OGC Opinion No. 06-03-14
The Office of General Counsel issued the following opinion on March 20, 2006, representing the position of the New York State Insurance Department.
Re: Agency Contracts
1. Is an insurer required to have a contract directly with its appointed agent or is a contract between the insurer and a general agency, which then contracts with the agent, sufficient?
2. May an insurer terminate an agent who has been convicted of a crime or has otherwise demonstrated untrustworthy conduct when the insurer appointed the agent but does not have a contract directly with the agent?
1. No, an insurer is not required to have a contract directly with its appointed agent. A contract between the insurer and a general agency, which then contracts with the agent, is sufficient.
2. No, whether an insurer may terminate an agent who has been convicted of a crime or has otherwise demonstrated untrustworthy conduct depends on the provisions of the contract between the parties.
The inquirer states that his client is a "grandfathered broker" who was appointed by an insurer in 1973.
At that time, the insurer required its "grandfathered brokers" to sign a contract with one of its general agencies only and not with the insurer directly. The contract specifically states that the insurer is not a party to the contract, except to the extent of its endorsement.
Currently, the insurer requires all of its newly appointed "grandfathered brokers" to sign contracts with both the insurer, as well as with a general agency of the insurer.
The Department assumed for purposes of this response that when the inquirer referred to his client as a "grandfathered broker" the inquirer was actually referring to his client being an insurance agent since agents, and not brokers are appointed by an insurer, and insurance brokers were not authorized to sell life insurance in 1973.
First, the inquirer asked whether an insurer is required to have a contract directly with an agent or whether a contract between the insurer and a general agency is sufficient. The New York Insurance Law does not require an insurer to have a contract directly with an agent.
Second, the inquirer asked whether an insurer may terminate an agent who has been convicted of a crime or has otherwise demonstrated untrustworthy conduct even though the insurer appointed the agent, but has no contract directly with the agent. The right of an insurer to terminate an agent under such circumstances depends on the terms of the contract.
Since at the time the inquirer's client became an agent for the insurer, the agent signed a contract directly with a general agency of the insurer, an examination of the contract between the insurer and its general agency and the contract between the general agency and the agent would have to occur to determine what provisions, if any, are for the termination of agents.
The inquirer also asked if under N.Y. Ins. Law § 2112 (McKinney Supp. 2006) an insurer is required to have a contract with an agent and whether Section 2112 gives an insurer the right to fire an appointed agent. Section 2112 concerns the appointment of an insurance producer to act as an agent. It does not concern contracts with agents.
Further, Section 2112(c) states:
Certificates of appointment shall be valid until (i) terminated by the appointing insurer after a termination in accordance with the provisions of the agency contract; (ii) the license is suspended or revoked by the superintendent; or (iii) the license expires and is not renewed.
This section simply addresses when a certificate of appointment is no longer valid. It does not give an insurer the right to terminate its agent.1
For further information you may contact Senior Attorney Elizabeth Barrett at the New York City Office.
1 However, Section 2112(d) does require an insurer to report to the Insurance Department when an appointment of an agent has been terminated.