Insurance producer licenses are granted by the New York Superintendent of Financial Services (the Superintendent ).

Transcription

1 US (New York) KRAMER LEVIN NAFTALIS & FRANKEL Daniel A. Rabinowitz 1. The Insurance intermediation activities 1.1 Is the distribution of insurance products (hereinafter referred to as insurance intermediation activities or insurance intermediation ) reserved to insurance intermediaries in your country? New York state law prohibits any person other than a licensed insurance producer from distributing insurance products. 1 An insurance producer is defined as an insurance agent, title insurance agent, insurance broker, reinsurance intermediary, excess line broker (as these terms are discussed herein), or any other person required to be licensed under the laws of [New York] to sell, solicit or negotiate insurance. 2 The definition excludes certain categories of persons not primarily engaged in selling insurance products in New York, such as, principally: insurance company employees primarily engaged in non-intermediation activities; agents of fraternal benefit societies (which are special purpose insurance providers set up for affinity groups such as religious organizations), subject to certain limits; administrators of health, employee benefit and insurance plans; advertisers of insurance products where there is no intent to solicit sales; excess line brokers (explained in the response to item 2.3) where the insured s home state (as defined in Article 21) is a state other than New York; and health insurance navigators under the federal Patient Protection and Affordable Care Act 3 enacted in Insurance producer licenses are granted by the New York Superintendent of Financial Services (the Superintendent ). 1.2 What does the term insurance intermediation include? Is there any definition set forth by statutory or case law? In any case, please indicate which activities/services are included in the above definition (e.g.: presentation or proposal of insurance products, assistance or consultancy aimed at drafting the agreement? Are collaboration activities that relate to the administration or execution of the contracts drafted, even in the case of accidents, included in the definition? Does the drafting of contracts or insurance agreements in collective form on behalf of insured individuals also form part of insurance intermediation activities?). New York Insurance Law does not define insurance intermediation as such. Definitions in Article 21 of the types of insurance producers, such as agent and broker, variously refer to soliciting, negotiating or selling insurance contracts. 5 It 1 New York Insurance Law 2102(a)(1). All statutory citations herein are to New York Insurance Law unless otherwise specified (k). This survey does not cover the intermediation of life settlements or other secondary sales of insurance products P.L (k) (a-c).

2 may be inferred that these activities embody the concept of insurance intermediation as it is understood and regulated in New York. Article 21 does not provide specific guidance on the types of acts referred to in the question such as drafting, making presentations, collaborating, consulting and so on. However, the statute does define the three key terms solicit, negotiate and sell, thus providing some direction on what activities require a person to be licensed in New York as an insurance producer. Solicit means attempting to sell insurance or asking or urging a person to apply for a particular kind of insurance from a particular licensed insurer. 6 Negotiate is defined as conferring directly with or offering advice directly to a purchaser or prospective purchaser of a particular contract of insurance concerning any of the substantive benefits, terms or conditions of the contract, provided that the person engaged in that act either sells insurance or obtains insurance from licensed insurers... 7 Sell means to exchange a contract of insurance by any means, for money or its equivalent, on behalf of a licensed insurer Are insurance intermediation activities allowed as ancillary activities for other professional activities (e.g. travel, rent-a-car service, etc.) and to what extent? Furthermore, are there exceptions that allow actors, other than insurance intermediaries, to carry out insurance intermediation activities (is it a matter related, by way of example, to the risk covered, the duration, the amount of the policy premium, etc.)? Exceptions from definition of insurance producer. See response to item 1.1 for a discussion of certain classes of persons whose activities may include insurance distribution but who are not considered insurance producers within the meaning of New York Insurance Law. Limited licenses. Insurance intermediation is allowed as an ancillary activity to other professional activities under certain limited licenses recognized in New York Insurance Law. These are available to rental vehicle companies, wireless communications equipment vendors and self-service storage companies. Under limited licenses, these parties can act as agents to any insurer authorized to write the related kinds of insurance policies in New York. 9 Temporary licenses. In addition, in certain instances the Superintendent may issue a temporary license, for specified maximum periods of time, to individuals without requiring the applicant to pass a written examination or satisfy certain other specified eligibility requirements. 10 With the exception of certain title insurance licenses, these temporary licenses do not authorize the licensee to write new business; the licensee may only service existing business and perform duties incidental to such business. The Superintendent may issue such a temporary license in the following cases: (1) in the case of the death of a licensed insurance agent (other than life), title insurance agent or insurance broker: (A) to the executor or administrator of the estate of such deceased agent or broker; (o) (m) (n) (a)

