New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

George E. Pataki
Governor

Gregory V. Serio
Superintendent

The Office of General Counsel issued the following opinion on April 29, 2003, representing the position of the New York State Insurance Department.

 RE: Broker-to-Agent Payment of Commission

Questions Presented:

1) May an insurance broker pay commission to an insurance agent?

2) May an insurance broker provide an insurance agent with a 1099 tax form?

Conclusions:

1) Whether an insurance broker may pay commission to an insurance agent is dependent upon the circumstances under which payment is sought to be made.

2) Neither the New York Insurance Law nor the regulations promulgated thereunder address this inquiry. The Department would not object if the underlying reason for payment was lawful, and if no other state or federal law prohibited it.

Facts:

For a number of years, a licensed insurance agent in New York was the producer of record on the placement of a dental plan for a local chamber of commerce, which was underwritten by one of the insurers that such agent is licensed to represent. While the insured renewed its policy with the same insurer, it chose not to renew the policy through such agent, and named a licensed insurance broker as the producer of record. The insured instructed the new producer of record to split the commission earned on this policy with the agent, presumably as a matter of courtesy. The new producer of record informed the agent that he would provide the agent with a 1099 tax form for this transaction. The agent stated that its current employer advised him that accepting a 1099 tax form from an insurance broker would violate the New York Insurance Law.

Analysis:

N.Y. Ins. Law § 2114(a)(3) (McKinney 2003 Supp.) states:

(3) No insurer, fraternal benefit society or health maintenance organization doing business in this state and no agent or other representative thereof shall pay any commission or other compensation to any person, firm, association or corporation for services in soliciting or procuring in this state any new contract of accident or health insurance or any new health maintenance organization contract, except to a licensed accident and health insurance agent of such insurer, such society or health maintenance organization, or to a licensed insurance broker of this state, and except to a person described in paragraph two or three of subsection (a) of section two thousand one hundred one of this article.

A New York licensed agent or broker may share the commission with another New York licensed insurance agent or broker for the referral of business on the placement of an insurance policy if the referring agent is licensed to sell that kind of insurance and is a licensed agent of the insurer that wrote the policy, or if the referring broker is licensed to write that kind of insurance, pursuant to N.Y. Ins. Law § 2114. Accordingly, the Department does not object to the insurance broker splitting the commission with you under the circumstances you presented.

With respect to the inquiry about the broker providing the agent with a 1099 tax form, neither the New York Insurance Law nor the regulations promulgated thereunder address this inquiry. Thus, the Department would not object in this instance provided that no other state or federal law prohibited it.

For further information you may contact Associate Attorney Sally Geisel at the New York City Office.