The Office of General Counsel issued the following informal opinion on August 8, 2000, representing the position of the New York State Insurance Department.
Re: No Nonstandard Application Fees for Agent
Does an insurance agent violate the Insurance Law when he/she charges an application fee to prospective nonstandard policyholders?
Yes, an insurance agent violates the Insurance Law when he/she charges an application fee to prospective nonstandard policyholders.
An insurance agent inquired whether an announcement from his insurer was correct in stating that it was acceptable to charge an application fee to prospective nonstandard policyholders.
The Insurance Law does not allow for an insurance agent to charge additional fees to policyholders or prospects. However, in certain circumstances, an insurance broker may do so.
N.Y. Ins. Law § 2119(c)(1) (McKinney1985) states:
No insurance broker may receive any compensation, other than commissions deductible from premiums on insurance policies or contracts, from any insured or prospective insured for or on account of the negotiation or procurement of, or other services in connection with, any contract of insurance made or negotiated in this state or for any other services on account of such insurance policies or contracts, including adjustment of claims arising therefrom, unless such compensation is based upon a written memorandum, signed by the party to be charged, and specifying or clearly defining the amount or extent of such compensation. (emphasis added).
Thus, only an insurance broker, not an insurance agent, may collect compensation other than commissions from an insured, on account of, "other services in connection with . . . any contract of insurance . . . ."
As a general rule, agents act only for the insurer as principal and their compensation must come from that source alone.
Insurance Law §2314 prohibits licensed insurers, their employees or representatives, and brokers from charging a rate or premium which departs from filed (or manual) rates in effect. To permit an insurer or its agent, who stands in the insurers shoes, to collect an additional amount of money however denominated, (e.g., fee, service fee, origination fee) would defeat the purpose of having rate filing and rate approvals in place for insurers. . . The only exception exists in favor of the broker who acts for the insured, not the insurer, and who charges a service fee in accordance with the requirements of Section 2119(c) of the Insurance Law. Opinion and Decision of the Superintendent of Insurance, Matter of DEF Brokerage Facility, Inc., et al., May 4, 1989; affd, Montuori v. Corcoran, 160 A.D.2d 621, 557 N.Y.S.2d 313, (1st Dept), appeal dismissed, 76 N.Y.2d 845, 559 N.E.2d 1288, 560 N.Y.S.2d 129 (1990).
An insurance agent may receive additional compensation as authorized under N.Y. Ins. Law § 2119(a) (McKinney 1985), but only for certain consulting services, provided that the "compensation is based upon a written memorandum signed by the party to be charged and specifying or clearly defining the amount or extent of such compensation." The statute refers to these services as "examining, appraising, reviewing or evaluating any insurance policy, bond, annuity or pension or profit-sharing contract, plan or program or for making recommendations or giving advice with regard to any of the above. . . ." The statute does not permit fees for negotiating, procuring, servicing or renewing policies, notwithstanding a written agreement.
Therefore, an agent is not permitted to charge a nonstandard application fee, and by charging such a fee, the agent and Company A are in violation of the Insurance Law.
For further information, you may contact Attorney Meredith S. Katz at the New York City Office.