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 September 6 2002, representing the position of the New York State Insurance Department.

Re: Rebates of Insurance Premiums

Question Presented:

May an insurance broker who sells an errors and omissions insurance policy to itself to cover the broker's own business, keep the commission earned from this sale?

Conclusion:

Yes, the broker may keep the commission if it does not exceed the limitations provided in N.Y. Ins. Law

§ 2324(a) (McKinney 2001) and/or N.Y. Ins. Law § 2104(d)(3) (McKinney 2001).

Facts:

An insurance broker renewed its errors and omissions insurance with a wholesale broker. The insurance broker requested its commission for this placement, but the wholesale broker claimed that this would be rebating. The insurance broker wants verification of the wholesaler's claim.

Analysis:

N.Y. Ins. Law § 2324(a) (McKinney 2001) generally prohibits rebating, but permits insurance agents or licensed insurance brokers to keep their usual commission when placing insurance on their own property or risks subject to the limitation stated below in the relevant part of this section:

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 make, procure or negotiate any contract of insurance other than as plainly expressed in the policy or other written contract issued or to be issued as evidence thereof, or shall directly or indirectly, by giving or sharing a commission or in any manner whatsoever, pay or allow or offer to pay or allow to the insured or to any employee of the insured, either as an inducement to the making of insurance or after insurance has been effected, any rebate from the premium which is specified in the policy, . . . however, a licensed insurance agent or a licensed insurance broker may retain the usual commission or underwriting fee on insurance placed on his own property or risks, if the aggregate of such commissions or underwriting fees will not exceed five percent of the total net commissions or underwriting fees received by such licensed insurance agent or insurance broker during the calendar year. (Emphasis added.)

Furthermore, N.Y. Ins. Law § 2104(d)(3) (McKinney 2001) states:

The superintendent may refuse to issue a license or renewal license, as the case may be, to any applicant if he finds that such applicant has been or will be, as aforesaid, receiving any benefit or advantage in violation of section two thousand three hundred twenty-four of this chapter, or if he finds that more than ten percent of the aggregate net commissions, received during the term of the existing license, if any, or to be received during the term of the license applied for, by the applicant, resulted or will result from insurance on the property and risks set forth in subparagraphs (A), (B) and (C) of paragraph one of subsection (i) of section two thousand one hundred three of this article.

N.Y. Ins. Law § 2103(i) (McKinney 2001), which is referenced above in N.Y. Ins. Law § 2104(d)(3) (McKinney 2001), states in the relevant part:

(1) The superintendent may require from every applicant and from every proposed sub-licensee, before or after issuing any such license, a statement subscribed and affirmed as true by the applicant under the penalties of perjury as to the ownership of any interest in an applicant firm, association or corporation and as to facts indicating whether any applicant has been by reason of an existing license, if any, or will be by reason of the license applied for, receiving any benefit or advantage in violation of section two thousand three hundred twenty-four of this chapter, and also as to such facts as he may deem pertinent to the requirements of this subsection. The superintendent may refuse to issue, suspend or revoke a license, . . . if he finds that more than ten percent of the aggregate net commissions, received during the twelve month period immediately preceding, if any, or to be received during the ensuring twelve months, by the applicant, resulted or will result from insurance on the property and risks:

(A) of the spouse of an individual applicant; and of any corporation of which such individual applicant or his or her spouse or both own more than fifty percent of the shares; and of any affiliated or subsidiary corporations of such corporation; and of the members of any firm or association and their spouses, of which firm or association the individual applicant or his or her spouse is a member;

(B) of the members of an applicant firm or association and their respective spouses, and of the owners of any interest in such firm or association and their respective spouses, and of any corporation of which such firm or association or the members or owners and their respective spouses, either individually or in the aggregate, own more than fifty percent of the shares, and of any affiliated or subsidiary corporations of such corporation, and of any other firm and the members thereof and their respective spouses, of which other firm a member or members of the applicant firm or association and their respective spouses are members or owners; and

(C) of the shareholders of an applicant corporation and their respective spouses, and of any affiliated and subsidiary corporations of such applicant corporation, and of any subsidiary and affiliated corporations of a corporation owning any interest in such applicant corporation, and of any firm or association and the members thereof and their respective spouses which either individually or collectively own more than fifty percent of the shares of the applicant corporation, and of any corporation of which such firm or association and its members and their respective spouses, either individually or in the aggregate, own more than fifty percent of the shares, and of any affiliated or subsidiary corporation of such corporation.

Pursuant to N.Y. Ins. Law § 2324(a) (McKinney 2001), an insurance broker may retain the usual commissions for placing insurance on the broker's own property or risks, if the aggregate amount of such commissions do not exceed the amount set forth in N.Y. Ins. Law § 2324(a) (McKinney 2001) and/or N.Y. Ins. Law § 2104(d)(3) (McKinney 2001).

For further information you may contact Senior Attorney Susan A. Dess at the New York City Office.