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 June 11, 2003, representing the position of the New York State Insurance Department.

Re: First Year Commissions to a Non-licensee Former Insurance Agent

Question Presented:

If a currently licensed life and health insurance agent who is a captive insurance agent of a foreign licensed insurer were to become a non-licensed insurance agent because his license expires, must the insurer pay the non-licensee agent the balance of his first year commissions on life and health insurance that he sold while licensed?

Conclusion:

Unless the agreement between the currently licensed insurance agent and the insurer provides to the contrary, the insurer must pay the non-licensee the balance of his first year commissions, if he does not perform any service functions that require a license, because he earned the first year commissions by bringing about the relationship of insurer and insured.

Facts:

A currently licensed life and health insurance agent ("Agent") in New York State is a captive insurance agent of a foreign licensed insurer ("Insurer"). The Agent's license will expire on July 1, 2003 if he does not renew it. The Agent wants to know if the Insurer would "be able" to pay him the balance of his first year commissions if he were not a licensed insurance agent.

Analysis:

N.Y. Ins. Law § 2114(a) (McKinney Supp. 2003) states in relevant part:

(1) No insurer . . . 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 . . . except to a licensed life insurance agent of such insurer . . . .

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

(3) No insurer . . . 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 . . . except to a licensed accident and health insurance agent of such insurer . . . .

The Department has previously addressed the matter of whether an individual must continue to be licensed as an insurance agent to collect commissions on business produced while that individual was previously licensed as an insurance agent. The Department has stated that when an agent is no longer licensed and does not perform any service functions requiring a license, such agent may be entitled to commissions for services performed when previously licensed provided the employment contract between the agent and insurer allows for same. Section 2114 does not prohibit such payment. An agent has earned the commission when the policy has been issued and the premium paid.

Thus, the Insurer must pay the Agent the balance of his first year commissions unless the agreement between the Agent and the Insurer provides otherwise.

For further information one may contact Senior Attorney Robert Freedman at the New York City Office.