OGC Op. No. 04-02-09

The Office of General Counsel issued the following opinion on February 17, 2004, representing the position of the New York State Insurance Department.

Re: Audit Fees

Question Presented:

Where an insurance premium is calculated based on an insured’s exposure base (ex., insured’s sales, size of fleet, etc.) may an insurer charge the fee for auditing the insured’s exposure base to the insured?


An insurer may not charge the fee for auditing the insured’s exposure base to the insured.


The inquiry is general in nature.


The Department considers the cost of an audit that is performed in accordance with policy provisions to be part of an insurer’s administrative expenses, which may be included with other expenses that establish the insurer’s rates.

Audit fees are different from late payment fees and reinstatement fees, which the Department considers to be properly classified as fees that are outside the rating structure, and which do not have to be filed with the Department or included as part of the manual rates. Late payment and reinstatement fees may be charged separately and apart from the policy premium because the expenses that such fees are meant to deflect arise independently from the issuance, underwriting, or general maintenance of insurance policies. See OGC Ops. 1/4/2002, 4/29/2003, and 10/1/2003.

On the contrary, an audit is a necessary component of a policy whose initial premium is based on an estimate of the insured’s exposure base. Therefore, an insured may not pass the cost of audit on to the insured.

For further information you may contact Associate Attorney Sally Geisel at the New York City Office.