The Office of General Counsel issued the following opinion on December 27, 2006, representing the position of the New York State Insurance Department.
RE: Broker Termination of Relationship with Insured
May a licensed insurance broker remove herself from representing and/or servicing a clients account mid-term?
Yes, a licensed insurance broker may terminate her relationship with an insured absent a contractual agreement to the contrary.
A licensed insurance broker stated he wished to stop servicing certain insurance policies. He stated that all of the policies have been secured and paid for.
The Insurance Law contains no requirements regarding the termination of a broker contract with an insured. The Departments longstanding position is that a broker may discontinue its relationship as a producer with an insured either during the term of the policy, or upon renewal time, absent contractual agreement to the contrary between the producer and the insured or the insurer. The terminating broker should advise the insured of the right to continue coverage with the insurer, and the right to choose a new agent or broker if the insured so desires. The insured still has the right to continue the policy with the insurer unless cancelled or renewed in accordance with N.Y. Ins. Law § 3425 or 3426.
Furthermore, the Insurance Law imposes no legal obligation upon brokers to continue to service claims subsequent to the termination of the contractual relationship.
An insurance producers right to retain the commission on a terminated policy will depend on the producers contract with the insurer. In the absence of an agreement, a commission is generally earned when the policy has been procured and the premium paid, and, in the event of a termination before expiration, there would be no obligation on the part of the broker to return any portion of the commission. See Western National Insurance Co., v. Haph, 277 A.D. 6, 97 N.Y.S.2d 447 (1st Dept. 1950) affd 302 N.Y. 678, 98 N.E.2d 481 (1951). However, if the contract between the producer and the insurer contains an agreement, the terms and provisions of that agreement govern the relationship of the parties.
Note that producers are required to return unearned commissions for policies issued under the New York Automobile Insurance Plan (NYAIP). NYAIP part 14(D) provides in pertinent part:
In the event the policy is cancelled or insurance thereunder terminated, or a change is made resulting in a return premium to the insured, the producer of record shall return the unearned commission portion of such return premiums within 30 calendar days from the date of mailing of the notice to the producer.
A producer who sells a NYAIP policy must return the unearned commission to the insurer in the event of change or cancellation.
The New York Property Insurance Underwriting Association rules contain a similar requirement.
For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.