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One of the topics covered in depth at this year's annual E&O seminars concerns the most common matters involving New York Insurance agents and brokers and the New York Department of Financial Services (“NYDFS").  So far we have presented the five live E&O seminars, and the telecast seminar that will cover all of the same topics, including the most common DFS matters, will be presented on June 6^th. In case you are unable to attend any of the annual E&O seminars this year, we are devoting this issue of The E&O Report to a review of several sections of New York Insurance Law that the NYDFS frequently alleges have been violated by agents and brokers.

Notification of Administrative Action

Insurance Law Section 2110(i) provides in pertinent part as follows:​

A licensee subject to this article shall report to the superintendent any administrative action taken against the licensee in another jurisdiction or by another governmental agency in this state within thirty days of the final disposition of the matter. This report shall include a copy of the order, consent to order or other relevant legal documents.

Pursuant to this section of the Insurance Law, an insurance agent or broker is required to notify the NYDFS within 30 days of the time when a final determination is made and a violation is imposed in connection with an administrative action in any state. An agent or broker who fails to notify the NYDFS of the imposition of a violation, either knowingly or unknowingly, will be in violation of this section of the law and subject to a fine and/or other sanction. Most often an insurance agent or broker is in violation of this section because they violated the insurance law in another state yet failed to advise the NYDFS of that violation within thirty (30) days. Therefore, any insurance agent or broker who is found to have violated any state's insurance law should be certain to advise, within 30 days, each and every other state in which they hold resident and non-resident licenses. Failure to do so will constitute a violation of this section of the Insurance Law.

Notification of Involvement in a Criminal Proceeding

Insurance Law Section 2110(j) provides in pertinent part as follows:

Within thirty days of the initial pretrial hearing date, a licensee subject to this article shall report to the superintendent any criminal prosecution of the licensee taken in any jurisdiction. The report shall include a copy of the initial complaint filed, the order resulting from the hearing and any other relevant legal documents.

Under this section, insurance agents or brokers are required to notify the NYDFS if they are the subject of any type of criminal matter in any jurisdiction, within 30 days of the dates of the initial pre-trial hearing. This law applies to any type of criminal proceeding in which the agent or broker is a defendant in a criminal proceeding involving, for example, drunk driving, larceny or assault; they are obligated to report this matter to the NYDFS. Also, like the previous section noted above, the criminal matter may be in any state and is not limited to criminal matters in New York State. Any agent or broker who fails to notify the NYDFS of the pendency of a criminal proceeding in which they are a defendant, either knowingly or unknowingly, will be in violation of this law and subject to fine and/or other sanction. Thus, an insurance agent or broker who is involved in a criminal proceeding in any jurisdiction should be certain to advise, within 30 days, the NYDFS and the insurance departments of each and every other state that has similar requirement in which they hold resident and non-resident licenses.

Notification of a Change of a Business or Personal Address

Insurance Law Section 2134(a) provides in pertinent part as follows:

A licensee under this article shall inform the superintendent by means acceptable to the superintendent of a change of address within thirty days of the change.

According to this provision, an agency or brokerage, and/or an individual agent or broker, is required to notify the NYDFS within 30 days after the time that there is any change in either their business or home address. The failure to notify the Department of a change in either a business or personal address, either knowingly or unknowingly, is a violation of this section of the law and can subject the agency or brokerage, or individual agent or broker, to a fine and/or other sanction. Therefore, any insurance agency or brokerage, and or individual agent or broker, which has changed their address should be certain to advise, within 30 days, each and every state in which they hold resident and non-resident licenses. Failure to do so will constitute a violation of the Insurance Law.

Doing Business With and Paying Commissions to an Unlicensed Entity or Individual

Insurance Law Section 2110(a)(12) provides in pertinent part as follows:

(a) The superintendent may refuse to renew, revoke, or may suspend for a period the superintendent determines, the license of any producer… if after notice and hearing, the superintendent determines that the licensee or any sub-licensee has:

(12) knowingly accepted insurance business from an individual who is not licensed.

This section prohibits an insurance agent or broker from transacting insurance business with an unlicensed individual. Although Section 2110(a)(12) requires that the actions of the agent or broker be done “knowingly" for a violation to exist, unknowing violations of this type of conduct are often found to exist and will subject the insurance agent or broker to a finding of a violation based upon Insurance Law Section 2116, which provides in pertinent part the following:

No insurer authorized to do business in this state, and no officer, agent or other representative thereof, shall pay any money or give any other thing of value to any person, firm, association or corporation for or because of his or its acting in this state as an insurance broker, unless such person, firm, association or corporation is authorized so to act by virtue of a license issued or renewed pursuant to the provisions of section two thousand one hundred four of this article.

Thus, under this section of the Insurance law, any agent or broker who pays commission to an unlicensed individual will be in violation of the law. A violation of Insurance Law Section 2116 can be based upon conduct that is either done knowingly or unknowingly.

In order for insurance agents or brokers to protect themselves from violating this section, an agent or broker should request a copy of the insurance license and proof of errors and omissions insurance coverage for the agents or brokers with whom they deal. When the NYDFS investigates a possible violation of this section, it closely examines the actions of the agent or broker to see whether steps were taken to try and ensure that the party with whom the agent or broker dealt was property licensed. If the department finds that the agent or broker took steps to try and verify that the individual with whom they dealt with was licensed, it often will find no violation or impose a less severe fine or sanction. Because most other states have a similar law, the prudent insurance agent or broker should be sure to take steps to make certain that they do not violate this section of the Insurance Law.

Registered Name Must Correspond to License and Premium Trust Account

Insurance Law Section 2102 provides in pertinent part as follows:

No person, firm association or corporation shall act as an insurance producer or insurance adjuster in this state without having authority to do so by virtue of a license issued and in force pursuant to the provisions of this chapter.

Quite often, insurance agencies and brokerages, as well as individual agents and brokers, run afoul of this section of the law because the name that is registered with the NYDFS does not correspond to the name that is on the license under which they are operating. In addition, problems frequently arise for agent and brokers because the name on the premium trust account being used does not correspond to the name that is registered with the Department and/or the name on the license. Therefore, in order to protect against violating this provision, every insurance agency or brokerage should take steps to ensure that the name registered with the NYDFS corresponds with the name listed on both the license and premium trust accounts being used. Failure to comply with this section of the law will constitute a violation.

Conclusion

The above is just a sampling of the many provisions of New York Insurance Law that frequently form the basis for violations being imposed against insurance agencies and brokerages, as well as individual agents and brokers. To protect against committing these violations, every agency, brokerage, agent or broker should be certain to familiarize themselves with the various state laws that govern their conduct. In New York State, the laws governing the conduct of insurance agents and brokers are set forth in Article Twenty One of the Insurance Law. Those laws are available for review on the NYDFS website, and it is our recommendation that you review and familiarize yourself with those laws. The prudent insurance agent or broker who is aware of their obligations and duties under the insurance laws in the various states where he or she is licensed will be in a much better position to help protect themselves from committing violations of the law.​

Submitted by:

James C. Keidel, Esq.
Keidel, Weldon & Cunningham, LLP​