OGC Opinion No. 10-09-03
The Office of General Counsel issued the following opinion on September 7, 2010, representing the position of the New York State Insurance Department.
RE: Inspection Fees Charged by Managing General Agents
Question Presented:
May an MGA charge an insured a separate inspection fee in connection with an insurance policy issued by an authorized insurer where the insurer has required that the MGA order and pay for the inspection before coverage may be placed?
Conclusion:
No. An MGA acts as an agent of the insurer and thus may not, consistently with Insurance Law § 2314, charge an insured an inspection fee, even if the insurer has required the MGA to order and pay for the inspection.
Facts:
It is reported that, according to certain members of an organization, some MGAs are believed to charge insureds inspection fees in connection with policies issued by authorized insurers. Specifically, certain insurers require the MGAs to order and pay for the inspections, and the MGAs then pass on to insureds the cost of the fees that the MGAs pay to the inspection company.
Analysis:
N.Y. Comp. Codes R. & Regs., tit. 11, Pt. 33 (Regulation 120) is relevant to this inquiry. Section 33.2(c) of Regulation 120 defines an MGA, in pertinent part, as any person, firm, association or corporation that:
(1) manages all or part of the insurance business of an insurer (including the management of a separate division, department or underwriting office); [or]
(2) acts as an insurance agent as defined in section 2101(a) of the Insurance Law for such insurer, whether known as a managing general agent, manager, or other similar term, or acts as an insurance broker as defined in section 2101(c) of the Insurance Law….
11 NYCRR § 33.2(c).
An MGA may not be appointed by an insurer “unless the MGA has an insurance agent’s license issued by this State to represent said insurer for the appropriate kinds of insurance.” See 11 NYCRR § 33.3(a).
N.Y. Ins. Law § 2314 (McKinney 2006) is also relevant to this inquiry. It provides, among other things, that an insurer or agent may not depart from the insurer's filed rates:
No authorized insurer shall, and no licensed insurance agent, no employee or other representative of an authorized insurer, and no licensed insurance broker shall knowingly, charge or demand a rate or receive a premium which departs from the rates, rating plans, classifications, schedules, rules and standards in effect on behalf of the insurer, or shall issue or make any policy or contract involving a violation thereof.
An inspection fee is considered part of the premium when the inspection is conducted by or on behalf of an insurer, and the insured pays a fee directly to the insurer or the insurer’s agent or inspector for the inspection, regardless of whether the fee is itemized separately from the premium or whether the MGA is charging the insured the inspection fee only because the insurer requires the inspection. Accordingly, for an MGA to pass on the fee to the insured would violate § 2314 because it would result in a premium that departed from the insurer’s filed rates. No such violation would occur, however, if an insurer required an inspection but did not dictate who performed it, and the insured paid the inspection fee directly to the party who performed the inspection. In that event, the fee would not be considered part of the premium. See Office of General Counsel ("OGC") Opinion No. 06-09-16 (September 25, 2006); OGC Opinion No. 07-03-08 (March 12, 2007).
For further information you may contact Associate Attorney Jeffrey A. Stonehill at the New York City Office.