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 March 31, 2004, representing the position of the New York State Insurance Department.

Re: Unlicensed Foreign Broker & Insurance Sale Commissions

Question Presented:

Under the facts presented below, may a New York authorized health maintenance organization ("HMO") pay a foreign broker, which is now licensed as a New York insurance broker, commissions for those services performed by the broker in 2001 and 2002 while unlicensed in New York?

Conclusion:

No. N.Y. Ins. Law § 2116 (McKinney Supp. 2004) prohibits all New York authorized insurers from paying any commissions to any person, firm, association or corporation for acting in New York as an insurance broker while unlicensed. Therefore, the HMO may not pay the broker commissions for the services it performed in 2001 and 2002.

Facts:

From May 14, 2001 through December 2002, Broker Inc. ("Broker") was acting as an insurance broker without a New York license for its client XYZ, a foreign company. In November or December of 2001, the Broker produced a New York accident and health insurance contract, which was issued in New York by the New York authorized HMO, Inc. ("HMO") to cover XYZ’s New York employees for the 2002 calendar year. On June 17, 2002, the Broker started the application process to become licensed as a New York insurance broker. The Broker subsequently received its New York insurance broker’s license on March 10, 2003.

On April 16, 2003, the Broker attempted to collect commissions from the HMO for those services performed on behalf of XYZ from September 1, 2001 (the date that the Broker became XYZ’s broker of record) through December 31, 2002 (the date that the HMO policy covering XYZ’s New York employees expired). But the HMO refused to pay the Broker the commissions for that period because the Broker was not licensed by the New York State Insurance Department as an insurance broker during that time.

The Broker believes that it is entitled to such commissions because: (1) the Broker was acting as an insurance broker for XYZ and servicing the XYZ account on behalf of the HMO while the New York licensing process was ongoing; (2) the HMO allegedly led the Broker to believe that once it obtained the New York license, the HMO would pay the Broker the commissions that it had earned while unlicensed; and (3) the broker commissions were included in the premium rates for XYZ’s insurance policy.

Analysis:

N.Y. Ins. Law § 2101(c) (2003 N.Y. Laws 1483, ch. 687, § 4) defines an "insurance broker," in pertinent part, as:

any person, firm, association or corporation who or which for any compensation, commission or other thing of value acts or aids in any manner in soliciting, negotiating or selling, any insurance or annuity contract or in placing risks or taking out insurance, on behalf of an insured other than himself, herself or itself or on behalf of any licensed insurance broker . . . .

N.Y. Ins. Law § 2102(a)(1) (2003 N.Y. Laws 1487, ch. 687, § 9) provides that: "[n]o person, firm, association or corporation shall act as an insurance producer or insurance adjuster in this state without having authority to do so by virtue of a license issued and in force pursuant to the provisions of this chapter."

N.Y. Ins. Law § 2116 (McKinney Supp. 2004) prohibits New York authorized insurers from paying commissions to individuals, firms, associations and corporations, who act as insurance brokers in New York without a license, by providing that:

[n]o insurer authorized to do business in this state, and no officer, agent or other representative thereof, shall pay any money or give any other thing of value to any person, firm, association or corporation for or because of his or its acting in this state as an insurance broker, unless such person, firm, association or corporation is authorized so to act by virtue of a license issued or renewed pursuant to the provisions of section two thousand one hundred four of this article.

Accordingly, under the facts presented here, the HMO may not pay commissions to the Broker for the services that it performed from September 1, 2001 through December 31, 2002 because the Broker was not a New York licensed insurance broker when it performed such services.

This opinion is strictly limited to an interpretation of the Insurance Law, and does not provide a comprehensive legal analysis of what remedies may be available in a court of law. In addition, the Department’s Consumer Services Bureau is currently investigating the allegations against the HMO.

For further information you may contact Senior Attorney Kristian Earl Lynch at the New York City Office.