The Office of General Counsel issued the following informal opinion on January 12, 2001, representing the position of the New York State Insurance Department.
RE: Agents Right to Request Nonpayment Cancellation
1) On agency billed premiums, may an agent or broker request nonpayment cancellation from the insurer if the agency has remitted the premium, but the insured has not paid the agency?
2) If the answer to question 1 is no, may an agent or broker request nonpayment cancellation from the insurer if the agency collected a premium payment check from the insured, remitted a producers check to the insurer, and the insureds check to the producer was subsequently dishonored by the bank for insufficient funds or a stop payment?
1) No. A voluntary advancement of the premium by an agent or broker, without charge to, or authorization by, the insured does not give the producer authority to cancel the policy if the insured fails to pay.
2) No. The insurer received a valid payment of the premium by way of the agents check. Therefore, the insurer may not cancel the policy. The producer, in accepting and depositing the insureds check, accepted the risk that the check might be dishonored by the bank for insufficient funds or a stop payment. The producer may not request cancellation of the policy and his recourse is solely against the insured for issuing a bad check.
A producer is not obligated to advance any premium payment on behalf of an insured. When a producer advances a premium payment on behalf of an insured, the producer is in the position of having made a loan to the insured. The insurer has received payment for the policy and, therefore, may not cancel for nonpayment. Only the insured or a party authorized by the insured may request that the policy be cancelled. It is assumed here that the insured did not sign a document authorizing the producer to cancel for nonpayment since there was no indication that this was done. Therefore, the agent or broker has not acted in such capacity and, thus, the insurer may not honor the producers request for cancellation.
For further information you may contact Associate Counsel Sidney B. Glaser.