New York State Seal

STATE OF NEW YORK

INSURANCE DEPARTMENT

25 BEAVER STREET

NEW YORK, NEW YORK 10004

David A. Paterson

Governor

James J. Wrynn

Superintendent

OGC Op. No. 10-03-01

The Office of General Counsel issued the following opinion on March 8, 2010, representing the position of the New York State Insurance Department.

Re: Reconsideration of OGC Opinion No. 09-12-06: Refusal to accept cash premium payments

Question Presented:

Are there certain circumstances under which an insurance producer should not accept a cash payment, even if the insured would be adversely impacted by imminent cancellation, non-renewal or non-issuance of the insurance policy?

Conclusion:

Yes. Although there may be some circumstances where an insurance producer should accept cash payment where the insured would be adversely impacted by imminent cancellation, non-renewal or non-issuance of the policy, an insurance producer should not do so in contravention of the insurer’s rules, where the cash payment would circumvent anti-money laundering procedures, or where the acceptance of the cash payment would otherwise be imprudent.

Facts:

On December 29, 2009, the Department’s Office of General Counsel (“OGC”) issued Opinion No. 09-12-06, which addresses the question of whether the New York Insurance Law or regulations promulgated thereunder prohibit an insurance producer from refusing to accept cash premium payments from clients for any or all transactions. The opinion concludes that the Insurance Law and regulations promulgated thereunder do not address this issue, and in the absence of an express prohibition, an insurance producer may refuse to accept cash premium payments from his or her clients. The opinion then states: “There may be circumstances where an insurance producer’s refusal to accept a cash premium payment may result in cancellation, non-renewal or non-issuance of the insurance policy. Accordingly, an insurance producer should not refuse a cash payment if the insured may be adversely impacted by imminent cancellation, non-renewal or non-issuance of the policy.”

In an email addressed to Robert H. Easton, Deputy Superintendent and General Counsel, dated February 17, 2010, an inquirer from an insurance industry trade association reported that:

Many of our member company representatives have [reported] that, because of anti-money laundering procedures, they have rules against producers accepting cash or money orders for premium payments. The need for these rules is particularly acute in the life insurance industry, where premium payments can be quite high. Moreover, life insurance applications and contracts typically stipulate acceptable methods of premium payment, so applicants and contract holders know how and when premiums must be paid in order to obtain coverage, and to avoid having in force coverage lapse. Many, if not most, life insurance and annuity applications require premium payments to be made by check payable to the company, not the agent, to avoid potential fraudulent acts by producers who otherwise could accept cash or checks made payable to them or to their premium accounts, fail to remit the check to the insurer, then provide fraudulent paperwork to the customer to create the appearance of legitimate insurance documents.

Therefore, the inquirer asked the Department to reconsider the statement set forth in OGC Opinion No. 09-12-06, which states that an insurance producer should not refuse a cash payment if the insured may be adversely impacted by imminent cancellation, non-renewal or non-issuance of the policy.

Analysis:

OGC Opinion 09-12-06 recognized that there are certain circumstances under which an insurance producer’s policy of not accepting cash may be detrimental to the insured and, under such circumstances, the producer should accept the cash payment. This is consistent with prior OGC opinions. For example, in interpreting Insurance Law § 2121, which provides that payment to an insurance broker is deemed to be payment to the insurer, OGC opined that “[w]hile § 2121 does not require an insurance broker to accept an insured’s premium payment, an insurance broker should do so where it is in the best interests of the insured.” See OGC Opinion 05-02-19 (Feb. 11, 2005).

OGC Opinion 09-12-06, however, should not be construed as overriding the insurer’s rules regarding producer receipt of premium payments, especially the legitimate needs of insurers to guard against money laundering schemes. The opinion itself states that an insurer may impose its own contractual requirements on insurance producers that do business with the insurer. In fact, the Department has recognized that an insurer may prohibit its agent from accepting premium payments from its policyholder by contractual agreement, but, if the agent nonetheless accepts such payment, then the insurer may be deemed to have accepted it depending upon the insured’s knowledge. See OGC Opinion 05-02-19. The Department does not anticipate or desire that a producer’s acceptance of cash occur frequently.

In sum, while there may be some circumstances under which an insurance producer should accept cash payment where an insured would be adversely impacted by imminent cancellation, non-renewal or non-issuance of the policy, an insurance producer should not do so in contravention of the insurer’s rules, where the cash payment would circumvent anti-money laundering procedures, or where the acceptance of the cash payment would otherwise be imprudent.

For further information you may contact Assistant Deputy Superintendent & Counsel Paul A. Zuckerman at the New York City Office.