The Office of General Counsel issued the following opinion on March 11, 2002, representing the position of the New York State Insurance Department.
RE: Licensing of an Insurance Broker as an Insurance Agent.
1. Must an insurance broker be separately licensed as an insurance agent to act as a subagent for a managing general agent ("MGA")?
2. May an insurance broker sell both property/casualty insurance and film products to its clients?
1. No, an insurance broker is not required to be separately licensed as an insurance agent to perform such activities.
2. It depends on the circumstances. Since the inquirer did not provided sufficiently detailed facts, this response will be general in nature.
Mr. A is currently licensed as an insurance broker in New York and he owns a company that also sells film and videotapes to the filmmaking industry. He has an arrangement with an MGA of a property/casualty insurance company to act as its subagent. The MGA is licensed as an insurance agent in New York. As a subagent, Mr. A is responsible for selling property insurance to its current client base in connection with their film rental equipment. The MGA also allows him to collect premiums, bind policies and issue certificates of insurance. Mr. A maintains a separate fiduciary account and has errors and omissions coverage. He would like to know whether he must be separately licensed as an insurance agent to perform these activities. He would also like to know whether he can sell both property/casualty insurance and film products to his clients.
N.Y. Ins. Law § 2101(a) (McKinney 2000) defines the term "insurance agent" as follows:
(a) [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 . . .
Thus, in accordance with the express language of the statute, an insurance broker is not required to be separately licensed as an insurance agent to perform the described activities. Although there is no specific prohibition in the Insurance Law against an insurance broker acting simultaneously as an insurance agent, the insurance broker may not act in a manner that is detrimental to the interests of the insurer or insured.
With respect to the second question, since Mr. A did not provide sufficiently detailed facts, this response will be general in nature. Nothing in the Insurance Law prohibits an insurance broker from having two wholly separate businesses. However, we emphasize that an insurance broker must comply with the Insurance Law in regard to the aspect of the business that involves the sale of insurance. An insurance broker is a fiduciary of the funds that it receives or collects. Consequently, it is precluded from commingling funds received or collected in a fiduciary capacity with its own funds or with other funds that it holds in any other capacity, unless the principals have expressly consented to such commingling. See N.Y. Ins. Law § 2120 (McKinney 2000).
It is unclear from the inquiry whether Mr. A is selling insurance under his individual name or a company name. If, for example, Mr. A is selling insurance under a corporate name, the corporation must be licensed as an insurance broker or agent in accordance with Article 21 of the Insurance Law.
Moreover, N.Y. Ins. Law § 2324 (McKinney 2000), entitled "Rebating and discrimination", is applicable to property/casualty insurance and provides in pertinent part as follows:
(a) 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, or any special favor or advantage in the dividends or other benefit to accrue thereon, or shall give or offer to give any valuable consideration or inducement of any kind, directly or indirectly, which is not specified in such policy or contract, other than any article of merchandise not exceeding fifteen dollars in value which shall have conspicuously stamped or printed thereon the advertisement of the insurer, agent or broker or shall give, sell or purchase, or offer to give, sell or purchase, as an inducement to the making of such insurance or in connection therewith, any stock, bond or other securities or any dividends or profits accrued thereon, nor shall the insured, his agent or representative knowingly receive directly or indirectly, any such rebate or special favor or advantage, provided, 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.
Accordingly, there would be no violation of § 2324 provided that the film products are sold to Mr. As clients independent of the insurance, with no tie-in or obligation to apply for or purchase insurance, and the film products are not used as an inducement to the purchase of insurance, other than as provided in the statute with respect to articles of merchandise.
For further information, you may contact Attorney Pascale Joasil at the New York City office.