The Office of General Counsel issued the following opinion on April 11, 2002, representing the position of the New York State Insurance Department.
Re: Insurance Agents Entitlement to Commissions.
May ABC Insurance Company ("ABC") pay commissions to the trustee of DEF Insurance Agencys ("DEF") business on policies automatically renewed after the revocation of DEFs license?
Nothing in the Insurance Law prohibits ABC from paying commissions to the trustee of DEFs business on such policies after the revocation of DEFs license.
The inquirer states that DEF entered into an agreement with agents of XYZ Insurance Company ("XYZ") wherein the agents would receive a percentage of the commissions earned on insurance business that they referred to DEF, including the renewals thereof. DEF became an agent for ABC on September 27, 1999. On January 11, 2001, DEF filed a Ch. 11 Bankruptcy petition in the United States Bankruptcy Court of the Eastern District of New York. DEF continued to operate with a court appointed trustee. Under the automatic stay applicable to the bankruptcy proceeding, the agents of XYZ and ABC continued their relationship with DEF.
By stipulation dated August 1, 2001, the Court appointed JKL Insurance Agency ("JKL"), a licensed New York insurance agent, to service DEFs accounts. The stipulation included an agreement for sharing commissions generated from renewals of DEFs policies. The inquirer states that subsequently the XYZ agents worked with JKL to service DEFs accounts.
On October 11, 2001, the Insurance Department revoked the licenses of DEF and John Doe, its principal. By Order dated January 10, 2002, the Court approved the sale of DEFs book of business to JKL, effective February 1, 2002.
New York courts have generally held that absent an agreement to the contrary, a licensed agent or broker earns its commission when it brings about the relationship of insurer and insured. See Hamond v. Risk Specialists, 210 A.D.2d 202, 619 N.Y.S.2d 744 (1994); Western Nat. Ins. Co. v. Haph Brokerage, 277 A.D. 6, 97 N.Y.S.2d 47 (1st Dept. 1950), affd. 302 N.Y. 678 (1951). In accordance with this principle, absent an agreement to the contrary, DEF earned its commission, including the renewals thereof, prior to the revocation of its license through placements made with ABC. The fact that these policies were automatically renewed after the revocation of DEFs license does not extinguish its right to receive commissions earned while it was still licensed. Thus, ABC may pay commissions to the trustee of DEFs business on policies automatically renewed after the revocation of DEFs license.
It should be noted that N.Y. Ins. Law § 2102 (a)(1) prohibits any person, firm, association or corporation from acting as an insurance agent in this state without a license. N.Y. Ins. Law § 2115 (McKinney 2000 & Supp. 2001-2002) also prohibits any insurer, agent or any other representative from paying any commission or other compensation to any person, firm, association or corporation for acting as an insurance agent in this state, except to a licensed insurance agent. N.Y. Ins. Law § 2114 (McKinney 2000 & Supp. 2001-2002) and N.Y. Ins. Law § 2116 (McKinney 2000 & Supp. 2001-2002) contain virtually identical provisions. Thus, neither ABC nor JKL may pay a commission or any other compensation to DEF for placing insurance following the revocation of its license on October 11, 2001.
The Department declines to issue an opinion on whether the agents of XYZ may receive a percentage of the commissions earned on policies placed by JKL or automatically renewed after the revocation of DEFs license. This is a matter that requires an interpretation of the contractual agreement between DEF and the agents of XYZ and should be resolved by a court of competent jurisdiction.
For further information, you may contact Attorney Pascale Joasil at the New York City office.