3 (B) to a surviving next of kin of such deceased agent or broker, where no administrator or executor exists; (C) to the surviving member or members of a firm or association, which at the time of the death of a member was such an agent or broker; or (D) to an officer or director of a corporation upon the death of the only officer or director who was qualified as a sub-licensee or to the executor or administrator of the estate of such deceased person; (2) to any person designated by a licensed agent or broker who is absent because of service in any branch of the armed forces of the United States; and (3) to the next of kin of a person who has become totally disabled and prevented from pursuing any of the duties of his occupation, and who at the commencement of his disability was a licensed agent (other than life), title insurance agent or broker. 2. Insurance intermediaries requirements 2.1 In order to act as an insurance intermediary, is there need for an authorization and/or to be enrolled in a register? If yes, what are the requirements to be authorized/enrolled in the register as an insurance intermediary (individual or legal entities, integrity and/or professional requirements, etc.)? Briefly explain how it works? Functionally yes. New York does not require that insurance intermediaries be enrolled in a register as such, but does require that all insurance producers be licensed, as discussed elsewhere herein. Generally, in order to be licensed as an insurance agent: an individual applicant must be 18 years old or older; the proposed licensee must submit an application to the Superintendent; with some limited exceptions, an individual applicant must pass an examination for the appropriate lines of business, complete required coursework and pay a fee in connection therewith; the applicant must be trustworthy and competent in the discretion of the Superintendent; and if required by Superintendent, the applicant must submit a sworn statement concerning compliance with certain anti-rebating provisions of New York Insurance Law (generally, such provisions prohibit discounts on policy premiums or other inducements to purchase insurance where such inducement is not available to all purchasers of the particular product). The Superintendent may refuse a license to an applicant that has been receiving rebates in violation of such provisions or if more than 10% of the applicant s annual net commissions resulted from business with affiliates or relatives. 11 In order to be licensed as an insurance broker: the Superintendent must deem the applicant to be trustworthy and competent ; an individual applicant must be 18 years old or older; an individual applicant (other than applicants for a non-resident broker s license) must comply with one of the following: o completion of required coursework; o regular employment by an insurance company, insurance agent or insurance broker for at least one year during the prior three, in responsible insurance duties (such as underwriting or duties relating to the use of life insurance in estate planning);

4 o in the case of a member of the U.S. armed services, regular employment by an insurance company, insurance agent or insurance broker for at least one year during the three years preceding entry into the armed services or immediately following discharge therefrom, in responsible insurance duties ; the proposed licensee must submit an application; if required by Superintendent, the applicant must submit a sworn statement concerning compliance with certain anti-rebating provisions of the New York Insurance Law. The Superintendent may refuse a license to an applicant that has been receiving rebates in violation of such provisions or if more than 10% of the applicant s annual net commissions resulted from business with affiliates or relatives; and the applicant must pass an examination and pay required fees, although the Superintendent may issue a license to certain persons who previously were licensed, are licensed in other states which have reciprocity with New York or have similar circumstances. 12 In order to be licensed as an excess line broker: an applicant must be a licensed insurance broker in New York or in a state with which New York has reciprocity (except in certain cases where reciprocity is not required); the applicant must file an application; and the applicant must pay certain required fees. 13 In order to be licensed as a reinsurance intermediary: the applicant must file an application; and the applicant must pay certain required fees. The Superintendent may refuse to issue a reinsurance intermediary's license if, in his judgment, the applicant is not trustworthy and competent to act as a reinsurance intermediary, or that any controlling person of such applicant is not trustworthy to act as a reinsurance intermediary. Licensed reinsurance intermediaries are subject to examination by the Superintendent as often as he may deem it expedient. 14 In order to be licensed as a title insurance agent: an individual applicant must be 18 years old or older; the applicant must complete an application and pay required fees (certain fees are waived for members of the armed forces); and the applicant must be determined competent by the Superintendent on the basis of a written examination, following required coursework. Admitted lawyers and certain other limited categories of applicants are exempt from the examination requirement for title agents. The Superintendent may refuse to issue a title insurance agent s license if, in the Superintendent's judgment, the proposed licensee or any sub-licensee: (1) is not trustworthy and competent to act as such agent; (2) has given cause for the revocation or suspension of such a license; or (3) has failed to comply with any prerequisite for the issuance of such license. The Superintendent may refuse to issue or renew a title insurance agent s license to any applicant if the Superintendent finds that the applicant has been or will be: (1) receiving any benefit or advantage in violation of the applicable anti-rebating provisions of New York Insurance Law; or

