Contingent Commissions – Legal After All?October 4, 2007
When New York Attorney General Eliot Spitzer (now Governor Spitzer) went after the major insurance brokerage firms for bid rigging a few years ago, he also attacked contingent commissions as part of the scheme to direct business, characterizing these payments as equivalent to kickbacks. In the subsequent settlements with the major brokers, the brokers agreed to forego contingent commissions in the future, casting a pall over the practice by the entire brokerage community, not just the majors.
Now a recent Appellate Division case, Hersch v. DeWitt Stern Group, Inc. (2007 NY Slip Op 06567, App. Div. 1st Dept.,
The Court based its finding that contingent commissions are not illegal on a 1985 Court of Appeals decision, Amusement Bus. Underwriters v. American Intl. Group (66 NY2d 878). The Court of Appeals in Amusement Bus. Underwriters, however, did not specifically hold that contingent commissions were legal. It was interpreting the terms of a contingent commission agreement, and the issue of the legality of the agreement does not appear to have been before the Court.
Given the significance of the issues it roils, the Hersch decision is remarkably short (three paragraphs). We will have to wait and see if the decision is appealed, but until the Court of Appeals rules otherwise, it appears that contingent commissions can once again be discussed openly in polite circles – at least in
What do you think?