The Office of General Counsel issued the following informal opinion on April 3, 2002, representing the position of the New York State Insurance Department.
Re: General Agent Compensation Plan
1) Will ABC Financial Services Agency of New York, Inc. ("ABC"), an affiliate of XYZ Life Insurance Company ("XYZ"), upon being appointed by XYZ as its sole general agent for the purpose of marketing XYZs term life products to New York residents, be subject to the provisions of N.Y. Ins. Law § 4228 (McKinney 2000)?
2) May XYZ make use of the N.Y. Ins. Law § 4228 (e) (11) (McKinney 2000) monitoring exemption although ABC is an affiliate of XYZ?
3) Is XYZ responsible for limiting commission payments and expense allowances made to sub-agents by ABC?
1) No. ABC, an affiliate of XYZ, upon being appointed by XYZ as its sole general agent for the purpose of marketing XYZs term life products to New York residents, will not be subject to the provisions of N.Y. Ins. Law § 4228 (McKinney 2000).
2) Yes, XYZ may make use of the N.Y. Ins. Law § 4228 (e) (11) (McKinney 2000) monitoring exemption although ABC is an affiliate of XYZ.
3) No, XYZ is not responsible for limiting commission payments and expense allowances made to sub-agents by ABC.
The Department was provided the following facts:
XYZ, a subsidiary of PQR Group, Inc., is an authorized life insurer in New York, and as such, is subject to the provisions of N.Y. Ins. Law § 4228 (McKinney 2000). XYZ distributes its term life insurance products to New York residents through many agents, including approximately 200 individual general agents ("GAs"), who are all representatives of ABCD Financial Services, Inc. ("ABCD"), which is also a subsidiary of PQR Group, Inc. XYZ plans to appoint ABC, a wholly owned subsidiary of ABCD, as its sole general agent in the near future.
XYZ is an "affiliate" of ABCD and ABC, as that term is defined in N.Y. Ins. Law § 107 (a) (4) (McKinney 2001-2002 Interim Pocket Part), which states: "Affiliate means a corporation a majority of whose shares is owned or controlled by shareholders, directors or officers of another corporation, who own or control a majority of the shares of the other corporation."
ABC anticipates assuming the risk that commissions paid to it by XYZ and other revenue sources will provide sufficient funds to cover amounts paid to sub-agents. ABC is a financially independent entity that is solely responsible for its general agency operations. XYZ bears no financial responsibility for ABC. Additionally, compensation to be paid by XYZ to ABC will not exceed N.Y. Ins. Law § 4228 (McKinney 2000) compensation limitations, nor will XYZ provide ABC with any of the types of payments or benefits described in § 4228 (e) (11) (A) (D). Furthermore, XYZ will monitor all payments to ABC in accordance with N.Y. Ins. Law § 4228 requirements.
General agents are not bound by the monitoring requirements or the expense limitations set forth in N.Y. Ins. Law § 4228 (McKinney 2000). N.Y. Ins. Law § 4228 (a) (McKinney 2000) states in relevant part, "[t]he provisions of this section shall apply to all domestic life insurance companies and to all foreign and alien life insurance companies doing business in this state engaged in the direct sale of individual life insurance policies or individual annuity contracts." The statute clearly applies only to the specified life insurance companies. Where statutory language is clear and unambiguous, it must be applied as written. See Encore College Bookstores, Inc. v. Auxiliary Serv. Corp. of State Univ. of New York, 87 N.Y.2d 410, 639 N.Y.S.2d 990 (1995); Washington Post Co. v. New York State Ins. Dept, 61 N.Y.2d 557, 475 N.Y.S.2d 263 (1984); Scott, Sardano & Pomeranz v. Records Access Officer of City of Syracuse, 65 N.Y.2d 294, 491 N.Y.S.2d 289 (1985). Thus, the plain meaning of § 4228 requires that it only be applied to XYZ, and not to ABC.
N.Y. Ins. Law § 4228 (e) (11) (McKinney 2000) provides:
(e) Notwithstanding any limitations set forth in subsection (d) of this section:
(11) If a company pays an agent or a general agent for the production of policies or contracts issued by the company, the company shall not be required to monitor for compliance with this section the payments and allowances paid by such agent or general agent to any agent or general agent with respect to such policies or contracts if the agent or general agent receiving such payments:
receives no company-provided security benefits;
(B) does not receive additional compensation as permitted by paragraph four of this subsection, compensation or expense allowance from a paying entity that itself is receiving additional compensation from the company as permitted by paragraph four of this subsection;
(C) receives no prizes or awards from the company; and
(D) is not eligible to qualify for attendance at company-sponsored agent conventions, conferences, or business meetings based on the amount of business produced by such agent or general agent.
