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 August 18, 2003 representing the position of the New York State Insurance Department.

RE: Compensation for Referrals.

Question Presented:

May a licensed insurance agent or broker compensate a non-licensee on a one-time basis for providing a referral if the non-licensee does not discuss specific insurance policy terms and conditions with the prospective insured and the compensation for the referral is not based upon the sale of insurance?

Conclusion:

Yes. The insurance agent or broker may compensate a non-licensee on a one-time basis for providing a referral or for future referrals if the non-licensee does not discuss specific insurance policy terms and conditions with the prospective insured and the compensation for referrals is not based upon the purchase of insurance by such person.

Facts:

No specific fact pattern was provided.

Analysis:

As a preliminary matter, N.Y. Ins. Law §§ 2114, 2115 and 2116 (McKinney Supp. 2003) were due to expire on September 10, 2003. However, these provisions have been extended by the Legislature pursuant Ch. 214, which was signed into law on July 29, 2003. As such, they will now expire on September 10, 2007.

N.Y. Ins. Law § 2114 (McKinney Supp. 2003) applies to life, accident and health insurance agents and brokers and provides, in relevant part, as follows:

(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.

(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.

(4) Services of the kind specified in this subsection shall not include the referral of a person to a licensed insurance agent or broker that does not include a discussion of specific insurance policy terms and conditions and where the compensation for referral is not based upon the purchase of insurance by such person.

N.Y. Ins. Law § 2115 (McKinney Supp. 2003), in regard to property/casualty insurance agents and N.Y. Ins. Law § 2116 (McKinney Supp. 2003), in regard to insurance brokers, contain similar provisions.

N.Y. Ins. Law § 2114(a)(4) (McKinney Supp. 2003) specifically excludes from the services specified therein referrals that do not include a discussion of specific insurance policy terms and conditions and where the compensation for referral is not based upon the purchase of insurance. Therefore, referrals from non-licensees and the compensation for such referrals are permissible if they fall within the parameters of Section 2114(a)(4).

Accordingly, the insurance agent or broker may compensate the non-licensee on a one-time basis for a referral or for future referrals if the non-licensee does not discuss specific insurance policy terms and conditions with the prospective insured and the compensation for referrals is not based on the purchase of insurance by such person. The insurance agent or broker would not be limited by the statute to one referral transaction.

For further information you may contact Senior Attorney Pascale Joasil at the New York City Office.