The Office of General Counsel issued the following opinion on December 10, 2007 representing the position of the New York State Insurance Department.
Delay in Receipt of Broker Earned Commissions from Insurer
Does the New York Insurance Law or the regulations promulgated thereunder impose a time limit on how long an insurer may withhold a broker’s earned commissions?
No. Neither the New York Insurance Law nor the regulations promulgated thereunder impose a time limit on how long an insurer may withhold a broker’s earned commission. The contract between the broker and the insurer should determine the answer to this question.Facts:
It is reported that an insurance broker produced business for XYZ Insurance Company (“XYZ”). It is further reported that XYZ has a business practice of withholding brokers’ earned commissions for up to 31 days after insured’s payments are forwarded to XYZ.
According to Insurance Department records, the inquirer is licensed to transact business as an insurance broker pursuant to N.Y. Ins. Law § 2104(b)(1)(B) (McKinney 2006). Pursuant to Insurance Law § 2116, an insurer may not pay any money or give any other thing of value to a person acting as an insurance broker unless that person is licensed.
A broker’s commission is controlled by its contract with the insurer. See Grubel v. Union Mut. Life Ins. Co., 54 A.D.2d 686, 387 N.Y.S.2d 442 (2nd Dept. 1976). An insurance broker’s right to commissions, salary or other compensation is governed by the terms of the contract of employment or agency between the broker and insurer. See Morrow v. MVP Health Plan, Inc., 307 A.D.2d 627, 762 N.Y.S.2d 532 (3rd Dept. 2003).
The New York Insurance Law and the regulations promulgated thereunder do not provide guidance as to how long an insurer may withhold a broker’s, or any other producer’s, earned commission.1 Any time limitation for the release of commissions by an insurer should be set forth in the producer-insurer contract, or be based on general contract principles if not defined in the contract.2
Although there are certain sections of the New York Insurance Law that do govern insurance producer compensation,3 the Insurance Department generally does not interfere with a private contract between an insurer and a broker, provided that the agreement does not otherwise violate the Insurance Law. See Office of General Counsel Opinion No. 04-03-15 (March 16, 2004).
For further information you may contact Associate Counsel Alexander Tisch at the New York City Office.
1 § 20.3 of NYCRR, Tit. 11, Part 20 (Regulations 9, 18, 29) sets forth rules of fiduciary responsibility for agents and brokers, but not insurers to agents and brokers.
2 Such a contract is distinguished from a compensation agreement entered pursuant to Insurance Law § 2119, which regulates fees other than commissions that insurance brokers may charge insureds for services provided.
3 For example, Insurance Law § 3425 (j)(1)(D) requires commissions for a terminated agent or broker on all business continued or written in certain circumstances be continued at the insurer’s prevailing commission rate.