The Office of General Counsel issued the following opinion on July 23, 2004, representing the position of the New York State Insurance Department.
Re: Insurance Broker Employed By Non-Licensee
Question Presented:
May the commission that a licensed insurance broker earns for placing insurance be paid to his employer, a corporation which is not licensed as an insurance broker?
Conclusion:
The commissions that a licensed insurance broker earns for placing insurance may not be paid to his employer, a corporation which is not licensed as an insurance broker. In addition, the licensed insurance broker may not conduct insurance broker business in the name of the unlicensed corporation.
Facts:
An attorney writing on behalf of a client stated the following:
A licensed insurance broker is employed by a corporation which is not licensed. Can the commissions which the broker earns go through the corporate account to pay the licensee's salary and the expenses relating to the insurance business. Any profit would be distributed to the corporate shareholders, but not the sole shareholder. Shareholders may include entities or individuals that are not licensed.
The inquirer also stated that the type of insurance being placed by the insurance broker is property/casualty insurance.
Analysis:
N.Y. Ins. Law § 2101(c) (McKinney 2000), as amended by Chapter 687 of the Laws of New York 2003, states in relevant part:
In this article, "insurance broker" means 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 broker . . . .
N.Y. Ins. Law § 2101(k), added by Chapter 687 of the Laws of New York 2003, states in relevant part:
In this article, "insurance producer" means an insurance agent, insurance broker, reinsurance intermediary, excess lines broker, or any other person required to be licensed under the laws of this state to sell, solicit or negotiate insurance.
N.Y. Ins. Law § 2102 (McKinney 2000), as amended by Chapter 687 of the Laws of New York 2003, states in relevant part:
No 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.
Based on the New York statutes above cited, a corporation that is not licensed as an insurance broker may not solicit, negotiate or sell an insurance or annuity contract, or place risks or take out insurance, whether through an employee who is a licensed insurance broker or by some other means. Thus, a licensed insurance broker may not conduct insurance broker business in the name of the unlicensed corporation.
N.Y. Ins. Law § 2116 (McKinney Supp. 2004) states:
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.
Hence, the commissions earned by an insurance broker may not be paid to his employer, a corporation which is not licensed as an insurance broker, regardless that the commissions paid to the employer will be re-paid to the licensee-employee for salary and expenses.
The situation presented here is different than one in which a licensed insurance broker and one or more persons who are not licensed form a corporation, for which an insurance broker's license is obtained in compliance with the requirements of N.Y. Ins. Law § 2104 (McKinney Supp. 2004). The profits generated by the corporation in such situation may be used to pay, among other things, employee salaries and stock dividends. See OGC Op. 8/31/98.
For further information you may contact Associate Attorney Sally A. Geisel at the New York City Office.