5 (2) acting in a manner inconsistent with: (A) regulations by the Superintendent which are promulgated in accordance with the federal Real Estate Settlement Procedures Act of 1974; or (B) provisions of New York Insurance Law governing the marketing and negotiation of title policies In what form can anyone access and verify the registration/authorization or in general the fact that the insurance intermediary is a professional (e.g. web, etc.)? The New York Department of Financial Services ( NYDFS ) maintains an online database of licensed intermediaries, which one can search to verify the license status of any intermediary. The NYDFS web-portal is available at: Are insurance intermediaries with registered office in another country allowed to operate in your country and how (e.g. right of establishment or freedom to provide services in your country, as in the EU)? If yes under which conditions? In such a case, are they bound by the same obligations of the insurance intermediaries with registered office in your country? Please describe? An insurance producer is not disqualified from having a New York license simply because it has a registered office in another country. An insurance producer that (a) has a registered office in another country, (b) has no physical presence in New York and (c) is licensed as an insurance producer in another state of the U.S. can become a non-resident licensee as set forth below. It is not altogether clear under Article 21 whether a person that (a) has a registered office in another country, (b) has no residence in New York and (c) is not licensed as an insurance producer in another state of the U.S. could be a non-resident licensee. Under a literal reading of the relevant provisions, such a person would not be eligible for such a license. The ability of a non-new York resident to be licensed as one of the five kinds of insurance producer may be summarized as follows: Agent. A non-resident insurance agent is an individual who is a non-resident of New York and who is licensed or authorized to act as an insurance agent in the state (defined as the District of Columbia or any state or territory of the U.S. 16 ) in which he resides, or in which he, his firm or his corporation maintains an office as an insurance agent. 17 Broker. A non-resident insurance broker is an individual who is a non-resident of New York and who is licensed or authorized to act as an insurance broker in the state in which he resides, or in which he, his firm or his corporation maintains an office as an insurance broker. 18 Reinsurance intermediary. A non-resident reinsurance intermediary is a person who is non-resident in New York and is licensed to act as a reinsurance intermediary in the state in which the person maintains its principal place of residence or principal place of business and is licensed to act as an insurance producer. 19 Excess line broker. An excess line broker, by definition, is an out-of-state broker placing coverage for New York risks of New York insureds where such coverage is (w) (d) (e) (f)(1)(B); 2101(l).

6 unobtainable in the regular, admitted markets. 20 Excess line brokers may procure coverage on such risks from insurers not licensed in New York. The excess and surplus lines markets are governed by reciprocal laws among the various states of the U.S. and were the subject of reforms under the federal Nonadmitted and Reinsurance Reform Act of These laws generally assume that excess line brokers will be licensed in at least one of the U.S. states. A person need not, however, be licensed as an excess line broker where such person is licensed in another state and the insured s home state is not New York, even though the covered risks are in New York. 22 Title insurance agent. While there is no specific non-resident category for title insurance agent, it is implicit in NYDFS regulations that a title insurance licensee could be non-resident. 23 New York non-residents seeking licensure as a producer must satisfy the requirements set forth for producer license applicants generally, with some exceptions. Key exceptions include the following: In the discretion of the Superintendent, a non-resident applying for an agent s license may be excused from the written examination. 24 A non-resident applying for a broker s license need not comply with the coursework requirement or the requirement to have been previously employed by an insurer. 25 Fees and renewal procedures for non-resident reinsurance intermediaries differ from those for residents. 26 Non-resident producers may apply via the website of National Insurance Producer Registry (an affiliate of the National Association of Insurance Commissioners, a standard-setting body) for New York non-resident licenses, and once licensed are subject to generally the same obligations as licensed resident producers in New York state The different types of insurance intermediaries 3.1 Please list the different types of insurance intermediaries acting in your country (agents, brokers, banks, financial intermediaries, financial advisors, etc. There are five categories of insurance intermediaries (as such term is used in this survey) under Article 21: brokers; 28 agents; 29 reinsurance intermediaries; 30 excess line brokers; 31 and title insurance agents , P.L. 101, Title V, Subtit. B (a)(1)(B), 2101(k)(10), 2101(c)(9). 23 See, e.g., 11 NYCRR 20.4(c)(3) (g)(5) (c)(2) (f). 27 Art. 21, passim ,

