The Office of General Counsel issued the following informal opinion on June 20, 2002, representing the position of the New York State Insurance Department.
Re: Insurance Commissions to Agent
Must an insurer pay the full first year commission on an insurance policy sold by a licensed insurance agent who has terminated the agency relationship with the general agent before all the premium payments have been made by the insured?
Generally yes but it depends on the type of insurance sold and the agents contract.
An insurance policy that was sold is to be paid on a premium installment basis. The producing agent left the agency before all the premium payments were made.
New York courts have generally held that "[a]bsent 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 Company of New York, Inc., 210 A D.2d 202, 619 N.Y.S.2d 744, 745 (1994); Western Nat. Ins. Co. v. Haph Brokerage, 277 A.D. 6, 97 N.Y.S.2d 447 (1st Dept. 1950), affd. 302 N. Y. 678 (1951). Unless the contract provides otherwise, an agent of record may keep the full commission, even if a portion of the full premium due has not been paid. Further, Department opinion letters have allowed former licensees who were no longer associated with the agency or whose license had expired to receive commissions, provided they no longer performed service functions to avoid doing insurance business without a license and that there was no contract prohibiting the payment of such commissions.
N. Y. Ins. Law §§ 3426(k)(1) and (2) (McKinney 2000) state that where an insurer terminates the contract or account of a licensed agent or broker, then, as to certain property/casualty commercial lines insurance policies defined within section (a) of said statute, the "terminated agent or broker shall be entitled to receive commissions on all business continued. . . at the commission rate applicable to such agent or broker at the time of termination." Also, N. Y. Ins. Law §§ 3425(j)(1)(D) and (n)(2) (McKinney Supp. 2002) provide for certain property/casualty personal lines of insurance, including personal automobile insurance. Since the Insurance Law and Regulations do not address all types of insurance in relation to the right to receive commissions, the agents employment contract would otherwise control, which may require a court of competent jurisdiction to resolve differences of interpretation.
The above opinion is informal and not binding on any court. For further information you may contact Associate Attorney Jeffrey A. Stonehill at the New York City Office.