The Office of General Counsel issued the following informal opinion on October 4, 2002, representing the position of the New York State Insurance Department.
Re: N.Y. Insurance Law § 2120 and Regulation 29
May a broker licensed under N.Y. Ins. Law § 2104 maintain its fiduciary (i.e., premium) account at a federally chartered bank that does not maintain a branch in New York State?
No, a fiduciary account may be maintained at a federally chartered bank, but only at a branch located in New York State.
The inquirer represents a New York State licensed insurance broker who maintains an office in New York State. The broker proposes to open a premium account at a branch of a federally chartered bank that has its principal office in Chicago and that does not have a branch in New York. The inquirer is asking whether this is permissible.
Insurance agents and insurance brokers are responsible in a fiduciary capacity for all funds received or collected as an agent or broker. Premium accounts of insurance agents and insurance brokers are regulated pursuant to N.Y. Ins. Law § 2120 (McKinney 2000) and N.Y. Comp. Codes R. & Regs. tit. 11,
§ 20.3(b) (1996) (Regulation 29). N.Y. Ins. Law § 2120(a) (McKinney 2000) provides:
Every insurance agent and every insurance broker acting as such in this state shall be responsible in a fiduciary capacity for all funds received or collected as insurance agent or insurance broker, and shall not, without the express consent of his or its principal, mingle any such funds with his or its own funds or with funds held by him or it in any other capacity.
Regulation 29 provides, in pertinent part:
Every insurance agent and insurance broker is responsible as a fiduciary for funds received by such agent or broker in such capacity; all such funds shall be held in accordance with the following paragraphs:
(1) An agent or broker who does not make immediate remittance to insurers and assureds of such funds shall deposit them in one or more appropriately identified accounts in a bank or banks duly authorized to do business in this State, from which no withdrawals shall be made except as hereinafter specified . . .
N.Y. Comp. Codes R. & Regs. tit. 11, § 20.3(b)(1) (1996).
The inquirer suggests that a federally chartered bank headquartered in Chicago but without a New York State branch would be a permissible depository in that such a bank would technically be "duly authorized to do business in this State" as stated in the Regulation.
Although a federally chartered bank may be authorized to operate in all 50 states, if such a bank did not maintain a branch in New York State it would not be a permissible depository. For purposes of Regulation 29, the Department has continually required that the fiduciary accounts of agents and brokers be maintained at bank branches maintained within New York State. See Office of General Counsel Opinion, New York State Insurance Department Monthly Bulletin (November, 1970); and Office of General Counsel Opinion No. 00-10-06 (October 23, 2000) (available on the Departments website).
For further information you may contact Supervising Attorney Michael Campanelli at the New York City Office.