7 3.2 Do insurance intermediaries need to enter into a written contract with the insurers (or receive a mandate from the insurers)? This depends on variables including (i) the type of producer involved, (ii) the type of activities performed, (iii) the identity of the party responsible for paying compensation to the producer and (iv) the type of compensation involved. Principal considerations include the following: An insurer must file a certificate of appointment in order to appoint an agent or title insurance agent to represent such insurer. 33 An agent or broker may not receive any compensation for examining, appraising, reviewing or evaluating a policy or making recommendations or giving advice with regard to such activities unless such compensation is based upon a written memorandum signed by the party to be charged. 34 A broker may not receive any compensation from an insured, other than commissions deductible from premiums, for the sale, solicitation or negotiation of, or other services in connection with, an insurance contract unless such compensation is based upon a written memorandum, signed by the party to be charged. 35 A broker or excess line broker, when the insured s home state is New York, may not charge the insured any amount (including reimbursement for premium taxes or stamping fees), other than the premiums for the policy or the insurer s policy fee, if any, unless the broker obtains a written memorandum, signed by the insured. 36 Any insurer which delivers to any insurance broker or to any insured represented by such broker a contract of insurance at such broker s request is deemed to have authorized such broker to receive premiums on the insurer s behalf, provided such payment is received by such broker within 90 days after the due date thereof. (An agent that represents an insured for the purpose of certain assigned motor risk, property and medical malpractice coverages is deemed to be a broker for these purposes. 37 ) No title insurance agent may receive any compensation for services performed in connection with the issuance of a title insurance policy unless such compensation is: (1) for ancillary services not encompassed in the approved premium rate and (2) based upon a written memorandum signed by the party to be charged. 38 A reinsurance intermediary procuring reinsurance for a licensed ceding insurer or accepting reinsurance for a licensed assuming insurer must have written evidence from such insurer of authority to do so. Such evidence must contain certain required data such as limits of coverage and expiration date of the authority. 39 In addition, reinsurance intermediaries must notify one or both parties to the reinsurance contract if certain specified facts and conditions exist that might affect the reinsurance transaction. (For example, when the intermediary procures a reinsurance contract on behalf of a licensed ceding insurer from a representative (other than an employee) of the assuming insurer, he must obtain written evidence from the assuming insurer of (a) (a)(1) (b)(1) NYCRR (f) NYCRR 32.1(a).

8 such representative s authority. In addition, the intermediary must advise both parties of any affiliation between the intermediary and a party. 40 ) 3.3 Can an insurance intermediary enter into a contract with the insurers (or receive a mandate from the insurer) and then in turn enter into one or more agreements with other insurance intermediaries (the so-called horizontal distribution)? An insurer or its agent may enter into an agreement with a producer, who may then enter into a subsequent agreement with another producers, and so on, provided that all of such parties are duly licensed The insurance intermediaries more in detail: The Agent Does the insurance agent exist in your country? If yes, describe the agent s functions. New York law defines an insurance agent, generally, as any agent of an insurer,... who acts as such in the solicitation of, negotiation for, or sale of, an insurance... or annuity contract. 42 Essentially, insurance agents solicit purchasers for and negotiate the sale of insurance policies on behalf of insurance companies. The term agent does not include a title insurance agent In particular, does he act on behalf of the insurer or the insured? Who pays his remuneration? To what kind of remuneration is he entitled? See item An agent acts on behalf of the insurer. However, New York courts have held that agents owe certain duties to an insured as well, insofar as they deal with consumers and may hold themselves out as independent. See response to item 4.1. Article 21 contemplates that agents will be paid by the insurer from premiums collected on policies placed by them, although this is not strictly speaking required If he acts on behalf of the insurer, describe the type of work relationship with the insurer (subordinate, para-subordinate or freelance, self-employed etc.). Does the principal-agent model exist (i.e.: one is appointed by the insurer to manage a particular branch or subsidiary)? Where an insurance agent is not employed by an insurance company, the legal relationship is one of agent-principal. The terms subordinate, para-subordinate, freelance, etc. are not terms of art in New York Insurance Law. As for the question on appointment of an agent to manage a branch or subsidiary, New York Insurance Law defines a managing general agent as one that: (1) manages all or part of the insurance business of an insurer (including the management of a separate division, department or underwriting office ); (2) acts as an insurance agent or an insurance broker (as such terms are explained herein); and NYCRR 32.1(b) (f) (life, accident and health), 2115 (property-casualty), 2116 (governing insurers or their agents making a payment to a broker) (a). 43 Id.

