The Office of General Counsel issued the following informal opinion on November 26, 2002, representing the position of the New York State Insurance Department.
Re: Sharing Commissions - Limited Liability Company
Questions Presented:
1. May an attorney who is the unlicensed member of a limited liability company that is licensed as an insurance agency ("insurance agency") share the commissions generated by the sublicensee for the insurance agency?
2. May the unlicensed member make referrals to the insurance agency or to another agent or broker and split the commissions?
Conclusions:
1. The unlicensed member may not share the commissions generated by the sublicensee for the insurance agency, but may share in the net profits of the insurance agency.
2. The unlicensed member may make referrals to the insurance agency or to unrelated agents or brokers, and be compensated for such referrals in accordance with N.Y. Ins. Law §§ 2114, 2115, 2116 (McKinney Supp. 2002), but may not share commissions for these referrals.
Facts:
No facts were presented. The inquiry is general in nature.
Analysis:
1. The New York Limited Liability Company Law was enacted in 1994, at which time the Department began granting the kinds of licenses authorized by Article 21 of the Insurance Law (such as insurance agent and insurance broker) to limited liability companies. Thus, a limited liability company may be licensed as an insurance agency. However, because in such a case, the license is issued to an entity, a natural person must be named as a sublicensee. If, as in this case, the limited liability company is member managed, then the sublicensee must be a member. See NY General Counsel Opinion 10-2-02, which is available on the Departments web site. A sub-licensee must meet the same requirements as an individual applicant for a license and, in acting as an insurance agent pursuant to such license, may act only in the name of the licensee. N.Y. Ins. Law § 2103 (McKinney 2000). There is no exception to the licensing requirement for an attorney seeking to act as an insurance agent. Accordingly, a non-licensed attorney/member may not be named as the sublicensee of the insurance agency.
The commissions generated by the agent in his capacity as sublicensee belong to the insurance agency. Although the licensed member may not share commissions earned by the insurance agency with the unlicensed member, both members may share in the net profits as well as the losses of the insurance agency. NY General Counsel Opinion 8-31-98.
2. Although the nonlicensed member is prohibited from acting as an insurance agent or insurance broker without a license, referrals by non-licensees to New York State licensed insurance agents and brokers are permitted under recent amendments to N.Y. Ins. Law §§ 2114(a)(4), 2115(a)(1), 2116 (McKinney Supp. 2002), under certain conditions.
N.Y. Ins. Law § 2114 (a)(4) provides:
Services of the kind specified in this subsection shall not include the referral of a person to a licensed insurance agent or broker that does not include a discussion of specific insurance policy terms and conditions and where the compensation for referral is not based upon the purchase of insurance by such person.
N.Y. Ins. Law § 2115(a)(1) provides, in pertinent part:
For the purposes of this section, "acting as an insurance agent" shall not include the referral of a person to a licensed insurance agent or broker that does not include a discussion of specific insurance policy terms and the conditions and where the compensation for referral is not based upon the purchase of insurance by such person.
N.Y. Ins. Law § 2116 provides:
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. For the purposes of this section, "acting as insurance broker" shall not include the referral of a person to a licensed insurance agent or broker that does not include a discussion of specific insurance policy terms and conditions and where the compensation for referral is not based upon the purchase of insurance by such person.
Thus, an unlicensed person can now make a referral provided that there is no discussion of specific insurance policy terms and conditions and the compensation to the non-licensee for the referral is not based upon the purchase of insurance by the referred person. Accordingly, although the unlicensed member can make referrals to the insurance agency or to the unrelated agent or broker, and can be compensated for such referrals as provided in the Insurance Law, there can be no sharing of commissions for these referrals.
For further information you may contact Supervising Attorney Joan Siegel at the New York City Office.