New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

George E. Pataki
Governor

Howard Mills
Superintendent

The Office of General Counsel issued the following opinion on June 28, 2005, representing the position of the New York State Insurance Department.

RE: Broker Fees

Question Presented:

Does the New York Insurance Law impose a maximum fee that an insurance broker may charge as a service fee in connection with the placement of a commercial general liability insurance policy?

Conclusion:

The New York Insurance Law does not impose a maximum fee that an insurance broker may charge as a service fee in connection with the placement of a commercial general liability insurance policy. However, a service fee charged should be reasonable in relation to the service provided. Additionally, the service fee must be "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) (McKinney Supp. 2005).

Facts:

No specific facts were provided.

Analysis:

N.Y. Ins. Law § 2119(c) (McKinney Supp. 2005) states:

(c) (1) No insurance broker may receive any compensation, other than commissions deductible from premiums on insurance policies or contracts, from any insured or prospective insured for or on account of the sale, solicitation or negotiation] 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.

(2) A copy of every such memorandum shall be retained by the broker for not less than three years after such services have been fully performed.

(3) This subsection shall not affect the right of any such broker to recover from the insured the amount of any premium or premiums for insurance effectuated by or through such broker.

(4) This subsection shall not affect the requirements of subsection (a) or (b) hereof, subsection (g) of section two thousand one hundred one or section two thousand one hundred eight of this article.

Hence, the New York Insurance Law does not impose a maximum fee that an insurance broker may charge as a service fee in connection with the placement of a commercial general liability insurance policy. However, a service fee charged should be reasonable in relation to the service provided. Additionally, the service fee must be "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) (McKinney Supp. 2005).

An insurance broker that charges a service fee that is not reasonable in relation to the services that he or she has actually provided may be considered to have acted in an untrustworthy manner. Pursuant to N.Y. Ins. Law § 2110, the Superintendent may, among other things, revoke or suspend an insurance broker’s license.

For further information you may contact Associate Attorney Sally Geisel at the New York City Office.