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 March 16, 2006, representing the position of the New York State Insurance Department.

RE: Additional Service Fee Information

Questions Presented

1. May a service fee agreement between a broker and an insured be a multi-year or open ended agreement?

2. Does payment of the service fee constitute acceptance of the fee, even if the service fee agreement is never returned by the client?

3. Does the amount of the fee have to be a fixed amount or may it be expressed in terms of a percentage?

Conclusions

1. Yes, a service fee agreement may be a multi-year or open ended agreement so long as it clearly states that it continues from year to year upon renewals and that it may be canceled at any time prior to services at the option of the insured.

2. No, the insured must sign the memorandum and the broker must retain the agreement for three years after such services have been fully performed.

3. An insurance broker may charge a service fee that is a percentage of the premium in a written agreement, provided the agreement clearly explains whether changes in coverage, cancellation of the policy, audits or other factors will result in changes in the fee.

Facts

This is a general inquiry.

Analysis

The New York State Insurance Department’s position regarding the requirements for multi-year service fee agreements remains consistent with the opinion articulated in the Counsel’s Corner of the Department’s May/June 1998 issue of The Bulletin, which states that a service fee agreement may be a multi year or open ended agreement so long as it clearly states that it continues from year to year upon renewals and that it may be canceled at any time prior to services at the option of the insured (copy enclosed).

The inquirer asked whether payment of the service fee constitute acceptance of the fee, even if the service fee agreement is never returned by the client. N.Y. Ins. Law § 2119(c) (McKinney 2000 & 2006 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.

Thus an agreement must be signed by the party to be charged (typically the insured) and the agreement must be retained by the broker. Therefore, a broker may not accept payment of the fee without having a copy of written agreement.

Finally the inquirer inquired as to whether the fee has to be a fixed amount or may it be expressed in terms of a percentage.

An insurance broker may charge a service fee that is a percentage of the premium in a § 2119 agreement, provided the agreement clearly explains whether changes in coverage, cancellation of the policy, audits or other factors will result in changes in the fee.

Licensees are also reminded that service fees should be reasonable and different insureds should not be charged different amounts for the same services. Section 2119(c) agreements must be retained by the licensee for not less than three years after fully performing the services.

For further information one may contact Principal Attorney Paul A. Zuckerman at the New York City Office.