The Office of General Counsel issued the following opinion on February 2, 2005, representing the position of the New York State Insurance Department.
Re: Agent Liability for Acts of Agent Employed as Independent Contractor
Questions Presented:
1. If Agent A, a New York licensed insurance agent, employs Agent B, another New York licensed insurance agent, as an independent contractor to sell insurance to Agent As clients and to share Agent Bs earned commissions that result from sales to Agent As clients, does Agent A have a duty to supervise the acts of Agent B while employed by Agent A?
2. What records, if any, do the New York Insurance Law, and regulations promulgated thereunder, require Agent A to maintain with regard to such employment relationship?
Conclusions:
Please see analysis below.
Facts:
Agent A, a New York licensed insurance agent, plans to employ Agent B, another New York licensed insurance agent, as an independent contractor in order to sell insurance to Agent A's clients, and to share Agent B's earned commissions that result from sales to Agent A's clients.
Analysis:
Neither the Insurance Law, nor the regulations promulgated thereunder, address the issue of Agent As duty or obligation to supervise the acts of Agent B whom Agent A employs as an independent contractor and with whom Agent A will share commissions. The answer to this issue lies within the law of agency and is ultimately dependent upon the particular facts of Agent As employment relationship with Agent B. However, if Agent B acts on behalf of Agent A, Agent A may be held responsible by the Insurance Department for Agent Bs actions.
Please note that Agent B may only act in the name of Agent A if Agent B is a sub-licensee of Agent A, N.Y. Ins. Law § 2103 (McKinney Supp. 2005), or designated as a supervising person by Agent A, N.Y. Comp. Codes R. & Regs. tit. 11, § 34.3 (2003) (Regulation 125).
With regard to the maintenance of records concerning Agent As employment relationship with Agent B, to the extent that Agent A will be maintaining records on behalf of an insurer, Agent A is subject to the same record retention requirements applicable to insurance companies in New York. See N.Y. Comp. Codes R. & Regs. tit. 11, Part 243 (2003) (Regulation 152). In addition, N.Y. Ins. Law § 2119(a) (Mckinney Supp. 2005) requires insurance agents to retain every consulting fee agreement for at least three years; and N.Y. Comp. Codes R. & Regs. tit. 11, § 20.4 (2001) (Regulation 29) sets forth the minimum recordkeeping requirements for licensees that maintain premium accounts. Moreover, even when no regulatory requirement applies, the Department would expect a licensee to maintain records in accordance with prudent business practices.
For further information you may contact Senior Attorney Kristian Earl Lynch at the New York City Office.