The Office of General Counsel issued the following opinion on November 21, 2005, representing the position of the New York State Insurance Department.
Re: Service Fees.
Question Presented:
1. May a broker representing a client purchasing workers' compensation insurance from the State Insurance Fund charge a service fee for the services rendered?
2. If a fee may be charged, what type of forms/paperwork need to be filled out and signed?
3. Does the fee need to be the same for all the broker's clients in all of his insurance business?
Conclusion:
1. Pursuant to N.Y. Ins. Law § 2119(c)(1) (McKinney 2000 & 2005 Supp.) a broker may charge a service fee for services rendered, so long as the fee is reasonable and based on a written agreement between the broker and the party to be charged specifying the charges and signed by the party to be charged.
2. According to § 2119(c)(1) in order for the broker to receive a service charge, the broker must have a written agreement between the broker and the party to be charged, signed by the party to be charged, and specifying the amount of the charges.
3. A broker may charge different fees based on different kinds, levels, and amounts of services provided. However a broker may not charge different fees for the same services.
Facts:
The inquirer is a licensed agent and broker in New York and is representing clients with their workers' compensation policies in the New York State Insurance Fund ("Fund"). He wishes to know if he may charge his clients service fees, and if so what type of paperwork or forms need to be filled out or signed. He further wishes to know whether he must charge all his clients the same service fee in all his insurance businesses.
Analysis:
N.Y. Ins. Law § 2119(c) (McKinney 2000 & 2005 Supp.) provides in pertinent part:
(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. (Emphasis added)
(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.
The Insurance Law permits an insurance broker (but not an insurance agent) to charge a service fee, including for business placed with the Fund. However, the fee has to be based on a written agreement agreement between the broker and the party to be charged that specifies the charges and which is signed by the party to be charged, which typically is the insured. There is no specific or required form to fill out. A copy of the agreement must be retained for a minimum of three years after the services are fully performed
The inquirer also asked whether the service fee must be charged for all his insurance clients. Where the distinction in fees charged to insureds is based on the kinds, levels, and amount of services provided, that distinction in fees is permissible under the Insurance Law, and would not violate either §2324 or §4224, which generally prohibit inducements and rebates in the making of insurance contracts. However, the broker may not charge differed insureds different amounts for the same services. In addition the service fee should be reasonable in relation to the service provided.
For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.