New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

The Office of General Counsel issued the following informal opinion on October 15, 2002, representing the position of the New York State Insurance Department.

Re: Bail bonds

Questions Presented:

(1) If a licensed bail bond agent charged or received a $5,000 premium and $2,075 in fees for giving a bail bond of $100,000, has the bail bond agent violated N.Y. Ins. Law § 6804 (McKinney 2000)?

(2) If a licensed bail bond agent threatened to withdraw a bail bond without cause based upon the time that the criminal defendant has been covered by the bail bond, unless the bail bond agent is paid an additional $6,000 compensation, has the bail bond agent violated N.Y. Ins. Law § 6804 (McKinney 2000)?

(3) Does the Insurance Law provide a basis for disciplining a licensed bail bond agent who is alleged to have charged or received exorbitant fees?

(4) Would the licensed bail bond agent's overcharge for the initial posting of the bail bond and the subsequent demand for an additional $6,000 compensation subject the bail bond insurer to potential discipline by the Insurance Department?

Conclusions:

(1) Yes. The aggregate amount of premium and fees charged or received by the bail bond agent exceeds the statute's permissible amount of $6,260 compensation for giving a bail bond of $100,000.

(2) Yes. Although N.Y. Ins. Law § 6804 (McKinney 2000) does not expressly prohibit a bail bond agent from charging or receiving compensation for giving a bail bond based upon the amount of time that the criminal defendant is covered by the bail bond, OGC has opined that N.Y. Ins. Law § 6804 (McKinney 2000) allows a bail bond agent to charge or receive compensation of only a single amount. Please note, however, that N.Y. Crim. Proc. Law § 520.20(3) (McKinney 1995) permits a bail bond to be limited in duration if: (1) the terms of the bail bond expressly limit its effectiveness to a lesser period than imposition of sentence or other termination of criminal court proceeding and (2) the obligor submits notice of the limitation to the court and the District Attorney not less than fourteen days before the effectiveness ends. The term obligor is defined by N.Y. Crim. Proc. Law § 500.10(11) (McKinney 1995) as "a person who executes a bail bond on behalf of a [criminal defendant in this context] and thereby assumes the undertaking described therein. . . ." In this context, the obligor is the bail bond insurer.

(3) Yes. The Department may initiate a disciplinary proceeding alleging the bail bond agent's untrustworthiness pursuant to N.Y. Ins. Law § 6802(k)(1) & (6) (McKinney 2000) if a fee charged or received by the bail bond agent is exorbitant because a fee exceeds the actual and reasonable cost to the bail bond agent of providing service to the criminal defendant.

(4) It would depend on whether the bail bond insurer had actual knowledge that the bail bond agent acted beyond the authority given by the insurer. If so, the Department could initiate a disciplinary proceeding alleging a determined violation by the insurer pursuant to N.Y. Ins. Law Article 24 (McKinney 2000) and request a penalty not exceeding $500 for each offense pursuant to N.Y. Ins. Law § 109(c)(1) (McKinney 2000).

Facts:

The inquirer’s client, the criminal defendant, is out on bail. A premium of $5,000 was paid and a fee of $2,000 was paid to place a lien on a condominium as collateral for the bail bond, and a fee of $75 was paid for a title search. It is not clear if the bail bond expressly limits its duration to a lesser period than imposition of sentence or other termination of criminal court proceeding. Approximately four years later, with the case still pending, the bail bond agent contacted the criminal defendant and demanded an additional $6,000 compensation. It is not clear if the additional compensation would be a premium or a fee. The criminal defendant's wife, who is the indemnitor, informed the inquirer of the bail bond agent's demand. The inquirer told the indemnitor not to pay the additional compensation. The bail bond agent informed the inquirer that the indemnitor had signed an agreement to authorize the bail bond agent to charge the additional compensation. The indemnitor could not find a copy of the agreement. The inquirer asked the bail bond agent for a copy of that agreement; however, the bail bond agent has not provided a copy of that agreement to the inquirer. It is not clear whether there is such an agreement and, if so, when it was entered into.

The inquirer has contacted the Nassau County District Attorney (hereinafter "DA") and to seek an investigation into the inquirer’s allegation of a criminal law violation by the bail bond agent. The inquirer cited N.Y. Penal Law Article 155 (McKinney 1999 & Supp. 2002) because it is applicable to larceny. However, the Insurance Department's authority relative to bail bond agents is limited to N.Y. Ins. Law § 109 (McKinney 2000), N.Y. Ins. Law Article 68 (McKinney 2000) and N.Y. Comp. Codes R. & Regs. tit. 11 §§ 28.0-28.2 (2002) (Regulation 42).

