The Office of General Counsel issued the following opinion on August 18, 2004, representing the position of the New York State Insurance Department.
RE: Broker's Assignment of Premium Finance Agreement and § 2119 Agreement
Where a licensed insurance broker enters into a premium finance agreement with an insured and then assigns the premium finance agreement to a licensed premium finance company for a fee, must the broker obtain a service fee agreement pursuant to N.Y. Ins. Law § 2119(c) (McKinney 2000)?
As previously concluded by this Office, a licensed insurance broker that enters into a premium finance agreement with an insured and then assigns the premium finance agreement to a licensed premium finance agency for a fee does not have to obtain a service fee agreement except if the insured was charged a fee by the premium finance agency by which it would recoup its payments to the broker.
No specific facts are provided. The inquirer questions whether the Department's opinion dated January 21, 2003 remains the position of the Department.
The inquirer requested confirmation that the Departments July 1, 1999 and January 21, 2003 letters remain the Department's position in the situation where a licensed insurance broker acts as the initial issuer of a premium finance agreement and then, for a fee, assigns the agreement to a premium finance agency. The latter opinion stated:
OGC Opinion 99-80 concluded that, where there were no additional indirect charges being recouped by the premium finance agency from the insured, neither the wholesale broker nor the retail broker would be required to obtain the statutorily required signed memorandum from the insured under N.Y. Ins. Law § 2119(c)(1) (McKinney 2000).1 However, if the insured was charged fees by the premium finance agency by which it would recoup its payments to the brokers, the insured must sign a § 2119 memorandum from each licensee that is compensated acknowledging that the retail and wholesale broker would be receiving compensation from the premium finance agency. Under the facts presented, the insured was paying compensation to the wholesale broker pursuant to the finance agreement issued by the wholesale broker. This is because the insured would indirectly be paying the broker's compensation. See Office of General Counsel Opinion No. 94-80 (Sept. 22, 1994). Therefore, a § 2119 memorandum separate and apart from the finance agreement defining the amount of such compensation was required to be signed by the insured.
There has been no change in the Insurance Law or Regulations subsequent to the issuance of the January 21, 2003 opinion that would require a reversal of its conclusion. Accordingly, it continues to be valid.
In the inquirer's letter, it was noted that the insured would pay a below-market financing rate under the agreement. We assume, for the purposes of this letter, that the low rate is not a special rate that is offered as a valuable consideration or inducement, which would violate N.Y. Ins. Law § 2324 (McKinney Supp. 2004).
For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.
1 N.Y. Ins. Law § 2119(c)(1)(McKinney 2000) provides:
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 adjusting 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.