The Office of General Counsel issued the following informal opinion on October 30, 2002, representing the position of the New York State Insurance Department.
RE: Sharing Commissions
May a licensed brokerage corporation share its commissions with another licensed broker?
This is permissible pursuant to N.Y. Ins. Law § 2114 (McKinney Supp. 2002).
A licensed insurance broker ("Broker A") will be setting up a corporation ("Brokerage Corp.") with three non-licensed shareholders. Brokerage Corp. will apply to become a licensed broker and Broker A will be the sub-licensee. Brokerage Corp. and Broker A will arrange introductions and meetings with health institutions to interest them in the purchase of insurance.
Brokerage Corp. and Broker A will arrange initial meetings of introduction between the institutions and Broker B. Broker A and one of the unlicensed shareholders of Brokerage Corp. will attend all meetings. Broker A, on behalf of Brokerage Corp., will consult with Broker B and the institutions concerning the insurance package.
In the event insurance is purchased, the commissions will be shared between Brokerage Corp. and Broker B.
N.Y. Ins. Law § 2104 (McKinney Supp. 2002) governs the licensing of insurance brokers. It provides in pertinent part:
(a) (1) The superintendent may issue an insurance brokers license to any individual, firm, association or corporation, hereinafter designated as "licensee," who or which is deemed by him trustworthy and competent to act as a broker in such manner as to safeguard the interests of the insured, and who or which is otherwise qualified as herein required, and who or which has complied with the prerequisites herein prescribed.
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(b) (1) Such license shall confer upon the licensee authority to act in this state as insurance broker, and upon every natural person named as sub-licensee in such license authority to act in this state as insurance broker in the name of and on behalf of such licensee, with respect to: (A) life insurance, including for this purpose annuity contracts and supplemental contracts of non-cancellable disability insurance, accident and health insurance, including for this purpose, health maintenance organization contracts and legal services insurance; or (B) any and every kind of insurance, except life insurance and annuities.
(2) A license issued to a corporation may name as sub-licensees only the officers and directors of such corporation, and a license issued to a firm or association may name as sub-licensees only the individual members of such firm or association. Each sub-licensee named in such license must be qualified to obtain a license as an insurance broker, and for each such sub-licensee a fee must be paid at the times and at the rates hereinafter specified.
The Superintendent has the authority to issue an insurance brokers license to any individual, firm, association or corporation that meets certain requirements and prerequisites. N. Y. Ins. Law § 2104(a)(1) (McKinney Supp. 2002). The license issued to a corporation confers upon the corporation the authority to act as a broker in New York and, upon every natural person named as a sub-licensee in such license, the authority to act as insurance broker in the name of and on behalf of such corporation. The sub-licensee of a corporation must be either an officer or a director of the corporation. Each sub-licensee named must be qualified to obtain a license as an insurance broker. N. Y. Ins. Law § 2104(b)(1), (2) (McKinney Supp. 2002).
Thus, pursuant to the statute, Broker A, in order to be named the sub-licensee of Brokerage Corp., would have to be a natural person who is either an officer or a director of Brokerage Corp. Only a sub-licensee may act as insurance broker in the name of and on behalf of the corporation. Accordingly, Brokerage Corp. would have to act through Broker A in setting up the meetings with the institutions and Broker B and, although the unlicensed shareholders can attend the meetings, they may not act in the name of and on behalf of the corporation in matters that require licensing as a broker.
N.Y. Ins. Law § 2116 (McKinney Supp. 2002) governs the payment of commissions and other compensation to persons, firms, associations and corporations for services in obtaining, soliciting, or procuring new life insurance, annuity, accident and health insurance, and health maintenance organization contracts. It provides:
No insurer authorized to do business in this state, and no officer, agent or other representative thereof, shall pay any money or give any other thing of value to any person, firm, association or corporation for or because of his or its acting in this state as an insurance broker, unless such person, firm, association or corporation is authorized so to act by virtue of a license issued or renewed pursuant to the provisions of section two thousand one hundred four of this article. For the purposes of this section, "acting as insurance broker" shall not include the referral of a person to a licensed insurance agent or broker that does not include a discussion of specific insurance policy terms and conditions and where the compensation for referral is not based upon the purchase of insurance by such person.
Because, according to the facts presented, both Brokerage Corp. and Broker B will be properly licensed, commissions may be shared between the two.
For further information you may contact Supervising Attorney Joan Siegel at the New York City Office.
1 The footnoted possible variation in the inquiry sent to the Department, whereby the sub-licensee would be another licensed brokerage corporation, is not permissible under the statute because the brokerage corporation could not meet the requirements for being a sub-licensee. It is not a natural person nor could it be an officer or director of Brokerage Corporation.