The Office of General Counsel issued the following opinion on July 11, 2005, representing the position of the New York State Insurance Department.
Re: Payment of Fee by Independent Adjuster to Broker.
Question Presented:
May an independent adjuster pay a commission or fee to a broker for procuring the adjustment of workers' compensation claims on behalf of a self-insured municipality?
Conclusion:
Pursuant to N.Y. Comp. Codes R. & Regs. tit. 11, § 26.5, an independent adjuster may not pay a commission or fee to a broker for procuring the adjustment of workers compensation claims on behalf of a self-insured municipality.
Facts Presented:
A broker selling excess workers' compensation coverage over a self-insured program for a municipality would like to know if they can receive commission from an independent adjuster for procuring its services for the self-insured municipality and its excess insurer. The broker is not licensed as an independent adjuster.
Analysis:
N.Y. Ins. Law § 2108(a)(3) (McKinney Supp. 2004) states that no adjuster may act on behalf of an insurer unless it is licensed as an independent adjuster. The Department considers the term "insurer" to encompass any entity that is doing an insurance business, as defined in N.Y. Ins. Law § 1101 (McKinney Supp. 2004), regardless of whether such entity must be licensed by this Department. Accordingly, the Department has consistently held that a license is required for adjusting activities on behalf of an exempt insurer, such as a self-funded health benefit plan.
N.Y. Workers' Compensation Law § 50(3-d) (McKinney Supp. 2001-2002) states in pertinent part:
The state insurance fund, an insurance company duly authorized or licensed to write workers compensation insurance in this state, a subsidiary or an affiliate of such an insurance company, or a licensed or authorized adjusting company or association may apply for a license from the board to solicit the business of representing and engage in representing self-insurers, as defined in subdivision three of this section, before the board or any officer, agent or employee of the board assigned to conduct any hearing, investigation or inquiry relative to a claim for compensation or benefits under this chapter. Any corporation formed solely for the purpose of engaging in the activities described by this subdivision shall be formed under the laws of the state of New York. (Emphasis added).
If the third party administrator appears before the New York State Workers Compensation Board as part of its functions, then the third party administrator must become licensed by this Department as an independent adjuster. Under the facts presented in this inquiry, the adjuster's license is also necessary to adjust claims under the excess insurance policy.
N.Y. Comp. Codes R. & Regs. tit. 11, § 26.5 states:
No independent adjuster licensee or sublicensee shall divide any fee or give any fee, commission or other compensation to any person, firm or corporation for procuring or assisting in procuring the adjustment of any loss for such licensee or sublicensee, unless the person, firm or corporation to whom such fee, commission or other compensation is given or paid had at the time when the loss occurred, an independent adjuster's license issued and in force . . . .
Accordingly, an independent adjuster may not pay a broker that is not also licensed as an independent adjuster, a fee, commission, or other compensation for procuring the adjustment of workers' compensation claims on behalf of a self-insured municipality and its excess insurer.
For further information you may contact Special Attorney Athan Shinas at the New York City Office.