New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
ONE COMMERCE PLAZA
ALBANY, NEW YORK 12257

Andrew M. Cuomo
Governor

James J. Wrynn
Superintendent

OGC Op. No. 11-08-02

The Office of General Counsel issued the following opinion on August 4, 2011 representing the position of the New York State Insurance Department.

Re: Premium Finance Agreements

Questions Presented:

1) Does Insurance Law § 3428(b) proscribe an unauthorized insurer from accepting insurance premiums for an insurance contract made or issued in this state in the excess lines market where the premiums are advanced under a premium finance agreement made by a person who is not licensed as a premium finance agency?

2) Does Insurance Law § 3428(c) proscribe an unauthorized insurer from honoring a premium finance agency’s request to cancel an insurance contract made or issued in this state in the excess lines market where the premium finance agency makes the cancellation request under a power of attorney given by the insured to a premium finance agency that is not so licensed in this state?

Conclusions:

1) No. Insurance Law § 3428(b) does not proscribe an unauthorized insurer from accepting insurance premiums for an insurance contract made or issued in this state in the excess lines market where the premiums are advanced under a premium finance agreement made by a person who is not licensed as a premium finance agency because Insurance Law § 3428(b) applies only to authorized insurers.

2) No. Insurance Law § 3428(c) does not proscribe an unauthorized insurer from honoring a premium finance agency’s request to cancel an insurance contract made or issued in this state in the excess lines market where the premium finance agency makes the cancellation request under a power of attorney given by the insured to a premium finance agency that is not so licensed in this state because Insurance Law § 3428(b) applies only to authorized insurers.

Facts:

The inquirer reports that he represents a foreign insurance premium finance company that is interested in financing insurance policies issued through the excess line market in New York. The inquirer also reports that his client is a licensed insurance premium finance company in its state of domicile, but is not a bank or other financial institution. The inquirer also states that his client is exempt from obtaining a license in New York as a premium finance agency because the client will be charging less than 16% interest per annum.

Analysis:

1. Accepting Premiums

The inquirer asks whether Insurance Law § 3428(b) proscribes an unauthorized insurer from accepting insurance premiums for an insurance contract made or issued in this state in the excess lines market where the premiums are advanced under a premium finance agreement made by an entity that is not licensed as a premium finance agency.

N.Y. Ins. Law § 3428(b) states as follows:

(b) No authorized insurer or its agent may knowingly accept payment of premiums, for an insurance contract made or issued in this state, advanced under a premium finance agreement as defined in section five hundred fifty-four of the banking law by or for any person, firm, corporation or association who is not authorized either to engage in the business of a premium finance agency or to make loans for the purpose of financing insurance premiums in accordance with the banking law, or to include an amount for insurance in a retail instalment contract or obligation in accordance with the personal property law.

Insurance Law § 3428(b), by its clear terms, applies only to authorized insurers. Insurance Law § 107(a)(10) defines an authorized insurer as an insurer that is licensed by the Insurance Department. Thus, Insurance Law § 3428(b) does not proscribe an unauthorized insurer from accepting insurance premiums for an insurance contract made or issued in this state in the excess lines market where the premiums are advanced under a premium finance agreement made by a person who is not licensed as a premium finance agency.

2. Power of Attorney

The inquirer asks whether Insurance Law § 3428(c) proscribes an unauthorized insurer from honoring a premium finance agency’s request to cancel an insurance contract made or issued in this state in the excess lines market where the premium finance agency makes the cancellation request under a power of attorney given by the insured to a premium finance agency that is not so licensed in this state.

Insurance Law § 3428(c) proscribes an authorized insurer from honoring a power of attorney or other authority to cancel an insurance contract the premiums for which are financed by a premium finance agency, “except in accordance with” Banking Law § 576. Insurance Law § 3428 reads in pertinent part as follows:

(c) No authorized insurer shall honor a power of attorney or other authority to cancel an insurance contract executed by an insured in connection with insurance premium financing, except in accordance with section five hundred seventy-six of the banking law . . . .

By its terms Insurance Law § 3428(c) applies only to an authorized insurer, which, as stated above, is an insurer that is licensed by the Insurance Department. Thus, Insurance Law § 3428(c) does not proscribe an unauthorized insurer from honoring a premium finance agency’s request to cancel an insurance contract made or issued in this state in the excess lines market where the premium finance agency makes the cancellation request under a power of attorney given by the insured to a premium finance agency that is not so licensed in this state because Insurance Law § 3428(b) applies only to authorized insurers.

This opinion letter is limited to an interpretation of the Insurance Law, and expresses no opinion regarding any other law (such as the Banking Law). The Department does not opine upon whether the premium finance agency described in the facts may engage in a premium finance business in this state.

For further information you may contact Senior Attorney Brenda M. Gibbs at the Albany Office.