If the inquirer provides me with the identity of the bail bond agent and the bail bond insurer, this Bureau will refer this opinion and that information to the Department's Consumer Services Bureau (hereinafter "CSB") which will assign an Examiner to investigate the potential violations of the Insurance Law. CSB has also requested that the inquirer keep CSB informed concerning developments with the DA.

Analysis:

1. N.Y. Ins. Law § 6804(a) & (b)(1) (McKinney 2000) states in pertinent part:

(a) The premium or compensation for giving bail bond or depositing money or property as bail shall not exceed ten per centum of the amount of such bond or deposit in cases where such bonds or deposits do not exceed the sum of three thousand dollars. Where such bonds or deposits exceed the sum of three thousand dollars, the premium shall not exceed ten per centum of the first three thousand dollars and eight per centum of the excess amount over three thousand dollars up to ten thousand dollars and six per centum of the excess amount over ten thousand dollars . . .

(b) No person or corporation shall:

(1) charge or receive, directly or indirectly, any greater compensation for making a deposit for bail or giving bail . . . . (Emphasis added)

In McKinnon v. International Insurance Company et al, 182 Misc.2d 517, 704 N.Y.S.2d 774 (Sup. Ct. N.Y. Co. 1999), the court construed N.Y. Ins. Law § 6804(a) & (b)(1) (McKinney 2000) to "clearly provide that the 'premium or compensation' may not 'directly or indirectly' be greater than the maximum premium permitted by the statute." Id. at 777. (Emphasis added). The use of the disjunctive by the court (i.e., premium or compensation) in combination with the term compensation used in N.Y. Ins. Law § 6804(b)(1) (McKinney 2000), provides support for the conclusion that a bail bond agent is not prohibited from charging or receiving a fee for providing a service to a criminal defendant out on bail so long as the aggregate of premium and fee charged or received by the bail bond agent does not exceed the permissible "compensation" for giving a specific bail bond pursuant to N.Y. Ins. Law § 6804(a) & (b)(1) (McKinney 2000).

A September 25, 2001 OGC opinion construed N.Y. Ins. Law § 6804(a) & (b)(1) (McKinney 2000) and stated in part: "[T]o the extent that such costs when combined with the premium for the bail bond exceeds the statutorily allowed premium, [a fee] may not be passed along to the criminal defendant." (Emphasis added). Thus, this opinion supports a conclusion that a bail bond agent is not prohibited from charging or receiving a fee for providing service to a criminal defendant out on bail so long as the aggregate of premium and fee charged or received by the bail bond agent does not exceed the permissible "compensation" for giving a specific bail bond pursuant to N.Y. Ins. Law § 6804(a) & (b)(1) (McKinney 2000).

The bail bond agent provided the criminal defendant with a bail bond of $100,000. 10% of the first $3,000 is $300. 8% of the excess amount over $3,000 (up to $10,000) is $560. 6% of the excess amount over $10,000 (up to $100,000) is $5,400. Thus, the bail bond agent's permissible compensation for giving the $100,000 bail bond pursuant to N.Y. Ins. Law § 6804(a) & (b)(1) (McKinney 2000) is $6,260. The initial amount of compensation that the bail bond agent charged or received was $7,075. N.Y. Ins. Law § 6802(k)(1) & (4) (McKinney 2000) states:

(k) The superintendent may, upon notice and after a hearing, revoke or suspend, for such period as he may determine, any such license or sublicense issued pursuant to the provisions of this section if, after notice and hearing as specified in this chapter, he determines that the licensee or any sublicensee or any member of a firm or corporation which is so licensed has:

(1) violated any provision of, or any obligation imposed by, the insurance law, or has violated any other law of the state . . .

(4) has charged or received, as premium or compensation for the making of any deposit or bail bond, any sum in excess of that permitted by law . . . .

Under N.Y. Ins. Law § 6802(l) (McKinney 2000) in lieu of revoking or suspending a bail bond agent's license pursuant to N.Y. Ins. Law § 6802(k) (McKinney 2000), the Superintendent may in any one proceeding, by order, require a bail bond agent to pay a penalty not exceeding $500 for each offense, and a penalty not exceeding $2500 in the aggregate for all offenses.

