The Office of General Counsel issued the following opinion on October 21, 2003, representing the position of the New York State Insurance Department.
Re: Insurance Agency as Limited Liability Company ("LLC")
Questions Presented:
1) May a limited liability company ("LLC") seeking to be issued an insurance agents license include as a member an individual who is not licensed as an insurance agent?
2) If so, may such non-licensed member of the LLC collect a fee from the agency for referring clients to the agency?
Conclusions:
1) An LLC seeking to be issued an insurance agents license may include as a member a natural person who is not licensed as an insurance agent provided that the LLC has named a natural person (who meets the same requirements that a person seeking to be licensed as an individual for the same kind of license is required to meet) as its sub-licensee, to act individually as its agent.
2) Such non-licensed member may collect a fee from the agency for referring clients to the agency provided that he does not discuss the specific insurance policy terms and conditions with the person being referred and the fee paid is not based upon the purchase of insurance. Because the fee paid for making the referral may not be based upon the purchase of insurance, the fee may not be based upon a percentage of commission, the premium amount, or the type of policy purchased.
Facts:
A licensed insurance agent who is considering forming an LLC as an insurance agency with an attorney who is not licensed as an insurance agent inquired as to whether such non-licensed member (the attorney) may collect a fee for referring his law practice clients to the agency.
Analysis:
N.Y. Ltd. Liab. Co. Law § 102(m) (McKinney Supp. 2003) provides as follows:
"Limited liability company" and "domestic limited liability company" mean, unless the context otherwise requires, an unincorporated organization of one or more persons having limited liability for the contractual obligations and other liabilities of the business (except as authorized in section six hundred nine of this chapter), other than a partnership or trust, formed and existing under this chapter and the laws of this state.
N.Y. Ins. Law § 2103(a) and (b) (McKinney 2000) state:
(a) The superintendent may issue a license to any person, firm or corporation who or which has complied with the requirements of this chapter, authorizing such licensee to act as an insurance agent with respect to life insurance, including for this purpose annuity contracts and supplemental contracts of non-cancellable disability insurance, or with respect to accident and health insurance, including for this purpose, health maintenance organization contracts, legal services insurance or with respect to any combination of the above, as specified in such license, on behalf of any insurer, fraternal benefit society or health maintenance organization, which is authorized to do such kind or kinds of insurance or health maintenance organization business in this state.
(b) The superintendent may issue a license to any person, firm, association or corporation who or which has complied with the requirements of this chapter, authorizing the licensee to act as agent of any authorized insurer, other than an insurer specified in subsection (b) of section two thousand one hundred fifteen of this article, with reference to any kind or kinds of insurance business, as specified in the application for such license, which such insurer is authorized to do in this state.
The Department views an LLC as a kind of hybrid between a firm and a corporation. Thus, the Department recognizes LLCs as entities qualified to be issued the types of licenses authorized under Article 21 of the New York Insurance Law. N.Y. Ins. Law § 2103(c) (McKinney 2000) states:
(c) Any such license issued to a firm or association shall authorize only the members thereof, named in such license as sub-licensees, to act individually as agents thereunder, and any such license issued to a corporation shall authorize only the officers and directors thereof, named in such license as sub-licensees, to act individually as agents thereunder. Every sub-licensee, acting as insurance agent pursuant to such a license shall be authorized so to act only in the name of the licensee.
Hence, an LLC seeking to be issued an insurance agents license may include a member who is not licensed as an insurance agent provided that the LLC has named a natural person (who meets the same requirements that a person seeking to be licensed as an individual for the same kind of license is required to meet) as its sub-licensee to act individually as its agent.
With respect to an LLC member who is not licensed, such person may make a referral to the agency provided that he or she does not discuss the specific insurance policy terms and conditions with the person being referred. The non-licensee may be compensated by the agency, but the fee paid may not be based upon the purchase of insurance. N.Y. Ins. Law §§ 2114(a)(4) and 2115(a)(1) (McKinney Supp. 2003). Because the fee paid for making the referral may not be based upon the purchase of insurance, the fee may not be based upon a percentage of commission, the premium amount, or the type of policy purchased.
Please note that this opinion is limited to the application of the New York Insurance Law, and we express no opinion concerning laws regulating the conduct of attorneys.
For further information you may contact Associate Attorney Sally Geisel at the New York City Office.