OGC Opinion No. 04-02-15: Application of N.Y. Ins. Law § 3425(j) to all Insurance Agents and Brokers

OGC Op. No. 04-02-15

The Office of General Counsel issued the following informal opinion on February 18, 2004, representing the position of the New York State Insurance Department.

Re: Application of N.Y. Ins. Law § 3425(j) to all Insurance Agents and Brokers

Question Presented:

Does N.Y. Ins. Law § 3425(j)(1)(D)(McKinney 2000 & Supp. 2003), requiring an insurer or agent to continue to pay commissions on account of all business continued or written at the insurers prevailing commission rate, apply to all agents as defined in N.Y. Ins. Law § 2101(a) or strictly to managing general agents?

Conclusion:

N.Y. Ins. Law § 3425(j)(1)(D)(McKinney 2000 & Supp. 2003) entitles terminated agents and brokers, as defined by N.Y. Ins. Law § 2101(a) & (c) (McKinney 2000) to receive commissions on account of all business continued or written at the insurers prevailing commission rate for such lines of insurance and does not apply exclusively to managing general agents.

Facts:

Company A is a wholesale insurance agent authorized to sell various personal and commercial lines of insurance wholesale from various insurers. Brokers sign agreements with Company A in order to place insurance through insurers that Company A offers. When a broker is terminated for a reason other than for cause (i.e. license revocation, insolvency, abandonment, and gross and willful misconduct), Company A is unsure of statutory requirements pertaining to the payment of renewal commissions. Company A is not a managing general agent.

Analysis:

N.Y. Ins. Law § 3425(j)(1)(D)(McKinney 2000 & Supp. 2003) states:

(j)(1) Where an insurer or an agent who is authorized by such insurer to accept lines of insurance from licensed agents or brokers notifies a licensed agent or broker that its contract or account shall be terminated: . .

(D) the terminated agent or broker shall be entitled to receive commissions on account of all business continued or written pursuant to this paragraph at the insurer's prevailing commission rate for such lines of insurance;

N.Y. Ins. Law § 2101(a), as amended by chapter 687 of the Laws of 2003, defines insurance agent as follows:

. . ."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 subagent 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, . . .

N.Y. Ins. Law § 2101(c), as amended by chapter 687 of the Laws of 2003, defines insurance broker as follows:

. . ."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, . . .

Based on the facts provided, Company A is an insurance agent under N.Y. Ins. Law §2101(a). The brokers who have signed brokerage agreements with Company A are brokers under N.Y. Ins. Law §2101(c). Therefore, when Company A, the agent authorized by the insurer to accept lines of insurance from licensed agents or brokers, notifies a licensed agent or broker that their contract or account will be terminated, N.Y. Ins. Law §3425(j)(1)(D) states that the terminated agent or broker is entitled to receive commissions on account of all business continued or written at the insurers prevailing commission rate for such lines of insurance.

If the contract termination provisions of Company As brokerage agreements do not comply with N.Y. Ins. Law § 3425(j)(1)(D), then these agreements must be amended to comply with the insurance law.

Finally, the inquirer asked if the term agent as used in N.Y. Ins. Law § 3425(j)(1)(D)(McKinney 2000 & Supp. 2003) refers only to managing general agents as defined by N.Y. Comp. Codes R. & Regs. tit. 11, § 33.2 (2002).

N.Y. Ins. Law § 3425(j)(1)(D)(McKinney 2000 & Supp. 2003) does not limit the definition of agent to only managing general agent and uses the term agent as it is defined by N.Y. Ins. Law § 2101(a) (McKinney 2000).