The Office of General Counsel issued the following opinion on July 5, 2006, representing the position of the New York State Insurance Department.
Broker fees and insurance policy payments
1. Is there a limit to the amount of the service fee allowed to be charged by an insurance broker for motor vehicle insurance?
2. May the premium for a motor vehicle insurance policy be paid by a third party?
1. Generally, there is no limit to the amount of the service fee allowed to be charged by the broker pursuant to N.Y. Ins. Law § 2119, except for certain policies issued under the New York Automobile Insurance Plan (NYAIP). However, any such fee should be reasonable and must be based on a written agreement between the broker and the party to be charged. Different insureds should not be charged different amounts for the same services provided.
2. Without specific facts, the question is too broad for a response.
An insurance brokerage inquired whether there is a limit to the amount that a broker may charge for services rendered for motor vehicle insurance policies. Additionally, the broker would like to know whether a third party may pay the premium for a motor vehicle insurance policy.
N.Y. Ins. Law § 2119(c) (McKinney 2006) provides in pertinent part:
(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 contract, 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.
A § 2119 broker service fee agreement must specify or clearly define the amount or extent of the fees being charged. An insurance broker may not receive compensation for a service fee unless there is a written memorandum that has been entered into between the party to be charged and the broker. Generally, the law does not limit how much a broker may charge for a service fee. However, service fees should be reasonable and different insureds should not be charged different amounts for the same service. Additionally, under the New York Automobile Insurance Plan (NYAIP) the producer is limited to a $40.00 service fee1, but may be reimbursed for certain other expenses. See Section 21(C) of the New York Automobile Insurance Plan of New York (NYAIP) rules.
For additional information please review the Departments Office of General Counsels opinions at our website (www.ins.state.ny.us) for further discussion of this issue. In particular, please read General Counsel Opinion No. 06-02-12 (February 15, 2006) and Circular Letter 9 (April 4, 2006). For specific information about the New York Automobile Insurance Plan please visit http://www.aipso.com/NYmanuals/.
Concerning the second question, more facts are required in order to provide a response. Third party payment of premium may constitute an improper rebate, in violation of N.Y. Ins. Law § 2324 or § 4224.
For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.
1 Except commercial automobiles, private passenger fleets, and miscellaneous vehicles as specified in NYAIP § 6.A.1.e(1) that are used for business.