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 August 8, 2002, representing the position of the New York State Insurance Department.

Re: Insurance Agents & Service Fees for Electronic Funds Transfers ("EFTs")

Questions Presented:

1. An insurance agent proposes to undertake a program whereby the agent will (1) collect money, via an Electronic Funds Transfer ("EFT"), each month from an insured’s checking account, and (2) subsequently pay the insured’s insurance premiums as they become due with such funds. May this agent charge the insured a service fee to recoup the cost of the agent’s monthly EFT, and to reflect the reduced transaction fees paid by the insured to its insurers for insurance premium disbursements currently remitted by EFTs?

2. Does the enclosed memorandum meet the requirements of N.Y. Ins. Law 2119(c) (McKinney 2000) for a broker to charge a service fee for the proposed transactions described above?

Conclusions:

1. No. An insurance agent may not charge an insured any type of fee, other than a consultation fee pursuant to N.Y. Ins. Law 2119(a) (McKinney 2000), unless the agent acts as a producer under an assigned risk automobile insurance policy written through the New York Automobile Insurance Plan, and fulfills the requirements of N.Y. Ins. Law § 2119(c) (McKinney 2000). Please note that Section 21.C of the Rules of New York Automobile Insurance Plan (2001) limits such fees.

2. No. The requirements of N.Y. Ins. Law § 2119(c) would not be satisfied because the memorandum does not specify any obligation to pay a fee, nor does it specify or clearly define the amount or extent of the compensation to be charged.

Facts:

A property/casualty agent (the "Agent") states that it wants to charge an insured (the "Insured") a service fee for collecting money, via a single monthly EFT, from the Insured’s checking account to pay the Insured’s insurance premiums as they become due. The service fee is described as a method to (1) recoup the Agent’s cost of such monthly EFTs and (2) reduce the transaction fees paid by the Insured to its multiple insurers for insurance premium disbursements currently remitted by EFTs. The Agent states that its monthly service fee will cost less than the current monthly EFT transaction fees charged by the Insured’s multiple insurers.

Analysis:

1. There is no statute in the Insurance Law that would permit an insurance agent to charge an insured any type of fee (e.g., origination fee, transaction fee, service fee, etc.) other than a consultation fee pursuant to N.Y. Ins. Law 2119(a) (McKinney 2000). However, an agent that acts as a producer under an assigned risk automobile insurance policy written through the New York Automobile Insurance Plan, and fulfills the requirements of N.Y. Ins. Law § 2119(c) (McKinney 2000) may charge such insured a service fee as described in the Rules of the Plan. See Office of General Counsel Opinion No. 02-01-05 (2002).

2. N.Y. Ins. Law § 2119(c) states that a broker may not receive any compensation "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."

The enclosed memorandum (the "Memorandum") does not specify any obligation to pay a fee, nor does it specify or clearly define the amount or extent of the compensation to be charged for the EFT transactions. Consequently, the Memorandum does not meet the requirements of § 2119(c).

The above opinion is informal and not binding on any court. For further information you may contact Attorney Kristian Earl Lynch at the New York City Office.