The Office of General Counsel issued the following informal opinion on February 3, 2005, representing the position of the New York State Insurance Department.
Re: Insurer Prohibiting Collection of Premium by Agent from Policyholder
May a New York authorized insurer prohibit its New York licensed insurance agent from collecting deferred or renewal premium payments from the insurers policyholder?
The insurer has the ability to restrict its agents authority to accept such premium payments. However, depending upon the facts, the insurer may be bound by its agents acceptance of the premium payments. Please see the analysis below.
ABC Life recently issued certain guidelines concerning the collection of deferred and renewal premium payments to its New York licensed insurance agents. The guidelines state the following:
The Financial Professionals contract permits only the collection of the initial premium on all life products. Only Equity Qualified Financial Professionals may collect the initial premium on equity qualified or variable products.
Deferred or renewal premiums may not be collected by the Financial Professional on any product.
To help you service your clients and also avoid handling deferred and renewal premiums, we have developed the attached policyholder check transmittal form which can be mailed or given to your clients when they wish to send a deferred or renewal premium to the National Operations Center (NOC). This form can be copied for future use.
In cases where the policyholder has system prepared billing material, the payment(s) should be sent to the ABC Life Payment Center for processing rather than to the NOC. This will speed processing of the payments involved.
It was also stated that ABC Life has not informed its policyholders of the above premium collection restrictions.
The New York Insurance Law § 2101(a) (McKinney Supp. 2005) defines an "insurance agent," in pertinent part, as follows:
(a) In this article, "insurance agent" means any authorized or acknowledged agent of an insurer, fraternal benefit society or health maintenance organization issued a certificate of authority pursuant to article forty-four of the public health law, and any sub-agent or other representative of such an agent, who acts as such in the solicitation of, negotiation for, or sale of, an insurance, health maintenance organization or annuity contract, other than as a licensed insurance broker . . . .
Generally, a policyholder may submit premium payments for an ordinary insurance policy to an insurers agent.1 However, an insurer may prohibit its agent from accepting premium payments from its policyholder by contractual agreement.2 While an insurer may prohibit its agent from receiving premium payments, if the agent, nonetheless, accepts such payment, the insurer may be deemed to have accepted it depending upon the insureds knowledge of the contractual provisions that limit the agents authority.3 The insurer should make certain that the policyholder has notice of such limitations to avoid the possible consequences of causing the policyholder to believe that the agent has the authority to accept such premium payments.4
Therefore, ABC Life has the ability to restrict its agents authority to accept premium payments. However, depending upon the facts, ABC Life may be bound by its agents acceptance of the premium payments regardless of the contractual provisions.
For further information you may contact Senior Attorney Kristian Earl Lynch at the New York City Office.
1 69 NY Jur 2d, Insurance § 994.
2 68 NY Jur 2d, Insurance § 428.
3 See Brady v. Metropolitan Life Ins. Co., 14 N.Y.S.2d 581 (1939); 68 NY Jur 2d, Insurance §§ 436-439, 994.
4 See 68 NY Jur 2d, Insurance §§ 428-431.