OGC Op. No. 03-01-20
The Office of General Counsel issued the following opinion on January 7, 2003, representing the position of the New York State Insurance Department.
Re: Insurance Agents & Permissible Fees
Question Presented:
Why may an authorized insurer or licensed broker charge insureds service fees when a licensed insurance agent, other than one acting as a producer under assigned risk automobile insurance policies written through the New York Automobile Insurance Plan, may not charge such fees?
Conclusion:
With reference to a licensed broker that may charge insureds certain fees (e.g., policy placement fees and origination fees) pursuant to N.Y. Ins. Law § 2119(c) (McKinney 2000), a licensed agent may not charge insureds such fees because, unlike a broker who represents the insured, the agent represents the insurer and, consequently, may only receive compensation from such insurer. With reference to an insurer that may charge insureds fees that are not considered a part of its rating structure (e.g., late payment fees, reinstatement fees and premium installment fees), a licensed agent may not charge insureds such fees because their imposition is beyond the scope of the agents duty as an insurers representative.
Facts:
No facts are presented.
Analysis:
Agents
As a general rule, agents act on behalf of and represent insurers, and, consequently, may receive their compensation only from such insurers. Counsels Corner, The Bulletin of New York State Insurance Department (December 1989); see Wolcott B. Dunham, Jr., New York Insurance Law § 19.01-02 (1990). This compensation stems from an insurers filed or manual rate (the gross amount the insurer may charge under the law), which incorporates commissions payable to agents. Id. N.Y. Ins. Law § 2314 (McKinney 2000) provides:
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.
Accordingly, any additional compensation (e.g., fees, service fees, origination fees) paid by insureds directly to agents, which is beyond the incorporated commissions of an insurers filed or manual rates, generally violates the rate filing and rate approval provisions of the Insurance Law. Id.
However, an agent who acts as a producer under an assigned risk automobile insurance policy written through the New York Automobile Insurance Plan may collect such additional compensation because the agent is not acting in the capacity of an insurers agent under such circumstances. Office of General Counsel Opinion No. 02-01-05 (2002).1
Brokers
The New York State Insurance Law does not similarly limit licensed brokers from charging consumers service fees because brokers, unlike agents who represent insurers, represent insureds. N.Y. Ins. Law § 2119(c) (McKinney 2000) permits licensed brokers to charge insureds additional fees. It provides:
(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 negotiation or procurement 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 contracts, 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.
(3) This subsection shall not affect the right of any such broker to recover from the insured the amount of any premium or premiums for insurance effectuated by or through such broker.
(4) This subsection shall not affect the requirements of subsection (a) or (b) hereof, subsection (g) of section two thousand one hundred one or section two thousand one hundred eight of this article.
Accordingly, licensed brokers have explicit statutory authorization to receive additional compensation from insureds.2 To allow agents to charge service fees without authority comparable to § 2119(c) would create the anomalous situation of allowing agents to charge fees without any restriction while brokers could only do so within specific statutory limits. Office of General Counsel Opinion No. 00-12-07 (2000).
Insurers
Unlike insurers who may charge insureds late payment fees, reinstatement fees, and premium installment fees,3 which are not considered a part of an insurers rating structure, and are not required to be filed with the Insurance Department or included as part of manual rates, licensed agents may not charge insureds such fees because their imposition is beyond the scope of such agents duty as the representative of an insurer. Office of General Counsel Opinion No. 02-01-06 (2002).
For further information you may contact Senior Attorney Kristian Earl Lynch at the New York City Office.
1 A licensed insurance agent may also receive consultation fees pursuant to N.Y. Ins. Law § 2119(a)-(b) (McKinney 2000).
2 Unlike licensed agents who act on behalf of insurers, licensed brokers who represent insureds were granted the fee exceptions of § 2119(c) because of the unique historical exigencies that surrounded § 2119(c)s predecessor, L.1909, c. 33, § 169 ("§ 169"). § 169 allowed brokers to receive compensation from insureds in excess of the premium fixed by the insurer under marine insurance contracts when the agreement for such compensation was in writing. L.1909, c. 33, § 169 cmt. The Legislature enacted § 169 to address the shortage of available shipping and marine insurance during World War I. Id. At the time, it was customary for a "broker to receive his compensation exclusively from the insurer." Id. Consequently, "[a]ny agreement by the insured to pay compensation to the broker [was] so unusual that it [had to] be put in writing." Id. § 169 was amended by L.1939, c. 882, § 129(1), (2) ("§ 129"), which expanded § 169s coverage to all types of insurance contracts.
3 Insurers may charge these fees separately and apart from the policy premium because the expenses that such fees offset either arise from the manner an insured opts to pay such premium, or are incurred as a result of an insureds late premium payment. Office of General Counsel Opinion No. 02-01-06 (2002). Such fees develop independently from the issuance, underwriting and general maintenance of insurance policies, and have no association with any expenses incurred on behalf of insureds generally. Id. In contrast, other fees, such as "policy placement fees" and "origination fees," are part of the policy rate because they are part of the insurers expenses in issuing the policy and generally relate to underwriting and arise in relation to every policy issued. Id. Please see Office of General Counsel Opinion No. 02-01-06 (2002) for insurer requirements regarding the imposition of these excepted fees.