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. 09-06-03

The Office of General Counsel issued the following opinion on June 4, 2009, representing the position of the New York State Insurance Department.

Re: Insurance producer’s memorandum for consulting work

Question Presented:

Does the Service Fee Engagement Memorandum (SFEM) comply with New York Insurance Law?

Conclusion:

Yes, the SFEM complies with N.Y. Ins. Law§ 2119 (McKinney 2009), which permits a licensed insurance agent, broker or consultant to receive a fee for consulting services, provided that the compensation in question is based upon a written memorandum signed by the party to be charged and that clearly defines that amount or extent of such compensation.

Facts:

The inquirer reports that the inquirer is an independent insurance agent and that the inquirer has submitted to the Department an application for licensing a corporate entity as an agency. The inquirer also submitted to the Department’s Office of General Counsel a document styled as an “engagement memorandum” that reads as follows:

Service Fee
Engagement Memorandum

The ____________Insurance Agency, Inc. (hereinafter “Agency”) and _________________ (hereinafter “Client”) enter into this agreement on this date. The Client authorizes the Agency to evaluate my current medical benefits and possible suitable alternatives for medical and dental benefits. The client agrees to pay a service fee of $100.00 for this evaluation. The client is not bound to purchase any of the recommended products from the Agency. They may purchase any recommended product, service, employment opportunity or access to governmental programs from any person authorized by the provider of said program or product. Should the Client purchase any Agency recommendation that pays a commission, through the Agency, the commission shall be the property of the Agency and no part of the commission or service fee shall revert to the Client.

I affix my signature to an agreement to the terms of this agreement.

Signed:_________________________Date:________________________

Name and Title_______________________________________________

The inquirer asks whether the document complies with the Insurance Law and regulations promulgated thereunder.

Analysis:

Insurance Law § 2119, entitled “Insurance agents, brokers, consultants; written contract for compensation; excess charges prohibited,” is relevant to the inquiry. That statute reads as follows:

(a)(1) No person licensed as an insurance agent, broker or consultant may receive any fee, commission or thing of value for examining, appraising, reviewing or evaluating any insurance policy, bond, annuity or pension or profit-sharing contract, plan or program or for making recommendations or giving advice with regard to any of the above, unless such compensation is based upon a written memorandum signed by the party to be charged and specifying or clearly defining the amount or extent of such compensation.

(2) A copy of every such memorandum or contract shall be retained by the licensee for not less than three years after such services have been fully performed.

(b)(1) No person licensed as an insurance agent, broker or a consultant may receive any compensation, direct or indirect, as a result of the sale of insurance or annuities to, or the use of securities or trusts in connection with pensions for, any person to whom any such licensee has performed any related consulting service for which he has received a fee or contracted to receive a fee within the preceding twelve months unless such compensation is provided for in the memorandum or contract required pursuant to subsection (a) hereof.

(2) This chapter shall not prohibit the offset, in whole or in part, of compensation payable under subsection (a) hereof by compensation otherwise payable to such consultant as agent or broker as a result of such sale of insurance or annuities or the use of securities or trusts in connection with pensions, if any such offset is provided for in the written memorandum or contract required under subsection (a) hereof.

Thus, pursuant to Insurance Law § 2119(a)(1), a licensed insurance agent, broker or consultant may receive additional compensation from a client for certain consultative services, including “examining, appraising, reviewing or evaluating any policy . . . or for making recommendations or giving advice with regard to any of the above . . . ”. Opinion of Office of General Counsel dated March 1, 1991.

The Service Fee Engagement Memorandum that the inquirer has provided to the Department, promises that in exchange for $100, the inquirer will evaluate “current medical benefits and possible suitable alternatives for medical and dental benefits.” That evaluation comes within the range of activities described in Insurance Law § 2119(a)(1).

The compensation set forth in the written memorandum must be signed by the party to be charged, and must clearly define the amount or extent of such compensation. The agent, broker or consultant must retain the memorandum for at least three years after performance of the consulting services in question. See Insurance Law § 2119(a)(2); OGC Opinion dated Sept. 21, 2006

Pursuant to Insurance Law § 2102(b),1 insurance agents need not be separately licensed as insurance consultants to provide consulting services. Additionally, an insurance agent may charge a commission for placing insurance and a separate fee for consulting services, so long as the written memorandum so provides in accordance with Insurance Law §§ 2119(a) and (b).

Here, the Service Fee Agreement Engagement Memorandum satisfies the requirements of Insurance Law § 2119(a)(1) in that it is a written memorandum that details the service to be provided and at what price, and as provided in Insurance Law § 2119(b)(1), specifies that the inquirer will keep any commission earned by the agency on the sale of insurance to the client.

For further information, one may contact Senior Attorney Susan A. Dess at the New York City office.

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1 Insurance Law § 2102(b) states in relevant part: (1) Unless licensed as an insurance agent, insurance broker or insurance consultant, no person, firm, association or corporation shall in this state identify or hold himself or itself out to be an insurance advisor, insurance consultant or insurance counselor. (2) No person, firm, association or corporation shall use any other designation or title which is likely to mislead the public or shall hold himself or itself out in any manner as having particular insurance qualifications other than those for which he may be otherwise licensed or otherwise qualified. (3) Unless licensed as an insurance agent, insurance broker or insurance consultant with respect to the relevant kinds of insurance, no person, firm, association or corporation shall receive any money, fee, commission or thing of value for examining, appraising, reviewing or evaluating any insurance policy, annuity or pension contract, plan or program or shall make recommendations or give advice with regard to any of the above.