The Office of General Counsel issued the following opinion on February 12, 2003, representing the position of the New York State Insurance Department.
Re: Retention of Insurance Premium Finance Agreement.
1. Is there a requirement under the Insurance Law for an insurance agent or broker to retain insurance premium finance agreements?
2. Is the record retention requirement different for a broker as compared to an agent?
1. There is no such requirement under the Insurance Law. However, a licensee of the Insurance Department who is licensed as well by the Banking Department as a premium finance agency is subject to the six year record retention requirements of N.Y. Banking Law § 565 (McKinney 1990).
None were presented.
The Insurance Law does not contain any specific requirement that an insurance agent or broker retain a copy of a premium finance agreement. However, in certain circumstances, the Banking Law contains such a requirement.
N. Y. Banking Law § 554(7) (McKinney Supp. 2003) defines a premium finance agency to mean:
a person engaged, in whole or in part, in the business of entering into premium finance agreements with insureds... or ... an insurance agent or broker who is licensed as a premium finance agency and who holds premium finance agreements made and delivered by insureds to him or his order.
N. Y. Banking Law § 554(8) (McKinney Supp. 2003) defines a premium finance agreement in relevant part as follows:
Premium finance agreement means a promissory note or other written agreement by which an insured promises or agrees to pay to, or to the order of, either a premium finance agency or an insurance agent or broker the amount advanced or to be advanced under the agreement to an authorized insurer or to an insurance agent or broker in payment of premiums on an insurance contract, together with a service charge as authorized and limited by law. If the premium finance agreement is payable to, or to the order of, an insurance agent or broker not licensed as a premium finance agency, payments under the agreement must be payable at the office of a premium finance agency named in the agreement, to whom the agreement is by its terms to be and is subsequently assigned.
N.Y. Banking Law § 568(2) (McKinney 1990) provides that an insurance agent or broker licensed as a premium finance agency may contract within a premium finance agreement to collect a service fee for financing or arranging the financing of premiums.
N.Y. Banking Law § 565 (McKinney 1990) requires a licensee of the Banking Department, which includes an insurance agent or broker licensed as a premium finance agency, to maintain books, accounts, and records for at least six years after making the final entry in respect to any premium finance agreement recorded therein.
Questions regarding the N.Y. Banking Law or Regulations should be addressed directly to the New York Banking Department.
While the Insurance Law does not contain any specific requirement that an insurance agent or broker retain a premium finance agreement, the premium financing agreement often contains a service fee memorandum clause pursuant to N. Y. Ins. Law § 2119 (McKinney 2000) which, if utilized by an insurance broker, would make the document also subject to a three year retention requirement.
N.Y. Ins. Law § 2119(c)(1) (McKinney 2000) states in pertinent part:
No insurance broker may receive any compensation, other than commissions. . . , from any insured broker or prospective insured for or on account of the negotiation or procurement of, or other services in connection with, any contract of insurance made or negotiated in this state or for any other services on account of such insurance policies or contracts, including adjustment of claims arising therefrom, 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.
N.Y. Ins. Law § 2119(c)(2) (McKinney 2000) requires that a copy of any signed written agreement to collect service fees, which would extend to charges for financing or arranging to finance insurance premiums, must be retained by an insurance broker for not less than three years after such services have been fully performed. An insurance agent, however, may not collect a service fee from an insured.
It should also be noted that where the broker is not a licensed premium finance agency and it receives compensation from the premium finance agency, which, in turn, recoups this payment by charging the insured, then the insured would be indirectly paying a service fee to the broker. Accordingly, an insurance broker must obtain a § 2119(c) agreement. See Citron v. Curiale, 273 A.D. 2d 183, 710 N. Y. S. 2d 67 (App. Div. First Dept. 2000).
However, an agent may not be compensated when the premium financing agency recoups the fee from the insured nor may the agent charge the insured directly. The Insurance Law does not authorize an insurance agent to accept the indirect payment of the fee from the insured.
Where there is no recoupment of the fee from the insured, the premium financing agency may compensate the agent or broker in accordance with the Banking Law and no memorandum from the insured pursuant to § 2119 would be required.
For further information you may contact Associate Attorney Jeffrey A. Stonehill at the New York City Office.