The Office of General Counsel issued the following informal opinion on February 9, 2001, representing the position of the New York State Insurance Department.
Re: Corporate Insurance Broker Service Fees
May an insurance broker charge an "agency fee" to its clients [prospective insureds] for submitting an application to an insurance company?
Yes, if the broker is in compliance with N.Y. Ins. Law § 2119(c) & (d) (McKinney 2000 & Supp. 2001), the broker may charge a "service fee" to its clients [prospective insureds] for submitting an application to an insurance company.
Some insurance brokers in New York State classify an "agency fee" as a "policy fee" on their invoices, usually in the amount of between $50-$100. This inquiry discusses the rules regarding the charging of such fees.
N.Y. Ins. Law § 2119(c) & (d) (McKinney 2000 & Supp. 2001) permits an insurance broker to charge a "service fee" to a prospective insured on account of the procurement of an insurance contract made or negotiated in this State, so long as such compensation is based upon a written memorandum, signed by the party to be charged, specifying or clearly defining the amount or extent of such compensation.
N.Y. Ins. Law § 2119(c) & (d) (McKinney 2000 & Supp. 2001), states:
(c)(1). 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.
(2) A copy of every such memorandum shall be retained by the broker for not less than three years after such services have been fully performed.
(3) This subsection shall not affect the right of any such broker to recover from the insured the amount of any premium or premiums for insurance effectuated by or through such broker.
(4) This subsection shall not affect the requirements of subsection (a) or (b) hereof, subsection (g) of section two thousand one hundred one or section two thousand one hundred eight of this article.
(d) No insurance broker shall, in connection with the negotiation,
procurement, issuance, delivery or transfer in this state of any contract of insurance made or negotiated in this state, directly or indirectly charge, or receive from, the insured or prospective insured therein any greater sum than the rate of premium fixed therefor by the insurer obligated as such therein, unless such broker has a right to compensation for services created in the manner specified in subsection (c) hereof.
For further information, you may contact Senior Attorney Robert Freedman at the New York City Office.