OGC Op. No. 03-01-31
The Office of General Counsel issued the following opinion on January 13, 2003, representing the position of the New York State Insurance Department.
Re: Brokers Payment of Premium By Credit Card
Questions Presented:
1) May an insurance broker that accepts a premium payment from an insured in effect "forward" the premium payment to the insurer by credit card, where such credit card is used solely for the purpose of paying insureds premiums?
2) May the insurance broker make a withdrawal from its premium account to pay the credit card bill?
Conclusions:
1) An insurance broker that accepts a premium payment by an insured may forward the premium to the insurer by credit card where such credit card is used solely for the purpose of paying insureds premiums, if the insurer has agreed to accept remittance by credit card. However, as to assigned risk automobile insurance policies, an insurance broker may not remit the premium to the insurer by credit card.
2) If the insurance broker deposits the premium payment into its premium account, when the deposit (if made by check or money order) has cleared, and the insurer has received the credit card payment, the insurance broker may make a withdrawal from its premium account to pay the credit card company. However, the insurance broker may not write a check on the premium account made payable directly to the credit card company because N.Y. Comp. Codes R. & Regs. tit. 11, § 20.3 (1996) (Regulation 29) does not permit such action. Thus, in order for the insurance broker to pay the credit card company by check, the insurance broker will have to deposit the withdrawn funds into its own operating account, and write the check to the credit card company on that operating account.
Facts:
A licensed insurance broker that accepts cash payments of premium from its clients stated that when a client pays its premium by cash on the last date that payment is due to the insurer, the insurance broker would like to be able to forward the premium to the insurer by credit card to avoid missing the payment due date. This statement is interpreted to mean the due date imposed by the insurer for premium payment, rather than the last day of a grace period provided an insured in connection with the mailing of a notice of cancellation for non-payment of premium under N.Y. Ins. Law §§ 3425 and 3426 (McKinney 2000 and Supp. 2003). The insurance broker stated that it will not pass the fees that the credit card service provider will charge for using the credit card onto the insurance brokers clients.1 The insurance broker plans to process the payment to the insurer by electronic transmission, and to pay the credit card service provider by a check written on the premium account.
Analysis:
N.Y. Ins. Law § 2120 (McKinney 2000) imposes a fiduciary duty upon insurance brokers with respect to funds received or collected as insurance brokers, including but not limited to, policy premiums. N.Y. Ins. Law § 2120 does not require an insurance broker to maintain a separate bank account for each of its principals provided that the funds held for each principal can be reasonably ascertained from the insurance brokers books of accounts and records.
N.Y. Comp. Codes R. & Regs. tit. 11, § 20.3 (1996) (Regulation 29) was promulgated to facilitate compliance with N.Y. Ins. Law § 2120, and states in pertinent part as follows:
(b) Every insurance agent and every 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 (any such account is hereinafter referred to as "a premium account").
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(4) No withdrawals from a premium account shall be made other than for payment of premiums to insurers, payment of return premiums to assureds, transfer to an operating account of (i) interest, if the principals have consented thereto in writing and (ii) commissions, or withdrawal of voluntary deposits, provided, however, that no withdrawal may be made if the balance remaining in the premium account thereafter is less than aggregate net premiums received but not remitted. (emphasis added)
Where an insured pays its premium to an insurance broker, who deposits the payment into its premium account, the insurance broker may forward the premium payment to the insurer by credit card where such credit card is used only for the purpose of paying insureds premiums,2 if the insurer has agreed to accept remittance by credit card. After the premium is transmitted to the insurer by the credit card company, the insurance broker may withdraw the deposited funds from the premium account to pay the ensuing credit card bill, the charge for which is attributable solely to the premium payment forwarded to the insurer. This withdrawal is a "withdrawal of voluntary deposits" under Regulation 29, but such withdrawal should be clearly accounted for as being in connection with the premium payment. However, the insurance broker may not write a check on the premium account made payable directly to the credit card company because N.Y. Comp. Codes R. & Regs. tit. 11, § 20.3 (1996) (Regulation 29) does not permit such action. Thus, in order for the insurance broker to pay the credit card company by check, the insurance broker will have to deposit the withdrawn funds into its own operating account, and write the check to the credit card company on that operating account.
Pursuant to Section 14(E)(1) of the Rules of New York Automobile Insurance Plan (2001), assigned risk automobile insurance premiums must be paid either in cash or by check or money order made payable, or endorsed, to the designated insurer. Therefore, an insurance broker may not remit such premiums by credit card. Additionally, Section 14(E)(1)(d) requires that "[t]he deposit and premium payments for all for-hire classes of risk shall be made by a certified check, bank check, producer check, finance company check, or money order."
For further information you may contact Senior Attorney Sally Geisel at the New York City Office.
1 N.Y. Gen. Bus. Law § 518 states in relevant part: "No seller in any sales transaction may impose a surcharge on a holder who elects to use a credit card in lieu of payment by cash, check, or similar means." N.Y. Gen. Bus. Law § 511(6) states in relevant part: "In this article, unless the context or subject matter otherwise requires . . . Seller means any person who honors the credit cards or debit cards which may be used to purchase or lease property or services[.]" Hence, an insurance broker may not charge an insured who pays his premium by credit card a service fee as a means of offsetting the credit card service charges imposed on the insurance broker by the credit card service provider.
2 The credit card is not a premium account within the meaning of Regulation 29.