The Office of General Counsel issued the following opinion on March 21, 2002, representing the position of the New York State Insurance Department.
Re: Agents Interest Bearing Premium Account.
Question Presented:
If an agent deposits premium monies in an interest bearing account, without the permission of either the client or the insurer, who is entitled to the interest that is earned on the deposits?
Conclusion:
Under N.Y. Ins. Law § 2120(a) (McKinney 2000) and N.Y. Comp. Codes R. & Regs. tit. 11, § 20.3(b)(4) (1996), unless the agent has a written agreement with the principal that allows the agent to retain the interest generated on the funds deposited in an interest bearing account, such interest belongs to the principal. Thus, in instances where the funds on deposit represent premiums collected plus interest, the written consent of the principal/insurer is required before the interest can be transferred to the agents operating account. In instances where funds on deposit represent return premiums plus interest, the written consent of the principal/insured is required before transfer of the interest to the agents operating account.
Facts:
An Illinois domiciled insurance agency, ABC Insurance Agency, Inc. has a sales office in New York City and generates insurance premiums from its New York clients, which it deposits in its interest bearing account. ABC Insurance Agency, Inc. does not have a written agreement from its principals allowing it to invest the premium monies in an interest bearing account. A market conduct audit by the Illinois Department of Insurance found ABCs premium account to be deficient. The inquirer states that the governing Illinois regulation is 50 Illinois Administrative Code 3113.
Analysis:
Although the inquirer seems to request interpretation of the Illinois statute as governs this fact pattern, we can only advise the inquirer on those requirements of New York law that are applicable to these facts.
Insurance agents and insurance brokers are responsible in a fiduciary capacity for all funds received or collected as an agent or broker. Premium accounts of insurance agents and insurance brokers are regulated pursuant to N.Y. Ins. Law § 2120 (McKinney 2000) and N.Y. Comp. Codes R. & Regs. tit. 11, § 20.3(b) (1996) (Regulation 29). N.Y. Ins. Law § 2120(a) (McKinney 2000) provides:
Every insurance agent and every insurance broker acting as such in this state shall be responsible in a fiduciary capacity for all funds received or collected as insurance agent or insurance broker, and shall not, without the express consent of his or its principal, mingle any such funds with his or its own funds or with funds held by him or it in any other capacity.
N.Y. Comp. Codes R. & Regs. tit. 11, § 20.3(b)(4) (1996) provides:
No withdrawals from a premium account shall be made other than for payment of premiums to insurers, payment of return premiums to assureds, transfer to an operating account of (i) interest, if the principals have consented thereto in writing and (ii) commissions, withdrawal of voluntary deposits; provided, however, that no withdrawal may be made if the balance remaining in the premium account thereafter is less than aggregate net premiums received but not remitted.
In accordance with the above, unless the agent has a written agreement with the principal that allows the agent to retain the interest generated on the funds deposited in an interest bearing account, such interest belongs to the principal. Thus, in instances where the funds on deposit represent premiums collected plus interest, the written consent of the principal/insurer is required before the interest can be transferred to the agents operating account. In instances where funds on deposit represent return premiums plus interest, the written consent of the principal/insured is required before the interest can be transferred to the agents operating account.
For further information, you may contact Associate Attorney Joan Siegel at the New York City office.