Members often call me to ask what the law is in New York regarding issues that sometimes arise between agencies and insurers. For example, in the past few months members have asked about the law regarding broker of record letters, the ability of a wholesale broker to reduce a retail broker's commission, and an agent's access to an insurer's computer systems after the insurer has terminated the agent's contract. In each of these cases, I had to deliver the same news:
There is no law.
The New York Insurance Department's Office of General Counsel issued an advisory legal opinion on broker of record letters in September 2004:
Do the New York Insurance Law and the regulations promulgated thereunder provide rules as to which insurance agent or broker should receive the commission on a policy when there has been a change of broker of record?
No. The New York Insurance Law and the regulations promulgated thereunder do not provide such rules. However, New York courts have generally held that, absent an agreement to the contrary, a licensed insurance agent or broker earns its commission when it brings about the relationship of insurer and insured.
Case law applies "absent an agreement to the contrary." The contract between the agency and the insurer governs; if the contract is silent on the question, case law rules.
On the subject of contracts between agencies and insurers or between retail and wholesale brokers, the department, citing the complete absence of law in these areas, has said that the contracts are outside its jurisdiction. Any disputes are matters of contract law, not insurance law.
The only sections of the insurance law that govern agency commissions are sections 3425 and 3426, which govern the cancellation, non-renewal and conditional renewal of personal and commercial lines policies. Both address the question of commissions for agents after insurers have terminated their contracts. Section 3425(j)(1)(D), which pertains to personal lines, states:
(T)he 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...
Note that this rule applies to "all business continued or written pursuant to" the paragraph governing insurers' obligations to insureds when they terminate agency contracts. In other words, if the law requires the insurer to renew or offer a renewal for a certain insured, then the insurer must pay the terminated agent the prevailing commission rate for that line. The insurer has no such obligation when the law does not require a renewal or renewal offer.
Sect. 3426(k)(2), which pertains to commercial lines, has similar language:
The terminated agent or broker shall be entitled to receive commissions on all business continued pursuant to paragraph one of this subsection at the commission rate applicable to such agent or broker at the time of termination.
Again, the requirement applies only to business that the law requires the insurer to continue.
Finally, since there is no statutory law governing agency-insurer contracts, there is no law requring an insurer to give a terminated agent access to the insurer's computer systems. Inability to access the systems can complicate the agent's efforts to provide service to the insured. However, any remedy for this problem lies in the agency contract or the separate technology agreement, which some insurers ask agents to sign. The Agents Council for Technology has created excellent guidelines for effective agent-carrier technology agreements; the document is well worth reading and saving for your next contract review.
It is extremely important for producers to carefully review an agency agreement before signing it. If you don't understand what it says, check the Research section of the IIABNY Web site. We have a link there to all the contract reviews that the Big "I" legal staff has done and posted online. Chances are that they've already reviewed your contract and identified areas that you may want to negotiate with the insurer. If you don't see your contract there, e-mail or fax a copy of it up to us. We'll make sure that it gets to the Big "I" for a review.