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 opinion on March 11, 2005, representing the position of the New York State Insurance Department.

Re: Compensation to non-licensed party subsequent to referral

Question Presented:

Where there is no agreement, arrangement or understanding amongst the parties at the time of a referral, may a broker subsequently compensate a non-licensed person for leading the broker to a successful sale of insurance?

Conclusion:

No. The broker would be violating N.Y. Ins. Law §§ 2114, 2115 and 2116 (McKinney Supp. 2005) by compensating a non-licensee for leading the broker to a successful sale of insurance. It is irrelevant if the compensation was not contemplated at the time of referral if the non-licensee’s compensation is based on the purchase of insurance.

Facts:

A non-licensed person referred a prospective client to an insurance broker. There was no agreement, arrangement or understanding among the parties at the time of the referral whereby the insurance broker would pay a referral fee or other compensation to the non-licensed person. Subsequent to the referral, the prospective client purchased insurance from the broker. The broker, presumably as a gift for leading him to a successful sale of insurance, proposes to give a sum of money to the non-licensed person as a gift.

Analysis:

N.Y. Ins. Law § 2116, provides1:

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 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 § 2102(a)(1) (McKinney Supp. 2005) defines "acting without a license," by providing:

No person, firm, association or corporation shall act as an insurance producer2 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.

The statute provides that an unlicensed person or entity may not be compensated by a licensee for a referral if it is based upon the sale of insurance. The statute does not distinguish between compensation contemplated and agreed to before the sale or given as a "gift" after the sale of the insurance policy since the compensation is based on the purchase of insurance.

For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.


1  N.Y. Ins. Law § 2114 applies to life insurance agents, while N.Y. Ins. Law § 2115 applies to property/casualty agents.

2  The term “producer,” includes an insurance broker, agent, reinsurance intermediary, excess line 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 § 2101(k) (McKinney Supp. 2005).