The Office of General Counsel issued the following opinion on April 23, 2008, representing the position of the New York State Insurance Department.
RE: Selling Travel Insurance
1. May an insurer pay an insurance commission to a cruise line or tour operator that is not a licensed and appointed insurance agent, or a licensed insurance broker?
2. May a cruise line or tour operator share an insurance commission with a travel agent who is a licensed agent but who has not been appointed by the respective insurer?
3. May a cruise line or tour operator pay a commission on a trip package that includes travel insurance to a travel agent that is not licensed to sell insurance?
1. No. An insurer may not pay an insurance commission to a cruise line or tour operator that is not either a licensed and appointed insurance agent, or a licensed insurance broker.
2. No. A cruise line or tour operator may not share an insurance commission with a travel agent who is a licensed agent but who has not been appointed by the respective insurer.
3. No. A cruise line or tour operator may not pay a commission on a trip package that includes travel insurance to a travel agent that is not licensed to sell insurance.
The inquirer reports that some travel agents in New York solicit and sell travel insurance in connection with the sale of cruises and other tour packages. The inquirer also states that, in some cases, a cruise line or tour operator pays insurance commissions to travel agents. Further, the inquirer reports that in some instances, a cruise line or tour operator pays the travel agent a general commission based upon the total purchase price of a vacation package, which includes the cost of insurance.
As an example, the inquirer submitted a copy of a “Booked Confirmation Invoice – Agent Copy”, which itemizes the charges for a particular cruise. For some of the charges, the commission rate applies directly to the particular charge. The invoice lists the price, commission rate and commission earned for the “ABC-Vacation Protection Plan,” which the Department surmises to be the insurance to which the inquirer refers. The inquirer states that the commission is paid by the insurer to the cruise line, and that the cruise line pays a commission to the travel agent.
Insurer Payment of Commissions
N.Y. Ins. Law §§ 2114, 2115 and 2116 (McKinney Supp. 2008) are germane to the inquirer’s query. These statutes prohibit an insurer or an insurance agent from paying a commission to a person who acts as an insurance agent or broker without a license. Insurance Law § 2115 applies to property/casualty insurance agents. It reads in relevant part as follows:
(a)(1) No insurer 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 acting as insurance agent in this state, except to a licensed insurance agent of such insurer . . . .
Insurance Law § 2114, which applies to life, accident and health agents, contains similar language.1
Insurance Law § 2116 applies to brokers. It states:
No insurer authorized to do business in this state, and no officer, agent or other representative thereof, shall pay any money or give any other thing of value to any person, firm, association or corporation for or because of his or its acting in this state as an insurance broker, unless such person, firm, association or corporation is authorized so to act by virtue of a license issued or renewed pursuant to the provisions of section two thousand one hundred four of this article . . . .
Insurance Law § 2101(a) defines “agent” in relevant part as follows:
(a) In this article, "insurance agent" means any authorized or acknowledged agent of an insurer, fraternal benefit society or health maintenance organization issued a certificate of authority pursuant to article forty-four of the public health law, and any sub-agent or other representative of such an agent, who acts as such in the solicitation of, negotiation for, or sale of, an insurance, health maintenance organization or annuity contract, other than as a licensed insurance broker, except that such term shall not include:
Insurance Law § 2101(c) defines "insurance broker" in relevant part as follows:
(c) In this article, "insurance broker" means any person, firm, association or corporation who or which for any compensation, commission or other thing of value acts or aids in any manner in soliciting, negotiating or selling, any insurance or annuity contract or in placing risks or taking out insurance, on behalf of an insured other than himself, herself or itself or on behalf of any licensed insurance broker. . .
In addition to the proscription against paying commissions to nonlicensees, Insurance Law §§ 2114 and 2115 prohibit an insurer from paying a commission to a licensed insurance agent other than an insurance agent “of such insurer.” An agent “of such insurer” is an agent who has been appointed pursuant to the procedures set out in Insurance Law § 2112. See Opinion of Office of General Counsel No. 04-04-17 (April 20, 2004). Accordingly, an insurer may not pay a commission to an agent unless the agent is both licensed and appointed. Further, the agent must be licensed and appointed at the time the agent places the business upon which the commission is based. See Opinion of Office of General Counsel No. 04-04-17 (April 20, 2004).
In view of the statutory framework, an insurer may not pay an insurance commission to a cruise line or tour operator that is not either a licensed and appointed insurance agent, or a licensed insurance broker.
Moreover, Insurance Law § 2102 generally prohibits the sale of insurance without a license. According to Insurance Law § 2102(a)(1):
No person, firm, association or corporation shall act as an insurance producer or insurance adjuster in this state without having authority to do so by virtue of a license issued and in force pursuant to the provisions of this chapter.
