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

David A. Paterson
Governor

Eric R. Dinallo
Superintendent

OGC Op. No. 08-07-14

The Office of General Counsel issued the following opinion on July 21, 2008 representing the position of the New York State Insurance Department.

Re: Excess lines broker promotion

Question Presented:

May a licensed excess lines broker run a promotion whereby licensed New York brokers would have an opportunity, each time they placed a policy with the excess lines broker, to enter a raffle to win a $250 gift card?

Conclusion:

Yes. A licensed excess lines broker may run a promotion whereby licensed New York brokers would have an opportunity, each time they placed a policy with the excess lines broker, to enter a raffle to win a $250 gift card.

Facts:

The inquirer reports that it represents an excess lines broker1 that is licensed in New York. The excess lines broker seek to run a promotion whereby it would enter New York-licensed brokers that place business with it into a raffle for a $250 gift card every time any of those brokers places a policy through the excess lines brokerage.

Analysis:

The answer to the question posed is straightforward: an insurance broker may share commissions with, or pay other compensation (e.g., a gift card) to, another insurance broker, as long as each broker is licensed to sell the same lines of insurance. See Office of General Counsel Opinion dated August 6, 2001.

If, however, the recipient is not so licensed, the Superintendent could find that the payor acted in an “untrustworthy” manner under Insurance Law § 2110(a)(4), for which the broker’s license may be revoked or suspended, or for which penalties may be imposed pursuant to Insurance Law § 2127.

Moreover, please be advised that in 1998, the Department issued Circular Letter 22, which addresses disclosure of broker compensation. The Circular Letter centers on the fact that brokers are the representatives of the insured, see Insurance Law § 2101(c), and that a broker’s undisclosed receipt of additional compensation therefore is sufficient to create the perception that the broker may be conflicted in its loyalties. Indeed, the Department currently is holding public hearings to obtain the views of interested persons about a proposed new regulation regarding permissible forms of insurance producer compensation, and disclosure by insurance producers of forms of compensation. For purposes of the proposed regulation, “compensation” would mean anything of value, including money, credits, loans, interest on premium, forgiveness of principal or interest, vacations, prizes, gifts or the payment of employee salaries or expenses, whether paid as commission or otherwise, but would not include benefits provided to an insurance agent from an insurer as part of the insurer’s employee benefit plan where benefits are similarly provided to non-agent employees. For further information about the hearings, please visit http://www.ins.state.ny.us/agbrok/br_cmp_indx.htm.

Accordingly, while the referral the inquirer asks about is lawful, in light of Circular Letter 22, a New York licensed broker should disclose to prospective insureds the broker’s potential to earn additional compensation from a referral through the raffle.

For further information you may contact Senior Attorney Sapna S. Maloor at the New York City Office.

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1 The inquiry asks about “surplus lines.” In New York, “surplus lines” is synonymous with “excess lines.” We use the term “excess lines” throughout this opinion so as to conform with New York’s statutory language.

2 An exception not applicable here is set forth in Insurance Law § 2128 and New York Compilation of Codes, Rules and Regulations, title 11, §§ 29.1 – 29.6 (Regulation 87), which prohibit, under certain circumstances, the acceptance of commissions arising from insurance coverages or services placed on behalf of a New York governmental entity.

3 Insurance Law §§ 2114, 2115, 2116 all prohibit payments of commissions or other compensation by insurers or agents to unlicensed agents or brokers.