The Office of General Counsel issued the following opinion on January 7, 2003 representing the position of the New York State Insurance Department.
Re: Settlement Agreement to Refund Insurance Premium.
Under circumstances involving property/casualty insurance, other than ocean marine insurance, may an insurance broker pay a portion of the premium in the form of a settlement with the insured when the premium quote was lower than the actual premium?
Absent a specific factual situation, only a general statement concerning the relevant law can be given.
No specific fact pattern was provided relative to this inquiry. The inquirer previously made an inquiry to the Department dated July 2, 2002, as supplemented by numerous subsequent follow-up emails that expanded upon her original inquiry. The inquirers client is an insurance broker who sold an ocean marine insurance policy to the insured. The insured paid more for the insurance, as stated in the original estimate, due to an error on the brokers part that was not realized until after the premiums were paid on an installment basis by the insured.
The inquirers client, the broker, wanted to enter into a settlement agreement with the insured wherein the individual broker would return part of the premium paid to the insured from the brokers own pocket due to the brokers error in estimating the premium. The inquirer requested an opinion on whether or not such a settlement would violate the anti-rebating statutes of the New York Insurance Law. In an opinion letter, dated September 23, 2002, the Office of General Counsel opined that ocean marine insurance is exempted from the applicability of section 2324(a), the anti-rebating statute for property/casualty insurance. Therefore, in that specific circumstance, the broker could enter into a settlement agreement with the insured and return part of the premium that exceeded the original estimate.
The inquirer now asks whether, under circumstances involving property/casualty insurance, other than ocean marine insurance, an insurance broker may pay a portion of the premium in the form of a settlement with the insured.
Since the inquirer did not provide sufficiently detailed facts, this response will be general in nature. N.Y. Ins. Law § 2314 (McKinney 2000) provides as follows:
No authorized insurer shall, and no licensed insurance agent, no employee or other representative of an authorized insurer, and no licensed insurance broker shall knowingly, charge or demand a rate or receive a premium which departs from the rates, rating plans, classifications, schedules, rules and standards in effect on behalf of the insurer, or shall issue or make any policy or contract involving a violation thereof.
In an opinion letter dated August 22, 2000, the Office of General Counsel opined that, unless the insurer is prohibited from collecting an additional premium under N.Y. Ins. Law § 3426(d)(1) (McKinney 2000), once an insurance company determines that it has collected an incorrect amount of premium it must rectify the situation by either returning the over-paid amount of the premium to the insured or, in an underpayment situation, collecting the additional premium from the insured. See American Motorists Ins. Co. v. New York Seven-up Bottling Co., 18 A.D.2d 36, 238 N.Y.S.2d 80 (1st Dept. 1963), affd. 13 N.Y.2d 1157, 247 N.Y.S.2d 386 (1964).
Please note that medical malpractice liability insurance policies are not subject to N.Y. Ins. Law § 3426(d)(1) (McKinney 2000) because insurers of such policies may not deviate from the rates established by the Superintendent pursuant to N.Y. Comp. Codes R. & Regs. tit. 11, §§ 70.4 70.21 (1995-1998) (Regulation 101). Thus, an insurer of medical malpractice liability insurance would be required to collect from its insured the deficient amount of premium that it erroneously quoted.
For further information you may contact Senior Attorney Pascale Joasil at the New York City Office.