N.Y. Ins. Law § 109(b) (McKinney 2000) provides the potential of a monetary penalty in addition to the monetary penalty under N.Y. Ins. Law § 6802(l) (McKinney 2000). Although OGC has not opined on whether a bail bond agent is a "representative" of an authorized insurer, a bail bond agent acts for a bail bond insurer. Thus, pursuant to N.Y. Ins. Law § 109(c)(1) (McKinney 2000), the Superintendent may order such representative to pay a penalty not exceeding $500 for each offense in addition to any fine due to the application of N.Y. Ins. Law § 6802(l) (McKinney 2000).

 

2. N.Y. Ins. Law § 6804 (McKinney 2000) does not expressly prohibit a bail bond agent from charging or receiving compensation for giving a bail bond based upon the amount of time that the criminal defendant is covered by the bail bond. However, an August 24, 1998 OGC opinion concluded that the statute "contemplates a single amount, which is based upon the face amount of the bond and is independent of the length of time that the bond covers the individual." The purpose of the statute is to protect the indemnitor (who pays for the bail bond) and the criminal defendant. Therefore, a bail bond agent's subsequent demand for additional compensation for such outstanding bond based upon the amount of time that the bail bond has covered the criminal defendant could be viewed as duress of the indemnitor and criminal defendant because of a foreseeable compulsion by threat to the criminal defendant's liberty.

 

However, N.Y. Crim. Proc. Law § 520.20(3) (McKinney 1995) permits a bail bond to be limited in duration if: (1) the terms of the bail bond expressly limit its effectiveness to a lesser period than imposition of sentence or other termination of criminal court proceeding and (2) the obligor submits notice of the limitation to the court and the District Attorney not less than fourteen days before the effectiveness ends. The term obligor is defined by N.Y. Crim. Proc. Law § 500.10(11) (McKinney 1995) as "a person who executes a bail bond on behalf of a [criminal defendant in this context] and thereby assumes the undertaking described therein. . . ." In this context, the obligor is the bail bond insurer.

 

It is not clear if the agreement that the bail bond agent alleges to have with the indemnitor authorizing additional compensation exists. However, even if such agreement does exist, it could not override the purpose of N.Y. Ins. Law § 6804 (McKinney 2000) which is to protect the indemnitor and the criminal defendant.

 

3. A bail bond agent may be held to be untrustworthy in violation of N.Y. Ins. Law § 6802(k)(1) & (6) (McKinney 2000) because the bail bond agent demanded additional compensation or fees above the actual and reasonable cost to the bail bond agent. Section 6802(k)(1) & (6) states:

 

(k) The superintendent may, upon notice and after a hearing, revoke or suspend, for such period as he may determine, any such license or sublicense issued pursuant to the provisions of this section if, after notice and hearing as specified in this chapter, he determines that the licensee or any sublicensee or any member of a firm or corporation which is so licensed has . . .

(1) violated any provision of, or any obligation imposed by, the insurance law, or has violated any other law of the state . . .

(6) has demonstrated his incompetency or untrustworthiness to act as a licensee.

The Department may initiate a disciplinary proceeding alleging untrustworthiness pursuant to N.Y. Ins. Law § 6802(k)

(1) & (6) (McKinney 2000) if a fee charged or received by the bail bond agent is exorbitant because a fee exceeds the actual and reasonable cost to the bail bond agent of providing service to the criminal defendant.

4. If the bail bond insurer had actual knowledge that the bail bond agent acted beyond the authority given by the insurer, the Department could allege a determined violation pursuant to N.Y. Ins. Law Article 24 (McKinney 2000) and request a penalty not exceeding $500 for each offense pursuant to N.Y. Ins. Law 109(c)(1) (McKinney 2000).

If there is a proceeding at the Insurance Department which finds that the bail bond agent and/or bail bond insurer has violated any provision of the Insurance Law, N.Y. Ins. Law § 109(a) (McKinney 2000) is relevant. Section 109(a) provides that any violation of the Insurance Law, unless it constitutes a felony, shall be a misdemeanor. The Insurance Department cannot implement this criminal penalty. However, the Insurance Department may request that a District Attorney in New York State or the New York State Attorney General prosecute this criminal penalty.

For further information you may contact Senior Attorney Robert Freedman at the New York City Office.