano v. Travelers Ins. Co., an insurance broker brought suit against ten insurance companies on the ground that they had violated his civil rights by wrongfully and arbitrarily refusing to do business with him and causing him to sustain damages in the amount of $200,000. 63 Misc. 2d at 297. The Court, quoting Locker v. American Tobacco Co., 121 App. Div. 443 (2nd Dep’t. 1907), affd. 195 N.Y. 565 (1909), stated that:

It is the well settled law of this state that the refusal to maintain trade relations with any individual is an inherent right which every person may exercise lawfully, for reasons he deems sufficient or for no reasons whatever, and it is immaterial whether such refusal is based upon reason or is the result of mere caprice, prejudice or malice. It is a part of the liberty of action which the Constitutions, state and federal, guarantee to the citizen.

Id. at 297.

The Court further stated that "there are limitations to this inherent right, but such limitations must be found either in firmly established common law principles or in statutory regulations enacted pursuant to the police power." Poughkeepsie Buying Service v. Poughkeepsie Newspapers, 205 Misc. 982 (Sup. Ct. New York County 1954). The Court concluded that plaintiff had failed to state a cause of action in the absence of a showing that any such limitations on defendant’s inherent right to refuse to do business with him were applicable.

In the present case, there are no such limitations that apply.

For further information, you may contact Attorney Pascale Joasil at the New York City office.