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 April 10, 2002, representing the position of the New York State Insurance Department.

Re: Non-Resident License for Out-of-State Licensed Life Insurance Agent

Question Presented:

May a Texas-licensed insurance agent, who recruits licensed insurance agents to sell life policies for and directly to an insurance company but who does not, directly or indirectly, engage in the solicitation of, negotiation for, or the procurement or making of an insurance contract or provide any services in obtaining new contracts of insurance in New York, receive compensation from New York licensed agents based on the sales of such policies in New York, without first obtaining a non-resident license.

Conclusion:

Yes. A Texas-licensed insurance agent who recruits licensed insurance agents to sell life policies for and directly to an insurance company but who does not, directly or indirectly, engage in the solicitation of, negotiation for, or the procurement or making of an insurance contract or provide any services in obtaining new contracts of insurance in New York, may receive compensation from New York licensed agents based on the sales of such policies in New York, without obtaining a non-resident license.

Facts:

The inquirer is a Texas-licensed insurance agent who is not licensed in New York. He "recruit[s] agents or general agents who in turn recruit other agents." Such agents then sell life policies for and directly to an insurance company. The inquirer makes no field calls or contacts with insureds and does not review applications or handle any of the funds and all applications and monies flow directly between the licensed agent and the company. In addition, his name does not appear on any application forms. The inquirer receives compensation from various insurers based on the production of licensed agents doing business in each state. He would like to know if he may also receive compensation from licensed New York agents, based on policies sold in New York.

In the past few weeks the inquirer has been informed by many states that he would not be required to have a non-resident license if he does not personally contact or sell (negotiate, sell or solicit) to any consumers in that state.

Analysis:

As a preliminary matter, the inquirer has used the term "override" to describe the compensation that he receives from the insurers and that he wishes to receive from agents. In New York, the term "override" is used to refer to compensation paid to general agents by insurers for supervisory services in connection with obtaining new insurance and annuity contracts. The inquirer stated that he is not a general agent, thus the term "override" will not be used in the following analysis.

N.Y. Ins. Law § 2101(a) (McKinney 2000) defines an insurance agent as:

… [A]ny authorized or acknowledged agent of an insurer …who acts as such in the solicitation of, negotiation for, or procurement or making of, an insurance … or annuity contract, other than as a licensed insurance broker….

An insurance agent acts in the solicitation of, negotiation for, or procurement or making of, an insurance contract, whether conducted by dealing directly or indirectly with a potential insured, or with a potential insured’s insurance broker or agent, which acts on behalf of, and as the representative of the potential insured. Section 2101(a) is not implicated where an unlicensed person does not engage, directly or indirectly, in the solicitation of, negotiation for, or procurement or making of, an insurance contract.

N.Y. Ins. Law § 2114(a)(1) & (2) (Interim Pocket Part 2001-2002), entitled "Life, Accident and Health Insurance Agents; Commissions" provides:

(a)(1) No insurer or fraternal benefit society doing business in this state shall pay any commission or other compensation to any person, firm or corporation, for any services in obtaining in this state any new contract of life insurance or any new annuity contract, except to a licensed life insurance agent of such insurer or of such society or to an insurance broker licensed under subparagraph (A) of paragraph one of subsection (b) of section two thousand one hundred four of this article, and except to a person described in paragraph two or three of subsection (a) of section two thousand one hundred one of this article.

(2) No agent or other representative of any such life insurer or fraternal benefit society shall pay any commission or other compensation to any person for any services of the kind specified in paragraph one hereof, except to a licensed life insurance agent of such insurer or of such society as the case may be.

Section 2114(a) generally prohibits both insurers and agents from compensating anyone, that is not a licensed agent, for any services in obtaining any new contract of life insurance in this state. This section does not apply in this situation, however, because the inquirer in question is not, among other things, providing services in obtaining new contracts of insurance in New York.

It is the Department’s opinion that an unlicensed individual or entity may receive a percentage of the premium as compensation, where such unlicensed individual or entity does not solicit specific insurance risks but merely markets an authorized insurer’s products to other insurance agents in a general manner. Such activities do not violate the Insurance Law because such marketing is not geared toward a particular potential insured and there is no contact, directly or indirectly, with the insured. Consequently, a Texas-licensed insurance agent, who recruits licensed insurance agents to sell life policies for and directly to an insurance company but who does not, directly or indirectly, engage in the solicitation of, negotiation for, or the procurement or making of, an insurance contract or provide any services in obtaining new contracts of insurance in New York, may receive compensation from New York licensed agents based on the sales of such policies in New York, without first obtaining a non-resident license.

Please note that if at any time a person, directly or indirectly, engages in any activity that constitutes acting as an insurance agent, such person will need to be licensed as a non-resident insurance agent to not only engage in such activities, but to also receive compensation based on such activities. Generally, a non-resident individual may be licensed as a non-resident agent in New York, provided that a New York resident can be licensed as a non-resident agent in the state that the non-resident resides. A non-resident insurance agent is defined as an individual who resides outside of New York State and who is licensed or otherwise authorized to act as an insurance agent in his/her resident state. Such agent may become a New York non-resident agent provided he/she maintains an office in the resident state, but not in New York.

For further information you may contact Senior Attorney D. Monica Marsh at the New York City Office.