The Office of General Counsel issued the following opinion on July 11, 2003, representing the position of the New York State Insurance Department.

Re: Borrowing Funds From Clients

Question Presented:

Is there any specific insurance regulation that prohibits you from borrowing money from your insurance clients for you to use in expanding your business?

Conclusion

No. The New York Insurance Law does not regulate a private financial investment between a licensee and a client in connection with offering life insurance or accident and health insurance unless the transaction involves rebating, inducing a client to purchase goods or securities, or otherwise as prohibited under N.Y. Ins. Law § 4224 (McKinney’s Supp. 2003). Therefore, it is up to you, or your personal attorney or accountant, to review any legal requirements concerning any minimum or maximum interest rate guidelines, reporting tax consequences on tax returns, etc.

Facts

You are licensed by the Department to sell life and accident and health insurance and you specialize in selling long-term care insurance. You are licensed to sell insurance in numerous other states as well. You seek capital from your insurance clients to invest in your company.

Analysis

As stated above, the N.Y. Insurance Law does not regulate a private financial investment between a licensee and a client in connection with offering life insurance or accident and health insurance unless the transaction involves rebating, inducing a client to purchase goods or securities, or otherwise as prohibited under N.Y. Ins. Law § 4224 (McKinney’s Supp. 2003). However, you should keep in mind that the conclusion rendered is limited to the few facts presented and may change if material facts were not disclosed. In addition, please be aware that the Department would have jurisdiction to take disciplinary action against a licensee if the licensee engaged in financial misconduct.

For further information you may contact Associate Attorney Jeffrey A. Stonehill at the New York City Office.