OGC Opinion No. 06-12-04
The Office of General Counsel issued the following opinion on December 6, 2006, representing the position of the New York State Insurance Department.
Re: Rebates and Commission Sharing
Questions Presented:
May a duly appointed and licensed life insurance agent share commissions for the sale of a life insurance policy with a relative of the insured who is a licensed insurance agent but who has not been appointed as an agent for the insurer that issues the policy?
Conclusion:
No, a duly appointed and licensed life insurance agent may not share commissions with another insurance agent unless at the time of the solicitation, negotiation and/or sale of the policy, the latter was a licensed agent of the insurer who wrote the policy. An insurance agent sharing a commission with such an agent who has not been appointed would be in violation of N.Y. Ins. Law § 2114 (McKinney 2006). Moreover, even if both insurance agents were licensed agents of the insurer, under the facts as specified below, the sharing of the commission would appear to be an inducement that is prohibited pursuant to N.Y. Ins. Law § 4224(c) (McKinney Supp. 2006).
Facts:
A licensed life insurance agent was duly appointed by an insurer. The agent solicited a life insurance policy to a prospective client who expressed concern about purchasing the policy from such agent because the client has a relative who is a life insurance agent but has not been appointed by such insurer. The agent stated that they agreed to share commissions for the policy with the relative for the purpose of satisfying the prospective client's concerns, and had to date made one payment as provided for by the agreement.
Analysis:
N.Y. Ins. Law § 2114 (McKinney Supp. 2005), in relevant part, provides:
(a)(1) No insurer or fraternal benefit society doing business in this state shall pay any commission or other compensation to any person, firm or corporation, for any services in obtaining in this state any new contract of life insurance or any new annuity contract, except to a licensed life insurance agent of such insurer or of such society or to an insurance broker licensed under subparagraph (A) of paragraph one of subsection (b) of section two thousand one hundred four of this article, and except to a person described in paragraph two or three of subsection (a) of section two thousand one hundred one of this article.
(2) No agent or other representative of any such life insurer or fraternal benefit society shall pay any commission or other compensation to any person for any services of the kind specified in paragraph one hereof, except to a licensed life insurance agent of such insurer or of such society as the case may be.
(3) No insurer, fraternal benefit society or health maintenance organization doing business in this state and no agent or other representative thereof shall pay any commission or other compensation to any person, firm, association or corporation for services in soliciting, negotiating or selling in this state any new contract of accident or health insurance or any new health maintenance organization contract, except to a licensed accident and health insurance agent of such insurer, such society or health maintenance organization, or to a licensed insurance broker of this state, and except to a person described in paragraph two or three of subsection (a) of section two thousand one hundred one of this article.
(4) 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. (emphasis added)
N.Y. Ins. Law § 2112 (McKinney Supp. 2005) provides:
Every insurer, fraternal benefit society or health maintenance organization doing business in this state shall file a certificate of appointment in such form as the superintendent may prescribe in order to appoint insurance agents to represent such insurer, fraternal benefit society or health maintenance organization.
Therefore, in order to collect any commission, both insurance agents must be licensed agents of the insurer prior to commencing any activities that would require an insurance agent license. An unlicensed producer has no right to commissions for activities engaged in without a license or prior to obtaining a license. McEvoy v. American Lumbermen's Mut. Casualty Co. of Illinois, 51 N.Y.S.2d 306, 1944 N.Y. Misc. LEXIS 2505 (Sup. Ct. Queens Co. 1944) aff'd 269 A.D. 857, 56 N.Y.S.2d 527 (2d Dept. 1945), aff'd 295 N.Y. 906, 68 N.E.2d 25 (1946); Gutfreund v. DeMian, 227 A.D.2d 234, 642 N.Y.S.2d 294 (1st Dept. 1996).
Likewise, an insurance agent must be appointed by the insurance company that will provide the policy prior to such agent engaging in any activities to solicit or negotiate the insurance. The payment of part of the commissions to the non-appointed agent violates N.Y. Ins. Law § 2114 (McKinney 2006).
Moreover, even if both insurance agents had been appointed by the insurance company prior to any activities to solicit or negotiate the insurance, under the facts provided, the sharing of the commission would appear to be an inducement that is prohibited pursuant to N.Y. Ins. Law § 4224(c) (McKinney Supp. 2006).
N.Y. Ins. Law § 4224(c) (McKinney Supp. 2006) states:
No such life insurance company and no such savings and insurance bank and no officer, agent, solicitor or representative thereof and no such insurer doing in this state the business of accident and health insurance and no officer, agent, solicitor or representative thereof, and no licensed insurance broker and no employee or other representative of any such insurer, agent or broker, shall pay, allow or give, or offer to pay, allow or give, directly or indirectly, as an inducement to any person to insure, or shall give, sell or purchase, or offer to give, sell or purchase, as such inducement, or interdependent with any policy of life insurance or annuity contract or policy of accident and health insurance, any stocks, bonds, or other securities, or any dividends or profits accruing or to accrue thereon, or any valuable consideration or inducement whatever not specified in such policy or contract; nor shall any person in this state knowingly receive as such inducement, any rebate of premium or policy fee or any special favor or advantage in the dividends or other benefits to accrue on any such policy or contract, or knowingly receive any paid employment or contract for services of any kind, or any valuable consideration or inducement whatever which is not specified in such policy or contract.
An insurance agent or broker subject to the provisions of N.Y. Ins. Law § 4224(c) (McKinney Supp. 2006), may not provide " . . . an inducement to any person . . . or any valuable consideration or inducement whatever not specified in such policy or contract; . . . " in connection with the sale of life insurance. Therefore, if an insured's purchase of a life insurance policy is contingent upon or encouraged by the insurance agent sharing the commission with another insurance agent, the agent's agreement would be considered to be an inducement that is prohibited by N.Y. Ins. Law § 4224(c) (McKinney Supp. 2006).
For further information you may contact Assistant Counsel Brenda Gibbs at the Albany Office.