9 (3) with or without the authority, produces and underwrites on behalf of the insurer an amount of gross direct written premium equal to or more than 5% of the insurer s policyholder surplus, together with one or more of the following activities related to the business produced: adjusting or paying claims in excess of $25,000, or negotiating reinsurance on behalf of the insurer What type of organization does the agent have? Can he have staff working for him (e.g. sub-agents)? It is implicit in Article 21 that an agent may be any business entity (a corporation, association, partnership, limited liability company, limited liability partnership or other legal entity) or a natural person. 45 There are no prohibitions in Article 21 on an agent s hiring of employees or sub-agents, although any employee or sub-agent must be licensed in order to negotiate for or solicit insurance policies, even where performed on the agent s behalf. 46 Each office of an insurance agent must have at least one licensed employee in a supervisory capacity Is the relationship between the insurer and the agent regulated by a collective bargaining agreement? If yes what does it mainly cover? Can the relationship be exclusive to a particular area? Is the remuneration established by the collective bargaining agreement? Can the provisions be waived by the parties mutual agreement? Whether New York insurance agents may collectively bargain with insurers over the terms of their engagement is a function of U.S. federal labor law, not New York Insurance Law. Generally speaking, collective bargaining is restricted to labor unions recognized under federal law. Where insurance agents are independent contractors (that is, owners of their own businesses) rather than employees of the insurer, it generally will not be feasible to organize a union. Regardless of the distinction between independent contractor and employee, however (which is beyond the scope of this survey), insurance agents are organized in numerous trade and professional organizations and also align with one other in specific distribution arrangements (such as so-called independent marketing organizations and digital marketing organizations). However, these are very different from collectivelybargained union contracts in a labor law sense Does the termination of the work relationship between the agent and insurer provide for the agent s obligation to return the portfolio of contracts? In such a case would the agent be entitled to an indemnity? Article 21 is silent on this question. As a practical or commercial matter, typically an agent will be entitled to continue to receive trail commissions on pre-existing business even after the relationship has terminated. However, many agent contracts specify that this will not be the case (and trail commissions are in effect forfeited) where the insurer has properly terminated the agent for cause The Broker Describe the broker s services? In general terms, do the services consist of intermediation or are they similar to consultancy/advisory activities? Is the broker an independent actor? NYCRR 33.2(c) (p), 2101(q),

10 An insurance broker is any person or firm that receives compensation or a commission in return for soliciting, negotiating or selling an insurance contract on the insured s behalf. 48 By definition, a broker s essential activities consist of intermediation. An employee purchasing insurance for his business is not a broker as long as such employee does not receive a commission. Also excluded from the definition are employees of licensed producers, where the employee does not sell insurance for commissions; certain federally regulated foreign freight forwarders; service contract providers; administrators for insurance plans; and advertisers of insurance products who do not solicit such products. As to whether a broker is independent, this is not a term of art for purposes of Article 21. The broker s legal relationship with the insured, as discussed elsewhere herein, is typically recognized as agent-principal Who pays for the remuneration of the broker (please specify case by case for the different services, if any)? Is the broker allowed to retrocede a portion of his remuneration to the insurer or to the insured? Brokers are generally paid from the insurance premiums that the insured pay when buying and making payments on insurance contracts or policies. 49 With certain exceptions: A property-casualty broker may not (a) give an insured a rebate or other valuable consideration, other than consideration not exceeding $25, as an inducement to purchase insurance or after issuance of the insurance, or (b) give, sell or purchase any securities as an inducement to purchase insurance or in connection therewith. 50 A life insurance broker may not pay, allow or give, as an inducement to any person to purchase insurance, any securities or other valuable consideration or inducement other than consideration not exceeding $ Banks, financial intermediaries, financial advisors and others allowed to act as insurance intermediaries Can banks, financial intermediaries and/or financial advisors act as insurance intermediaries? Banks are not prohibited by Article 21 from acting as insurance intermediaries, and Section 2123 (relating to misrepresentations by agents) implies that banks may do so. However, the ability of any bank to engage in such activity would be governed by federal or state banking laws. Neither financial intermediary nor financial advisor is a term of art under New York or federal laws regulating financial services. Article 21 does not prohibit any class of financial professional or financial services firm from being licensed as an insurance producer in New York, provided that such person satisfies all relevant requirements under Article 21. However, the ability of such a professional or firm to engage in such activities would be subject to the legal regimes regulating those particular types of entities (e.g., investment advisers, securities broker-dealers, swap dealers, etc.) (c) (a) (a) (c).

