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

George E. Pataki
Governor

Howard Mills
Superintendent

The Office of General Counsel issued the following opinion on October 24, 2006, representing the position of the New York State Insurance Department.

Re: Deceased Insurance Broker

Questions Presented

(1) May the unlicensed widow of a deceased insurance broker receive a percentage of the future commissions from the renewal of a group accident and health insurance policy based upon the broker's agreement with the inquirer’s agency (hereinafter "the agency" or "the agency’s") that he would receive a percentage of the commissions if his referral of a client resulted in the agency’s placement of a policy to the client before the broker's death?

(2) May the unlicensed widow of a deceased insurance broker receive a percentage of earned commissions from the agency’s placement of a new group accident and health insurance policy with the deceased broker's former client after the broker's death?

Conclusions

(1) Under the Insurance Law, assuming that the unlicensed widow is the sole heir of the deceased broker's estate and the unlicensed widow does not service the deceased broker's renewal business, the widow may generally receive a percentage of the future commissions from the renewal of an insurance policy that had been placed before the broker's death.

(2) No, the unlicensed widow may not receive a percentage of earned commissions from the agency’s placement of a new group accident and health insurance policy with the deceased broker's former client after the broker's death.

Facts

The deceased insurance broker and the agency, both with accident and health insurance broker licenses, had an oral agreement that the broker would receive a percentage of the commissions for referrals of his clients that resulted in the agency’s placement of group accident and health insurance policies. The agency paid the deceased broker a percentage of new and renewal commissions for placement of such business prior to his death. Upon renewal, there may be an increase in deductibles and co-payments paid by employees covered by the insurance. We assume for the purpose of this opinion that the unlicensed widow is the sole heir of the deceased broker's estate. The widow is not servicing the deceased broker's business generated from his referrals. The agency would like to pay the widow a percentage of the new and renewal commissions earned by the deceased broker on group accident and health insurance policies issued to the broker's clients that he referred to the agency prior to his death if it is permissible.

Analysis

New York State law is well settled that "[a]bsent an agreement to the contrary, a broker earns its commission when it brings about the relationship of insurer and insured." Hammond & Company, Inc. v. Risk Specialists Company of New York, Inc., 210 A.D.2d 202, 619 N.Y.S.2d 744, 745 (2d Dep't 1994) (citing Boro Hall Agency, Inc. v. Citron, 69 Misc.2d 60, 329 N.Y.S.2d 269, 270 (Civil Court, N.Y. Co. 1972)). In accordance with this principle, absent an agreement to the contrary, the deceased broker earned his commission, including renewals thereof, at the time his services were rendered and the policy placed.

Under the Insurance Law, assuming that the unlicensed widow is the sole heir of the deceased broker's estate, and assuming that the unlicensed widow does not service the deceased broker's renewal business, the widow may receive a percentage of the future commissions for the renewal of a group accident and health insurance policy with the broker's former client because the broker's referral of his client resulted in the agency’s placement of the policy prior to his death.

OGC Opinion Number 02-03-23 (March 25, 2002), which involved a similar referral agreement under which a licensed insurance broker had an agreement with an insurance agency that he would receive a percentage of commissions for referring clients to the insurance agency, applied the rule that the deceased broker earned his commission, including the renewals thereof, on business placed prior to his death.

Renewals of group accident and health insurance policies originally placed by the agency prior to the broker's death may provide for an increase in deductibles and co-payments paid by employees covered by the insurance. An increase in deductibles and co-payments would not be a new sale and therefore the unlicensed widow may receive a percentage of renewal commissions from such business.

However, only a licensed insurance agent or broker may receive commissions from the agency placement of a new group accident and health insurance policy. See N.Y. Ins. Law §§ 2114 and 2116 (McKinney 2006). Accordingly, the unlicensed widow may not receive a percentage of any commissions from the agency placement of such business. Even if the unlicensed widow were to obtain a temporary insurance broker's license under N.Y. Ins. Law § 2109(a)(1)(A) or (B) (McKinney 2006), N.Y. Ins. Law § 2109(e)(4) (McKinney 2006) states: "No person or persons so licensed shall, by virtue of such license, be authorized to solicit, negotiate or sell new insurance." The license under N.Y. Ins. Law § 2109(1)(A) or (B) (McKinney 2006) is solely intended to allow an executor, administrator, or next of kin to wind down the affairs of the deceased licensee but not to engage in or share commissions on new business.

This opinion is limited to the Insurance Law and does not express an opinion on any other law or the validity of the referral agreement.

For further information one may contact Senior Attorney Robert Freedman at the New York City Office.