OGC Op. No. 04-09-13

The Office of General Counsel issued the following informal opinion on September 22, 2004, representing the position of the New York State Insurance Department.

Re: Commissions

Question Presented

Does the New York Insurance Law limit the amount of commissions that an insurance agent or broker may keep after selling life and/or property/casualty insurance to itself and/or to persons owning such firms?

Conclusion

Yes, N.Y. Ins. Law § 2324(a) (McKinney’s Supp. 2004), N.Y. Ins. Law § 2103 (i) (McKinney’s Supp. 2004) and/or N.Y. Ins. Law § 2104(d)(3) (McKinney’s Supp. 2004) each limit the amount of commissions that agents and brokers may keep in such situations.

Facts

No facts were provided.

Analysis

N.Y. Ins. Law § 2324(a) (McKinney’s Supp. 2004)1 generally prohibits rebating in the sale of property/casualty insurance, but permits licensed insurance agents or licensed insurance brokers to keep their usual commission when placing insurance on their own property or risks subject to the limitation that " . . . the aggregate of such commissions or underwriting fees will not exceed five percent of the total net commissions or underwriting fees received by such licensed insurance agent or insurance broker during the calendar year."

Pursuant to N.Y. Ins. Law § 2103 (McKinney’s Supp. 2004)2, no more than ten percent of an insurance agent’s annual aggregate sales commissions may be from the sale of insurance to entities and/or people in specified relationships with such insurance agents, or to the insurance agents themselves for that same year. N.Y. Ins. Law § 2104(d)(3) (McKinney’s Supp. 2004)3 contains a similar ten percent limit for insurance brokers.

In summary, the amount that an insurance agent or broker may retain for placing insurance on the agent’s or broker’s own risks, and/or the risks of persons owning such firms, is limited, respectively, by N.Y. Ins. Law § 2103(i) (McKinney’s Supp. 2004) or N.Y. Ins. Law § 2104(d)(3) (McKinney’s Supp. 2004). Moreover, N.Y. Ins. Law § 2324(a) (McKinney’s Supp. 2004) limits the amount that an insurance agent or broker may retain as a result of placing property/casualty insurance on the agent’s or broker's own property.

For further information one may contact Senior Attorney Susan A. Dess at the New York City Office.

1 N.Y. Ins. Law § 2324(a) (McKinney’s Supp. 2004) states in relevant part:

No authorized insurer, no licensed insurance agent, no licensed insurance broker, and no employee or other representative of any such insurer, agent or broker shall make, procure or negotiate any contract of insurance other than as plainly expressed in the policy or other written contract issued or to be issued as evidence thereof, or shall directly or indirectly, by giving or sharing a commission or in any manner whatsoever, pay or allow or offer to pay or allow to the insured or to any employee of the insured, either as an inducement to the making of insurance or after insurance has been effected, any rebate from the premium which is specified in the policy, . . . however, a licensed insurance agent or a licensed insurance broker may retain the usual commission or underwriting fee on insurance placed on his own property or risks, if the aggregate of such commissions or underwriting fees will not exceed five percent of the total net commissions or underwriting fees received by such licensed insurance agent or insurance broker during the calendar year. (Emphasis added.)

2 N.Y. Ins. Law § 2103 (McKinney’s Supp. 2004) states in relevant part:

(i)(1) The superintendent may require from every applicant and from every proposed sub-licensee, before or after issuing any such license, a statement subscribed and affirmed as true by the applicant under the penalties of perjury as to the ownership of any interest in an applicant firm, association or corporation and as to facts indicating whether any applicant has been by reason of an existing license, if any, or will be by reason of the license applied for, receiving any benefit or advantage in violation of section two thousand three hundred twenty-four of this chapter, and also as to such facts as he may deem pertinent to the requirements of this subsection. The superintendent may refuse to issue, suspend or revoke a license, . . . if he finds that more than ten percent of the aggregate net commissions, received during the twelve month period immediately preceding, if any, or to be received during the ensuing twelve months, by the applicant, resulted or will result from insurance on the property and risks:

(A) of the spouse of an individual applicant; and of any corporation of which such individual applicant or his or her spouse or both own more than fifty percent of the shares; and of any affiliated or subsidiary corporations of such corporation; and of the members of any firm or association and their spouses, of which firm or association the individual applicant or his or her spouse is a member;

(B) of the members of an applicant firm or association and their respective spouses, and of the owners of any interest in such firm or association and their respective spouses, and of any corporation of which such firm or association or the members or owners and their respective spouses, either individually or in the aggregate, own more than fifty percent of the shares, and of any affiliated or subsidiary corporations of such corporation, and of any other firm and the members thereof and their respective spouses, of which other firm a member or members of the applicant firm or association and their respective spouses are members or owners; and

(C) of the shareholders of an applicant corporation and their respective spouses, and of any affiliated and subsidiary corporations of such applicant corporation, and of any subsidiary and affiliated corporations of a corporation owning any interest in such applicant corporation, and of any firm or association and the members thereof and their respective spouses which either individually or collectively own more than fifty percent of the shares of the applicant corporation, and of any corporation of which such firm or association and its members and their respective spouses, either individually or in the aggregate, own more than fifty percent of the shares, and of any affiliated or subsidiary corporation of such corporation.

3N.Y. Ins. Law § 2104(d)(3) (McKinney’s Supp. 2004) states:

The superintendent may refuse to issue a license or renewal license, as the case may be, to any applicant if he finds that such applicant has been or will be, as aforesaid, receiving any benefit or advantage in violation of section two thousand three hundred twenty-four of this chapter, or if he finds that more than ten percent of the aggregate net commissions, received during the term of the existing license, if any, or to be received during the term of the license applied for, by the applicant, resulted or will result from insurance on the property and risks set forth in subparagraphs (A), (B) and (C) of paragraph one of subsection (i) of section two thousand one hundred three of this article.