OGC Opinion No. 09-04-01
The Office of General Counsel issued the following opinion on April 2, 2009, representing the position of the New York State Insurance Department.
RE: Agent’s Commission
Question Presented:
May a licensed insurance agent receive commission on a property/casualty insurance book of business that the agent purchased if the agent is not an appointed agent of the insurer?
Conclusion:
No, a licensed insurance agent may not receive commission on a property/casualty insurance book of business that the agent purchased if the agent is not an appointed agent of the insurer.
Facts:
The president and chief executive officer of a property/casualty insurance company authorized to do business in New York inquired as to whom, if anyone, would be entitled to receive commission on a property/casualty insurance book of business that was sold to a licensed insurance agent who is not an appointed agent of the underwriting insurer. The seller is a formerly appointed agent (“former agent”) whose contract with the insurer recognized the former agent as the owner of the accounts that he sold. The inquiry did not state whether the commissions accrue from accounts that renewed through the former agent or those that renewed after the former agent resigned.
Analysis:
Commissions that accrue from policies placed by an insurance agent prior to the agent’s resignation may be payable to the agent even if he is no longer an appointed agent of the insurer at the time payment is made. Indeed, New York Insurance Law § 2102(e)(2) (McKinney 2006) reads as follows:
Renewal or other deferred commissions may be paid to a person or other entity for selling, soliciting or negotiating insurance in this state if the person or other entity was required to be licensed under this article at the time of the sale, solicitation or negotiation and was so licensed at that time.
Prior to the enactment of Insurance Law § 2102(e)(2) in 2003, cases construing New York law held that “[a]bsent an agreement to the contrary, a [licensed agent] earns its commission when it brings about the relationship of insurer and insured[.]” See e.g., Hammond v. Risk Specialists Co. of New York, Inc., 210 A.D.2d 202, 203 (1994); Western Nat. Ins. Co. v. Haph Brokerage, 277 A.D. 6 (1st Dep’t 1950), aff’d, 302 N.Y. 678 (1951). Additionally, the Department has consistently opined that a formerly appointed agent who no longer represented an insurer could receive vested commission on business that he placed while an appointed agent, provided that the agent’s agreement with the insurer did not prohibit such an arrangement. See Opinions of the Department’s Office of General Counsel (“OGC Ops”) dated June 11, 2003; June 20, 2002; and April 11, 2002.1
After an agent resigns, the policies within the agent’s book of business may only be serviced and renewed through the current insurer by an appointed agent of the insurer. Insurance Law § 2112 requires agents to be appointed by the insurers they represent, and reads in relevant part as follows:
(a) 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.
(b) To appoint a producer, the appointing insurer shall file, in a format approved by the superintendent, a notice of appointment within fifteen days from the date the agency contract is executed or the first insurance application is submitted.
Moreover, except as permitted by Insurance Law § 2102(e)(2), a property/casualty insurer may not pay commission to an insurance agent who is not an appointed agent of the insurer. Indeed, Insurance Law § 2115(a)(1) reads as follows:
No insurer doing business in this state, and no agent or other representative thereof, except as provided in subsection (b) hereof, shall pay any commission or other compensation to any person, firm, association or corporation for acting as insurance agent in this state, except to a licensed insurance agent of such insurer or to a person described in paragraph two or four of subsection (a) of section two thousand one hundred one of this article or except as provided in subsection (c) of this section. (Emphasis added.)2
The Department has construed the term “licensed insurance agent of such insurer” to mean an agent for whom a certificate of appointment has been filed by the insurer pursuant to Insurance Law § 2112. See OGC Ops dated April 23, 2008; May 31, 2007; and April 20, 2004.
Under the scenario presented, unless the insurer appoints the purchasing agent as its representative, the purchasing agent may not service the in-force policies or renew the policies through the current insurer, or receive commission from the insurer. Further, whether the insurer is required to pay commission on renewed policies to the appointed agent who formerly wrote the accounts depends on the terms of the agency agreement between the insurer and its former agent.
For further information you may contact Associate Attorney Sally Geisel at the New York City Office.
1 Because Insurance Law § 2102(e)(2) effectively codifies the both common law and Department’s position regarding post-resignation commission payments, pre-2003 case law and OGC opinions remain relevant.
2 Insurance Law § 2114 sets forth similar requirements for life, and accident and health, insurance agents.