The Office of General Counsel issued the following opinion on, April 13, 2005, representing the position of the New York State Insurance Department.
Re: Licensed Agent Directing Commissions to Unlicensed Not-for-Profit Association
Question Presented:
If a licensed accident and health insurance agent earns commissions from the sale of accident and health insurance policies to members of an unlicensed, New York not-for-profit organization when he is the president of such organization, may the agent have his commissions remitted directly to the organization?
Conclusion:
No. Regardless of whether the licensed agent is the president of the organization, the organization may receive commissions only if the organization becomes licensed to act as an accident and health insurance agent in New York.
Further facts (concerning how the commissions will be utilized, the specific benefits derived from the commissions, to whom such benefits will inure, whether the commissions, or benefits derived thereunder, act as an inducement, and whether the accident and health policies will cover the property and risks of organization members) are necessary to determine whether § 4224 would prohibit the arrangement.
Moreover, regardless of whether the remittance violates § 4224, N.Y. Ins. Law § 2103(i) (McKinney Supp. 2005) would limit the commissions received by the organization (if and when such organization were to become licensed as an accident and health insurance agent to legally receive commissions) to ten percent of its aggregate net commissions obtained from the sale of insurance to organization members.
Facts:
A New York licensed accident and health insurance agent is the president of a New York tax-exempt social welfare organization, which is not-for-profit and operated exclusively to promote the social welfare of its members who are various individuals employed in New York.1 The agent would like to have his earned commissions, which stem from the sale of accident and health insurance policies to organization members, remitted directly to the organization in exchange for a salary as the president of the organization.
Analysis:
Receipt of Commissions
N.Y. Ins. Law § 2114(a)(3) (McKinney Supp. 2005) prohibits insurers, fraternal benefit societies, health maintenance organizations and agents from paying commissions to any person, firm, association or corporation that is not licensed in New York as an accident and health insurance agent or insurance broker, by providing:
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.
The New York Insurance Law does not prohibit not-for-profit organizations from becoming licensed as insurance agents. We offer no opinion as to whether the organization may otherwise engage in the proposed activity pursuant to any other applicable laws.
Accordingly, under the facts presented, regardless of whether the licensed agent is the president of the organization, the organization may receive commissions only if the organization becomes licensed to act as an accident and health insurance agent in New York.
Rebating & Limitations on Retained Commissions
N.Y. Ins. Law § 4224(c) (McKinney Supp. 2005) prohibits rebating in the sale of life, accident and health insurance by providing:
No such life insurance company and no such savings and insurance bank and no officer, agent, solicitor or representative thereof and no such insurer doing in this state the business of accident and health insurance and no officer, agent, solicitor or representative thereof, and no licensed insurance broker and no employee or other representative of any such insurer, agent or broker, shall pay, allow or give, or offer to pay, allow or give, directly or indirectly, as an inducement to any person to insure, or shall give, sell or purchase, or offer to give, sell or purchase, as such inducement, or interdependent with any policy of life insurance or annuity contract or policy of accident and health insurance, any stocks, bonds, or other securities, or any dividends or profits accruing or to accrue thereon, or any valuable consideration or inducement whatever not specified in such policy or contract; nor shall any person in this state knowingly receive as such inducement, any rebate of premium or policy fee or any special favor or advantage in the dividends or other benefits to accrue on any such policy or contract, or knowingly receive any paid employment or contract for services of any kind, or any valuable consideration or inducement whatever which is not specified in such policy or contract.
N.Y. Ins. Law § 2103(i) (McKinney Supp. 2005) limits the commissions, benefits or advantages that a licensed insurance agent or broker may receive from commissions derived from the sale of insurance policies that cover property and risks associated with such agent or broker:
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, as the case may be, to or of 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 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.
(emphasis added).
Further facts (concerning how the commissions will be utilized, the specific benefits derived from the commissions, to whom such benefits will inure, whether the commissions, or benefits derived thereunder, act as an inducement, and whether the accident and health policies will cover the property and risks of organization members) are necessary to determine whether § 4224 would prohibit the arrangement.
Moreover, regardless of whether the remittance violates § 4224, N.Y. Ins. Law § 2103(i) (McKinney Supp. 2005) would limit the commissions received by the organization (if and when such organization were to become licensed as an accident and health insurance agent to legally receive commissions) to ten percent of its aggregate net commissions obtained from the sale of insurance to organization members.
For further information you may contact Senior Attorney Kristian Earl Lynch at the New York City Office.
1 See IRC § 501(c)(4) (2003).