The office of General Counsel issued the following informal opinion on November 7, 2001, representing the position of the New York State Insurance Department.
Re: Retention requirements of an excess line broker pursuant to N.Y. Ins. Law § 2119(c) (McKinney 2000)
Must a "TOTAL COST FORM" (hereinafter "the form"), that is used by a licensed excess line broker (hereinafter "the excess line broker") as the memorandum signed by an insured to evidence payment of the service fee by an insured pursuant to N.Y. Ins. Law § 2119(c) (McKinney 2000), be retained by the excess line broker with an insured's original ink signature or may the form be retained by the excess line broker as a faxed copy with an insured's signature?
The form may be retained by the excess line broker as a faxed copy with an insured's signature.
The Inquirer requested a response to the question presented and provided a copy of a form which, pursuant to custom and usage, is used by the excess lines industry. The form describes the term "fee" in the sentence immediately below its title and that sentence is quoted in pertinent part below:
In consideration of your placing any insurance as described in the policy number below, I agree to pay the total cost below which includes all premiums, tax . . . stamping fee, inspection charges, other expenses and/or fee . . . for additional compensation, in addition to commissions received.
The Inquirers October 12, 2001 fax specified that N.Y. Ins. Law § 2119(a) (McKinney 2000) is the relevant law. However, N.Y. Ins. Law § 2119(a) (McKinney 2000) addresses consulting fees for various types of licensees. N.Y. Ins. Law § 2119(c) (McKinney 2000) is the law that governs service fees for insurance brokers, including excess line brokers. N.Y. Ins. Law § 2119(c)(1) & (2) (McKinney 2000) applies to excess line brokers because they must be licensed as insurance brokers pursuant to N.Y. Ins. Law § 2104 (McKinney Interim Update Pamphlet A June, 2001). See N.Y. Ins. Law § 2105 (McKinney Interim Update Pamphlet A June, 2001).
N.Y. Ins. Law § 2119(c)(1) & (2) 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.
N.Y. Comp. Codes R. & Regs. tit. 11 § 27.12 (1999) (Regulation 41) ("Service fees") states:
No producing broker or excess line broker shall charge the insured any amount (including reimbursement for premium taxes or stamping fees), other than the premiums for the policy or insurer's policy fee, if any, unless the broker obtains a written memorandum, signed by the insured, specifying the amount and purpose in accordance with section 2119 of the Insurance Law.
N.Y. Ins. Law § 2119(c)(2) (McKinney 2000) provides that a "copy" of the memorandum signed by the party to be charged shall be retained by the insurance broker for not less than three years after the services for the insured are fully performed. The term "copy" is not defined by N.Y. Ins. Law § 2119(c)(2) (McKinney 2000); however, the statute does not require retention of the original signed memorandum. A permissible medium of record retention by an insurer is a faxed copy. See N.Y. Comp. Codes R. & Regs. tit. 11 §§ 243.3(a)(1) and 243.1(c) (1996) (Regulation 152). While Regulation 152 does not apply to an excess line broker, the Regulation does provide a basis for concluding that it is reasonable for the excess line broker to retain a faxed copy of the form with an insured's signature.
For further information you may contact Senior Attorney Robert Freedman at the New York City Office.