11 Please define a financial intermediary. Are there particular requisites for the profession of financial intermediary? Does the financial intermediary have to be enrolled in another register (e.g. register of financial intermediaries)? See response to item above Please define a financial advisor. Are there particular requisites for the profession of financial advisor? Does the financial advisor have to be enrolled in another register (e.g. register of financial advisors)? See response to item above Can financial intermediaries and/or financial advisors distribute any insurance and/or financial product? If yes at what conditions or with which limitations? See response to item above With reference to insurance intermediaries other than agents, brokers, banks, financial intermediaries, financial advisors, as indicated under question 2.1 above (if any), please describe what kind of products they can describe and at what conditions. As discussed in item 3.1 above, there are five categories of insurance intermediaries in New York. Beside agents (discussed in the response to item ) and brokers (discussed in the response to item ), these include the following three, listed along with a brief description of their essential activities: reinsurance intermediaries, who solicit, negotiate or sell any reinsurance contract or binder, or act as agent in accepting any reinsurance contract or binder on behalf of an insurer. Lawyers, employees of an insurer, agents and brokers, in each case acting as such, are not reinsurance intermediaries; 52 excess line brokers, explained in the response to item 2.3; and title insurance agents. These are agents of a title insurance corporation which, for compensation, o sell or negotiate a title insurance policy, o evaluate the insurability of title and o perform one or more of the following: collecting title insurance premium, preparing, amending, marking up or delivering a title insurance commitment, preparing, amending or delivering a title insurance policy or negotiating the clearance of title exceptions Rules of conduct and responsibilities 4.1 Are there rules of conduct which should be complied with by the insurance intermediaries (e.g. obligation of utmost care, correctness, utmost good faith, information, adequacy, transparency, regarding conflict of interests, filing of the documentation, separate accounting, other accounting obligations)? Please describe the above duties, specifying if they apply to all the different insurance intermediaries (agents, brokers, banks, financial intermediaries, financial advisors, etc.) and whether the content differs - with particular reference to responsibility - according to the type of actor/activity and person (insurer or insured) receiving the activity (f) (y).

12 Insurance producers are subject to extensive rules of conduct imposed by New York Insurance Law and enforced by the NYDFS. These are generally designed to protect consumers and do not vary significantly in this regard from one type of producer to another (although certain technical aspects of these rules such as reporting, procedural and recordkeeping requirements may differ by type of professional). In very broad terms, insurance producers are subject to the following legal standards of conduct with respect to dealing with the insurance-buying public: An insurance producer s license can be revoked or suspended if the Superintendent determines that the producer has used fraudulent, coercive or dishonest practices or has demonstrated incompetence, untrustworthiness, or financial irresponsibility. 54 See response to item 5.1. An insurance agent, title insurance agent, broker or reinsurance intermediary is responsible in a fiduciary capacity for funds received by it. 55 Insurance producers are expressly prohibited from misrepresenting the terms of a policy or contract or making misleading statements or incomplete comparisons about a life insurance policy or contract. 56 Under common law, insurance producers are obligated to obtain requested coverage for their insured within a reasonable period of time, or inform the insured of the inability to do so. 57 However, producers generally do not have duties beyond such obligation absent a specific agreement between the producer and the consumer (such as a duty to continue to advise the insured on additional coverage needs). 58 For purposes of consumer protection and market conduct, New York courts have generally treated agents, particularly those who hold themselves out as independent (even though agents represent insurers), on the one hand, and brokers (who act on behalf of insureds), on the other hand, as equivalent insofar as both deal with the public to solicit sales of insurance Does the insurance intermediary represent the insurer? (by way of example, is the agent also the insurer s representative vis-à-vis the customer, and if yes, does this also apply during trial before Courts?) Is there a matter of imputation of knowledge? (e.g. what happens when a broker has information on matters relevant to the insurer's decision to insure which the broker fails to disclose to the insurer? Is the insured deemed to have breached its duty of disclosure in such circumstances?) In which cases? Can the insurance intermediary be accountable for the contracts he executed on behalf of the insurer? As discussed in the responses to item and , agents and title insurance agents represent the insurer. As discussed in the responses to item , brokers represent the insured. An excess line broker is understood generally to represent the insured as well. See response to item 2.3. A reinsurance intermediary represents the ceding company but may be required to perform certain actions for the benefit of either party in the reinsurance relationship. See responses to items 3.2 and (a)(4) (a). 57 Voss v. The Netherlands Ins. Co., 22 N.Y.3d 728 (N.Y. Ct. of Appls., 2014), 734; Murphy v. Kuhn, 90 N.Y.2d 266 (App. Div. 1997), Id. 59 See, e.g., The People of the State of New York v. Liberty Mutual Holding Company, 839 N.Y.S. 2d 435, 2007 N.Y. Slip. Op (U) (N.Y. Sup. Ct., N.Y. County; 2007), Slip. Op. at 17.

