New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

George E. Pataki
Governor

Howard Mills
Acting Superintendent

The Office of General Counsel issued the following informal opinion on February 23, 2005 representing the position of the New York State Insurance Department.

RE: Agent/Broker Licensing and Commission Sharing

Questions Presented

May an insurance broker licensed under N.Y. Ins. Law § 2104(b)(1)(A) and a licensed insurance agent share commissions for services rendered in placing annuity contracts where both the agent and broker are licensed to sell annuities but the agent is not a licensed agent of the insurer who wrote the policy at the time of the solicitation, negotiation and/or sale of the annuity contracts?

Conclusion

No, an insurance broker licensed under N.Y. Ins. Law § 2104(b)(1)(A) and an insurance agent may not share commissions for services rendered in placing an annuity contract unless both are licensed and the insurance agent is a licensed agent of the insurer who wrote the policy at the time of the solicitation, negotiation and/or sale of such annuity contracts. Pursuant to N.Y. Ins. Law § 2114 (McKinney Supp. 2005), no insurer may pay commission or other compensation to an insurance agent that the insurer has not appointed pursuant to N.Y. Ins. Law § 2112(b) (McKinney Supp. 2005). A broker licensed under N.Y. Ins. Law § 2104(b)(1)(A) sharing a commission with such an agent who has not been appointed could be found by the Superintendent to be acting in an untrustworthy manner pursuant to N.Y. Ins. Law § 2110 (McKinney Supp. 2005).

Facts

The plaintiff and defendant in a personal injury lawsuit in the State of New York are contemplating settlement. The plaintiff is a resident of the State of New York. The proposed settlement would include a series of future periodic payments as part of a structured settlement. Plaintiff would retain a licensed life insurance broker (hereinafter the "Insurance Broker") to counsel it regarding the structured settlement. Insurance Broker would be paid by commission generated from placement of annuity contract(s) with a New York qualified life insurance company (hereinafter the "Insurer"). Insurer would select a licensed life insurance agent (hereinafter the "Insurance Agent") to counsel it regarding the structured settlement. Insurance Broker would agree to share with Insurance Agent the commission for services performed in obtaining a structured settlement annuity contract. Insurance Broker would receive commissions from Insurer upon placement of the annuity contracts. Insurance Broker would pay to Insurance Agent the agreed upon share of such commissions.

The inquirer also asked whether Insurance Agent would require a broker’s license and whether Insurance Broker could share the commission with a licensed designee of Insurance Agent if Insurance Agent was not appointed by the relevant insurance company at the time of solicitation, negotiation and/or sale of the annuity contracts.

Analysis

N.Y. Ins. Law § 2114 (McKinney Supp. 2005), in relevant part, provides:

(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. (emphasis added).

(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. (emphasis added).

(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, negotiating or selling 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. (emphasis added).

(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. (emphasis added)

N.Y. Ins. Law § 2112 (McKinney Supp. 2005) provides:

Every insurer, fraternal benefit society or health maintenance organization doing business in this state shall file a certificate of appointment in such form as the superintendent may prescribe in order to appoint insurance agents to represent such insurer, fraternal benefit society or health maintenance organization.

We have addressed this question in previous Opinions of General Counsel. For instance, we concluded in Opinion of the General Counsel No. 04-05-05 that

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 [or annuity], 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.

Opinion of General Counsel No. 04-04-17 concludes that subject to exceptions not applicable to these facts,1 an "[i]nsurance agent must be both licensed and appointed by the insurer at the time that it places the business to receive commission payments from the insurer or the agent of such insurer."

In addition, Opinion of General Counsel No. 01-11-32 concludes that 1) an insurance agent may share commissions for services performed in obtaining a structured settlement annuity contract with an insurance broker licensed under N.Y. Ins. Law § 2104(b)(1)(A) and 2) an insurer who issues an annuity to fund a structured settlement can recognize both a life insurance agent appointed by the insurer to sell structured settlement annuities and such a licensed insurance broker as being producer on record with each entitled to receive a share of the commission from insurer.

Therefore, except as provided in N.Y. Ins. Law §§ 2114(b) and 2103(m), in order to collect any commission, the insurance agent must have been a licensed agent of the insurer prior to commencing any activities that would require an insurance agent license. An unlicensed producer has no right to commissions for activities engaged in without a license or prior to obtaining a license. McEvoy v. American Lumbermen’s Mut. Casualty Co. of Illinois, 51 N.Y.S.2d 306, 1944 N.Y. Misc. LEXIS 2505 (Sup. Ct. Queens Co. 1944) aff’d 269 A.D. 857, 56 N.Y.S.2d 527 (2d Dept. 1945), aff’d 295 N.Y. 906, 68 N.E.2d 25 (1946); Gutfreund v. DeMian, 227 A.D.2d 234, 642 N.Y.S.2d 294 (1st Dept. 1996).

Likewise, except as provided in N.Y. Ins. Law §§ 2114(b) and 2103(m), an insurance agent must be appointed by the insurance company that will provide the annuity prior to such agent engaging in any activities to solicit or negotiate the annuity. If an insurance agent has not been appointed prior to engaging in such activities, and the insurance broker knows or should know this, the sharing of commissions by the insurance broker licensed under N.Y. Ins. Law § 2104(b)(1)(A) could be found by the Superintendent to be acting in an untrustworthy manner pursuant to N.Y. Ins. Law § 2110 (McKinney Supp. 2005).

With respect to the inquirer’s questions regarding whether Insurance Agent needs an insurance broker’s license, under the facts as provided, it does not appear that Insurance Agent would be engaging in any activities which would also require an insurance broker’s license.

The inquirer also asked if Insurance Broker may share the commission with a designee of Insurance Agent if Insurance Agent was not appointed by the relevant insurance company at the time of solicitation, negotiation and/or sale of the annuity contracts. Why Insurance Broker would want to do this is unclear.

If the designee is a properly licensed and appointed agent, then sharing the commission with the designee could be proper. However, if by sharing the commission with the designee, Insurance Broker intends to benefit Insurance Agent despite the prohibition against sharing the commission with an unappointed insurance agent, Insurance Broker could be found by the Superintendent to be acting in an untrustworthy manner pursuant to N.Y. Ins. Law § 2110 (McKinney Supp. 2005).

Finally, please note, that while the general rule is that agents and brokers licensed under N.Y. Ins. Law § 2104(b)(1)(A) may share commissions, where both the agent and broker are licensed to sell the type of insurance procured and the agent is a licensed agent of the insurer that wrote the policy, in regard to insurance coverage placed or rendered on behalf of governmental units, N.Y. Ins. Law § 2128 (McKinney Supp. 2005) 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 licensed under N.Y. Ins. Law § 2104(b)(1)(A) actually placed the insurance coverage on behalf of, or rendered insurance services to the governmental unit. N.Y. Ins. Law § 2128 (McKinney Supp. 2005) 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.

For further information one may contact Assistant Counsel Brenda M. Gibbs at the Albany Office.


1  N.Y. Ins. Law § 2114(b) allows a licensed life insurance agent to obtain insurance for a client from an insurance company to which the agent hasn't been appointed, if after reasonable diligence the agent is unable to obtain all or part of the requested insurance from those insurers to which the agent has been appointed, provided that the agent shall not receive commission unless at the time the agent receives a commission, the agent is a licensed agent of the insurer which sold the policy.  N.Y. Ins. Law § 2103(m) allows an agent to act on behalf of the affiliates or subsidiaries of the insurer to which the agent has been appointed without a separate appointment to such affiliates or subsidiaries, provided certain requirements set out in that section are met.