The issues of contingent commissions and producer compensation disclosure has reached the forefront of New York regulatory law, as the Supreme Court of New York, Appellate Division, First Department recently ruled in favor of the insurance industry in the matter of People v. Liberty Mut. Ins. Co.  In that matter, the Court opined that contingent commission agreements between brokers and insurers are not illegal, and, in the absence of a special relationship between the parties, the defendants have no duty to disclose the existence of the contingent commission agreement.  Further, the Court found that neither the New York Insurance Law nor the regulations promulgated thereunder require an insurance broker to disclose to its clients the commission it earns on the policies it places.

Prompted by that ruling, the New York Insurance Department and Attorney General will hold three hearings covering the issues of contingent and supplemental commissions, producer compensation disclosure and deceptive or anti-competitive practices.  Scheduled for July 14 in Buffalo, July 23 in Albany and July 25 in Manhattan, the hearings are designed to get the views of all interested parties on the proposed addition of a new regulation governing compensation and disclosure.

During several investigations over the past few years, the New York Superintendent of Insurance and Attorney General alleged that payment of contingent commissions led some insurance producers to steer their clients to insurance companies paying the producers the most compensation.  The Superintendent and Attorney General also alleged that the then current level of disclosure did not properly inform clients of the compensation to be received.  As a result, the Superintendent and the Attorney General entered into a number of agreements and stipulations that prohibited the receipt of contingent commissions by certain insurance producers, the payment of contingent compensation by certain insurance companies and required improved disclosure of producer compensation.  However, these agreements did not include all the producers and insurers doing business in New York.

Therefore, the Superintendent is specifically soliciting views about whether insurance producers should be required to make full disclosure to the insured and obtain consent in writing for any compensation from an insurer or other entity relating to the issuance, renewal or servicing of the insured’s insurance policy or annuity contract.  In addition, the Superintendent and Attorney General are also seeking views on contingent commissions, and whether such compensation creates an irreconcilable conflict of interest for producers.

According to Superintendent Eric Dinallo, “Those who sell insurance deserve to be fairly compensated and those who buy insurance deserve to be fairly treated.  These hearings will help us understand how best to ensure the marketplace is competitive, transparent and fair to all.”

For further information on the location and times of the hearings and how to submit written comments or give testimony, please click here.

For a full version of the People v. Liberty Mut. Ins. Co. opinion, please click here.