13 Notwithstanding these distinctions, New York courts tend to treat agents as equivalent to brokers for consumer protection purposes, regardless of whether the producer is deemed to be acting on behalf of insurer or insured as a statutory matter. See response to item 4.1. As far as imputation of knowledge is concerned, as we understand the question above, there is no heightened or extra-contractual duty of disclosure owed by an insured to an insurer (unlike in the area of reinsurance, where the concept of utmost good faith applies). Specifically, an insurer may not void or disclaim coverage under a policy unless the insurer can show that the insured or someone on his behalf made a material misrepresentation at or before the making of the policy as an inducement to the insurer to issue coverage. 60 In order to be material, a misrepresentation must be such that if the insurer had known the correct facts, the insurer would have refused to issue the policy. 61 By the same token, an insured must answer questions on the insurer s application form in good faith and honestly, 62 and an insurer need not undertake additional inquiry if there is no evidence at the time of application that any representations by the insured are incorrect. 63 Where the insured s agent (typically, an insurance broker) completes an application on the insured s behalf, the insured has a duty, as against the insurer, to review the application and correct an incomplete or incorrect answer 64 and is bound... by knowledge acquired by the broker. 65 This is the case even where an inaccuracy is unintentional. Accordingly, an insurer will be permitted to disclaim coverage where an application was inaccurate and the source of the inaccuracy was the broker. Whether the insured in such cases has a remedy against the broker for negligence or breach of fiduciary duty may hinge on whether the broker had unique or specialized expertise or held a special position of confidence and trust. 66 Some courts have held as a matter of law that such a special relationship cannot exist in an ordinary placement of requested insurance. 67 Other courts have held that the question of whether a special relationship existed and by extension whether the broker may be held to a higher standard is essentially a question of fact that will survive a summary judgment motion. 68 One court has suggested that a broker may be liable even where the insured did not read the policy upon receipt yet accepted the coverage, which subsequently proved insufficient. 69 As for whether the insurance intermediary will be accountable for the contracts he executed on behalf of the insurer, the answer will depend in part on whether the intermediary was acting or appearing to act within the scope of his authority. Generally, where the intermediary has exercised his actual or implied authority, or where the insurer has made communications to a third party suggesting that authority Id. 62 Falcon Crest Diamonds v. Dixon, 655 N.Y.S.2d 232 (N.Y. Sup. Ct., N.Y. County; 1996) at Id. at Bleecker Street Health & Beauty Aids v. Granite State Insurance Company, 819 N.Y.S.2d 846, 2006 N.Y. Slip. Op (U) (N.Y. Sup. Ct., N.Y. County; 2006), Slip. Op. at Id. at Murphy at Id. at See, e.g., Voss; American Building Supply Corp. v. Petrocelli, 19 N.Y. 3d 730 (N.Y. Ct. of Appls., 2012). 69 American Building Supply Corp. at