Insurance Law § 2101(k), in turn, defines an "insurance producer" as "an insurance agent, insurance broker, reinsurance intermediary, excess line broker, or any other person required to be licensed under the laws of this state to sell, solicit or negotiate insurance." Thus, a cruise line or tour operator that acts as an insurance agent but is unlicensed as such runs afoul of Insurance Law § 2102. Nevertheless, a travel agent may apply for a limited license to act as an insurance agent with respect to travel insurance, pursuant to Insurance Law § 2103(g). That statute authorizes:
a baggage or accident and health insurance agent's license to any ticket selling agent or representative of a railroad company, steamship company, carrier by air, or public bus carrier, who shall act thereunder as insurance agent only in reference to the issuance of baggage or accident insurance tickets primarily for the purpose of covering risk of travel.
Licensed Agent not Appointed
As noted above, Insurance Law §§ 2114 and 2115 prohibit an insurer from paying a commission to a licensed agent who has not been appointed by the insurer. At the same time, the statutes apply to an “agent or other representative” of the insurer. Thus, a cruise line or tour operator that sells or assists the insurer to sell insurance would constitute “an agent or other representative.” Accordingly, the cruise line or tour operator may not pay or share any commission with a licensed agent who has not been appointed by the insurer.
Travel Package Including Insurance
The inquirer asks whether a cruise line or tour operator may pay a commission as a flat percentage of the total price of a trip package where the package includes the cost of insurance to a travel agent who is not licensed as an insurance agent. Where, as here, a non-insurance commission is based in part on the sale of insurance, the commission is (at least in part) an insurance commission. As discussed above, an insurer and its agent or other representative may not pay a commission to a person who acts as an insurance agent without a license, or to a licensed insurance agent who has not been appointed by the insurer. Thus, a cruise line or tour operator may not calculate its commissions in this manner. Rather, the price of the travel insurance must be excluded from the package price before applying the commission rate when the commission for the trip package is to be paid to a person who is not licensed as an insurance agent or broker.
Moreover, if the cruise line or the tour operator were to require the purchase of, or otherwise provide, insurance in connection or conjunction with the purchase of travel services, such conduct would run afoul of Insurance Law § 2324 and/or § 4224. See Opinion of Office of General Counsel No. 00- 07-19 (July 27, 2000).
The cruise line or tour operator also would violate these statutes if the cruise line or the tour operator were to pay the traveler’s cost for the insurance (or otherwise “absorb” it into the cost of the travel package) rather than offer the insurance for a separate charge. See Opinion of Office of General Counsel No. 00- 07-19 (July 27, 2000). Insurance Law §§ 2324 and 4224 prohibit an insurer or its agent from offering or giving a rebate not specified in the policy.2 These statutes also proscribe the “tying” of the sale of insurance to the purchase of a particular product or service. Insurance Law § 2324(a) reads as follows:
(a) No authorized insurer, no licensed insurance agent, no licensed insurance broker, and no other representative of any such broker shall make, procure or negotiate any contract of insurance other than as plainly expressed in the policy or written contract issued or to be issued as evidence thereof, or shall directly, or indirectly, by giving or sharing a commission or in any manner whatsoever, pay or allow or offer to pay or allow to the insured as an inducement to the making of insurance or after insurance has been effected, any rebate from the premium which is specified in the policy, or any special favor or advantage in the dividends or other benefit to accrue thereon, or shall give or offer to give, any valuable consideration or inducement of any kind which is not specified in such policy or contract . . . .
Insurance Law § 4224(c) sets forth similar provisions with regard to life and accident and health insurance and annuities.
The only exception to the requirement that the coverage be offered as optional and for a separate charge pertains to accident and health insurance offered to certain groups expressly provided by statute. See Insurance Law § 4235 (c)(1)(L).3 There are no such similar exceptions set forth in the Insurance Law for property/casualty coverages; in fact, group property/casualty insurance is not permissible. Thus, a policy that contains both types of coverage must be offered on an optional basis and for a separate charge. But if property/casualty coverages are involved, they must be offered on an individual, not group, basis.
For further information you may contact Senior Attorney Brenda Gibbs at the Albany Office.
1 Insurance Law § 2114 and 2115 each may be relevant here because a travel insurance policy may provide life, accident and health coverage, as well as property/casualty coverage.
2 This is not to imply, however, that an insurer may include any inducement it wants in the policy. See Opinion of General Counsel No. 07-06-03 (June 4, 2007).
3 Insurance Law § 4235(c)(1)(L) describes, as a permissible group for accident and health insurance, customers of certain types of financial institutions, provided certain criteria are met. The statute allows a financial institution to pay the insurance premiums of the group members provided that all eligible members of the group are insured under the policy.