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 May 6, 2004, representing the position of the New York State Insurance Department.

Re: Commission Sharing between Agents and Brokers

QUESTION PRESENTED:

Does New York Insurance Law or the regulations promulgated thereunder contain any prohibitions against the sharing of commissions between insurance agents and insurance brokers?

CONCLUSION:

N.Y. Ins. Law §§ 2114, 2115 and 2116 (McKinney Supp. 2004) permit licensed insurance agents and brokers to share commissions for the referral of business on the placement of an insurance policy, if both the agent and broker are licensed to sell that kind of insurance, and the agent is a licensed agent of the insurer that wrote the policy. If not, the referring agent or broker must be treated as any other unlicensed person under §§ 2114, 2115, and 2116.

In regard to insurance coverage placed or rendered on behalf of governmental units, however, N.Y. Ins. Law § 2128 (McKinney Supp. 2004) and N.Y. Comp. Codes R. & Regs. tit. 11 §§ 29.1-29.6 (2002) (Regulation 87) prohibit the sharing of commission between agents and brokers "unless such insurance agent, insurance broker … actually placed insurance coverages on behalf of or rendered insurance services" to such governmental unit.

FACTS:

The inquirer states that the "Insurance Code of Puerto Rico establishes a prohibition to share commissions between an insurer’s agent and an insured’s agent or broker." In particular, the inquirer quoted Article 9.390(2) of the Insurance Code of Puerto Rico, which provides as follows:

No licensee shall divide or share in commissions or compensation with others or share in any commission or compensation payable to others, on account of insurance subject to this title, except as follows:

(a) A resident agent or broker may divide or share in commissions or compensation with other resident agent or brokers licensed to write the same kind or kinds of insurance.

(b) A resident agent or broker and a non resident agent or broker may divide among themselves commissions as to kinds of insurance for which both are licensed and which business has been written lawfully.

(c) A resident agent or broker and surplus line broker may divide commissions pursuant to section 1012 of this title.

ANALYSIS:

The inquirer asks whether New York Insurance Law and the regulations thereunder prohibit an insurance agent from sharing commissions with an insurance broker. Generally, N.Y. Ins. Law §§ 2114, 2115 and 2116 (McKinney Supp. 2004) permit licensed insurance agents and brokers to share commissions for the referral of business on the placement of an insurance policy, if both the agent and broker are licensed to sell that kind of insurance, and the agent is a licensed agent of the insurer that wrote the policy.

N.Y. Ins. Law 2114 (McKinney Supp. 2004) applies to compensation to agents and brokers for life and accident and health insurance 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 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(a) (McKinney Supp. 2004) applies to compensation to agents for all other kinds of insurance other than as specified in Section 2114 and title insurance, and provides as follows:

(a) No insurer doing business in this state, and no agent or other representative thereof, except as provided in subsection (b) hereof, shall pay any commission or other compensation to any person, firm, association or corporation for acting as insurance agent in this state, except to a licensed insurance agent of such insurer or to a person described in paragraph two or four of subsection (a) of section two thousand one hundred one of this article or except as provided in subsection (c) of this section. For the purposes of this section, "acting as insurance agent" 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 § 2116 (McKinney Supp. 2004) applies to compensation for acting as an insurance broker. That section provides:

No 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. For the purposes of this section, "acting as insurance broker" shall not include the referral of a person to a licensed insurance agent or broker that does not include a discussion of a specific insurance policy terms and conditions and where the compensation for referral is not based upon the purchase of insurance by such person.

Notwithstanding the general rule allowing insurance agents and brokers to share commissions, in regard to insurance coverage placed or rendered on behalf of governmental units,1 N.Y. Ins. Law § 2128 (McKinney Supp. 2004) and N.Y. Comp. Codes R. & Regs. tit. 11 §§ 29.1-29.6 (2002) (Regulation 87) prohibit commission sharing between agents and brokers, unless such insurance agent or broker actually placed the insurance coverage on behalf of, or rendered insurance services to the governmental unit.2 Specifically, N.Y. Ins. Law § 2128 (McKinney Supp. 2004) provides, in pertinent part, as follows:

[N]o insurance agent, insurance broker … shall receive any commissions or fees or shares thereof in connection with insurance coverages placed for or insurance services rendered to the state, its agencies and departments, public benefit corporations, municipalities and other governmental subdivisions in this state, unless such insurance agent, insurance broker … actually placed insurance coverages on behalf of or rendered insurance services to the state, its agencies and departments, public benefit corporations, municipalities and other governmental subdivisions in this state.

Sections 2114, 2115 and 2116 specifically exclude from the services specified therein referrals, to a licensed insurance agent or broker, that do not include a discussion of specific insurance policy terms, and where the compensation for the referrals are not based on whether a sale is made. Thus, while an agent or broker may not share commissions with an unlicensed person, an agent or broker may compensate such unlicensed person for referrals made in compliance with §§ 2114, 2115 or 2116.

For further review of other Department opinions addressing this issue, please visit our website at: www.ins.state.ny.us.

For further information you may contact Associate Attorney D. Monica Marsh at the New York City Office.


1N.Y. Comp. Codes R. & Regs. tit. 11 §§ 29.3(d) (2002) (Regulation 87) defines a governmental unit as "the State, an agency or department of the State, public authority, public benefit corporation, county, city, town, village, or any subdivision thereof."

2 If an insurance agent or broker receives a fee or commission arising from insurance placements or insurance services rendered to a governmental unit in New York State, such agent or broker must complete a disclosure statement pursuant to N.Y. Comp. Codes R. & Regs. tit. 11 §§ 29.5 and 29.6 (2002) (Regulation 87).