14 ( apparent authority ), the agent will be immunized from liability. 70 Where no such actual, implied or apparent authority exists, the insurer will not be responsible for the act of the intermediary Is the insurer jointly liable for damages caused by the insurance intermediary, appointed by the same, when executing intermediary activities? Who is liable vis-à-vis the insured person? Is it always the intermediary or the insurer? Under the common-law doctrine of respondeat superior 72, an insurance company will be liable to a third person, including the insured, for the wrongful or negligent acts of its agent when made within the general or apparent scope of the agent s authority Are there particular regulations or specific forms of compensation for damages caused to the insured person? There are no special provisions under New York Insurance Law for damages caused to insured persons as a result of an intermediary s actions, but depending on facts and circumstances, the insured might have remedies at common law against the producer. 74 See response to item Supervision and sanctions 5.1 In any case, regardless of the requirement of an authorization and/or enrollment, are insurance intermediaries subject to the control of supervisory bodies? Does the supervisory body have powers/duties of prudential supervision on the insurance intermediary s activities, and if yes, in what way does it act? As discussed elsewhere herein, insurance producers in New York are subject to the applicable provisions of New York Insurance Law and the regulatory oversight of the Superintendent. The Superintendent has the authority to issue regulations 75, rules and other guidance 76 governing insurance producers, and may enforce New York Insurance Law against producers by revoking or suspending a license 77 or assessing fines and other civil penalties Are there fines for violations of the insurance intermediaries obligations? If yes, please describe. Article 21 sets forth a number of specific penalties for identified violations, including the principal ones listed below. These are available to the Superintendent even if the producer s license has been surrendered or has expired or lapsed by operation of law. 79 In lieu of revoking or suspending a license, however, the Superintendent may require the licensee to pay a civil penalty not exceeding $500 for each offense, and a 70 See Nojaim Bros. v. CNA Insurance Companies, 113 A.D. 2d 109 (N.Y. Sup. Ct. App. Div., 4th Dept.; 1985), Riverdale Osborne Towers Housing Associates v. Commonwealth Land Titles Ins. Co., 2011 N.Y. Misc. LEXIS 6901; 2011 N.Y. Slip. Op (U) (N.Y. Sup. Ct., N.Y. County; 2011), Slip. Op. at Literally, let the master be responsible. 73 Jonas v. National Life Insurance Co., 2015 N.Y. Misc. LEXIS 1434; 2015 N.Y. Slip. Op (U) (N.Y. Sup. Ct., N.Y. County; 2015), Slip. Op , citing Bedessee Imports, Inc. v. Cook, Hall & Hyde, Inc., 45 A.D.3d 792, 795, 847 N.Y.S.2d 151 (2d Dept., 2007). 74 American Building Supply Corp. at N.Y. Financial Services Law 302(a) See, e.g., 2102(a)(2), 2102(g), 2117(g), 2123(d) (h)

15 penalty not exceeding $2,500 in the aggregate for all offenses (an Alternative Fine ). 80 Any person that acts as a reinsurance intermediary without a license is subject to a penalty not to exceed $5,000 for each transaction. 81 Any person that acts as an insurance producer without a license is subject to a penalty not to exceed $500 for each transaction, except as described in the immediately preceding sentence. 82 Any person aiding an unauthorized insurer in producing policies in New York is subject to a penalty of $500 for each transaction. 83 Any person misrepresenting or making a misleading statement concerning an insurance policy is subject to a civil penalty in the amount received by the violator as compensation. 84 Any person that, with knowledge, possesses, transfers or uses a forged insurance identification card for a motor vehicle is subject to a civil penalty not exceeding $1,000 for the first such violation and a sum not exceeding $5,000 for each subsequent violation Do sanctions also apply to foreign intermediaries who operate in your country? See response to item 2.3. Licensed insurance intermediaries are treated similarly for such purposes, whether they are residents or non-residents. 5.4 Is there a consultation procedure with the insurance intermediary before the fine is applied? Generally, any proceeding by the Superintendent to impose a penalty is subject to New York state laws on due process in administrative procedures Could the application of more fines, or the breach of particular regulations result in the revocation of the authorization, or in the intermediary being struck off the register (if any), and/or in general in the prohibition to act as an insurance intermediary? If yes, which are the most relevant circumstances? Grounds for revocation of a license include violation of insurance laws or regulations, using fraudulent means to obtain a license, conviction of a felony and ceasing to meet the requirements for licensure. 87 In addition, where the Superintendent has imposed an Alternative Fine and the licensee has failed to pay such fine within 20 days, the Superintendent may revoke or suspend the license. 88 If the Superintendent intends to revoke or suspend a producer s license, the Superintendent must give notice to the producer and hold a hearing within 10 days of that notice (a) (a)(2) (g) (g) N.Y. Financial Services Law (a) (b) (d).

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