Thus, while a company in compliance with § 4228 (e) (11) (A), (B), (C) and (D) payment restrictions must still monitor payments made to its general agent, it is not required to monitor payments made to sub-agents by its general agent.
The term "general agent" used in § 4228 (e) (11) is defined by N.Y. Ins. Law § 4228 (b) (14) (McKinney 2000) as "an agent who is appointed directly by a company, other than a local salaried representative of such company, who recruits, trains or supervises other agents or who has the right to appoint agents". Section 4228 (b) (14) does not draw a distinction between independent general agents and company-affiliated general agents. Had the legislature intended to make such a distinction, an express exception for affiliate-agents would have been written into the statute. Thus, the fact that ABC is an affiliate of XYZ does not alter XYZs ability to make use of § 4228 (e) (11)s monitoring exemption. Accordingly, XYZ must monitor its payments to ABC, but is not required to monitor payments made by ABC to ABCs sub-agents.
Likewise, N.Y. Ins. Law § 4228 (d) (McKinney 2000), which restricts commission payments made by a company to its agents or general agent, does not require XYZ to assume responsibility for limiting commission payments made by ABC to its own sub-agents. While this provision does limit the amount of commissions a company may pay its general agent, it does not state, or suggest that a company is responsible for, limiting the commissions its general agent pays to its own sub-agents.
The application of § 4228 as above discussed is not altered by the wording of N.Y. Ins. Law § 1509 (McKinney 2000), which states:
No holding company1 or controlled person2 shall directly or indirectly or through another person3 do or cause to be done for or in behalf of the controlled insurer4 any act intended to affect the insurance operations of the insurer which, if done by the insurer, would violate section four thousand two hundred twenty-eight, four thousand two hundred twenty-nine5, four thousand two hundred thirty or any sections specified in section two thousand four hundred two of this chapter.
ABC was not established so that XYZ could evade § 4228; it was established as an agency in 1983 independent of its dealings with XYZ. The agreement to make ABC the sole general agent of XYZ has as its purpose the streamlining of XYZs New York operations, and the simplification of XYZs distribution of products in New York. Thus, ABCs financial arrangements with its sub-agents does not constitute an act done "for or in behalf of" XYZ. Furthermore, the financial arrangements between ABC and its sub-agents will not affect the insurance operations of XYZ. ABC is an independent entity, for which XYZ is not, and will not be, financially or otherwise responsible. Also, XYZ is, as already discussed, subject to § 4228s expense and monitoring restrictions. Therefore, XYZ is not having an affiliate commit an act "which if done by the insurer would violate section four thousand two hundred twenty-eight".
Moreover, the legislature was aware of § 1509 when it amended § 4228, but made no attempt to distinguish between affiliated and unaffiliated transactions. As noted by the N.Y. Appellate Division in National Org. for Women v. Metropolitan Life Ins. Co., 131 A.D. 356, 358-359, 516 N.Y.S.2d 934, 936 (1st Dept 1987):
While it is the duty of courts, if at all possible and consistent with the canons of statutory interpretation, to construe two separate statutes in harmony, it is well recognized that a special statute in irreconcilable conflict with a general statute covering the same subject matter is controlling insofar as the special act applies we must presume that when the Legislature acts, it does so with full knowledge of its existing statutes.
Thus, the legislature did not intend to have § 1509 override § 4228, the later and more specific legislation.6
Based on the above, it is clear that ABC is not subject to N.Y. Ins. Law § 4228 (McKinney 2000) expense limitations and monitoring requirements, XYZ may avail itself of the monitoring exemption of § 4228 (e) (11) and XYZ is not responsible for limiting the commission payments and expense allowances ABC makes to its own sub-agents.
For further information you may contact Senior Attorney Sally Geisel at the New York City Office.
1 "Holding company means any person who directly or
indirectly controls any authorized insurer." N.Y. Ins. Law § 1501 (a) (3) (McKinney
2 "Controlled person means any person other than a controlled insurer, who is controlled directly or indirectly by a holding company." N.Y. Ins. Law § 1501 (a) (5) (McKinney 2000).
3 "Person means an individual, partnership, firm, association, corporation, joint-stock company, trust, any similar entity or any combination of the foregoing acting in concert." N.Y. Ins. Law § 1501 (a)(1) (McKinney 1985 & Supp. 2000).
4 "Controlled insurer means an authorized insurer controlled directly or indirectly by a holding company." N.Y. Ins. Law § 1501 (a) (4) (McKinney 2000).
5 Section 4229 of the Insurance Law was repealed effective July 10, 1996.
6 N.Y. Ins. Law § 1509 was enacted in 1969. N.Y. Ins. Law § 4228 was enacted in 1997.