OGC Op. No. 09-01-03
The Office of General Counsel issued the following opinion on January 13, 2009 representing the position of the New York State Insurance Department.
RE: Premiums received by broker
Must an insurer rescind a cancellation for premium non-payment when the broker that procured the policy collects premium from the insured but fails to remit the premium to either the insurer or its MGA?
Yes. An insured who pays premium to an insurance broker is protected under New York Insurance Law § 2121 (McKinney 2006). Therefore, the insurer must rescind the cancellation if the insured has not already procured insurance elsewhere. If the insured has procured insurance elsewhere, the insurer must credit the insured with the appropriate amount of the premium, and seek collection from the broker.
The inquirer reports that he is an MGA.1 He states that an insurance broker representing an insured obtained a commercial property/casualty insurance policy through the inquirer's agency. The insured paid to the broker a deposit of the annual premium, and the broker arranged for the financing of the remaining balance. However, the broker failed to submit the premium deposit either to the MGA or to the insurer. After failing to receive the premium, the insurer subsequently issued a notice of cancellation for non-payment of premium to the insured. However, the broker argues that because it received the premium, the insurer must cover the insured, since an insured’s payment to the broker is deemed payment to the insurer.
Insurance Law § 2121 is relevant to the inquiry. That provision states:
(a) Any insurer which delivers in this state to any insurance broker or any insured represented by such broker a contract of insurance pursuant to the application or request of such broker, acting for an insured other than himself, shall be deemed to have authorized such broker to receive on its behalf payment of any premium which is due on such contract at the time of its issuance or delivery or payment of any installment of such premium or any additional premium which becomes due or payable thereafter on such contract, provided such payment is received by such broker within ninety days after the due date of such premium or installment thereof or after the date of delivery of a statement by the insurer of such additional premium.
Therefore, when an insurer entrusts a broker with a policy of insurance for delivery to the insured, the broker acts as an agent for the insurer in collecting and receiving the first premium. Consequently, payment to the broker is deemed payment to the insurer. See Bohlinger v. Zanger, 306 N.Y. 228 (1954); Merchants Mut. Ins. Co. v. Valilis, 11 A.D.2d 324, 326 (1st Dep’t 1960); Central Surety & Ins. Corp. v. Marro, 189 Misc. 823, 827 (Sup. Ct., Rensselaer Co. 1947).
While brokers generally represent insureds, see Insurance Law § 2101(c), in this instance—where the broker receives the policy 2 from the insurer to deliver to the insured—the broker is acting on behalf of the insurer, and has the implied authority to receive premiums from the insured. And because the inquirer is an MGA, he is authorized to act on behalf of the insurer. Therefore, the delivery to the broker of the policy by either the inquirer or the insurer authorizes the broker to receive premiums on behalf of the insurer. See, e.g., OGC opinion dated March 14, 1962; Couch on Insurance 3d (2008) § 51:61.
In sum, under the facts presented, the insurer must rescind the cancellation if the insured has not procured insurance elsewhere. However, if the insured has procured insurance elsewhere, then the insurer should credit the insured with the appropriate amount of the premium. See OGC Opinions dated March 14, 1962 and November 21, 1967. The MGA’s recourse, and the insurer’s recourse, is against the broker—not the insured.
For further information, you may contact Senior Attorney Sapna Maloor at the New York City Office.
1 The inquirer has not, however, indicated what he means by the term MGA, and whether he qualifies as one under New York Comp. Codes R. & Reg. (NYCRR), tit. 11, Part 33 (Regulation 120).
2 For the purpose of Insurance Law § 2101, a binder is deemed equivalent to a policy. See OGC Opinion dated July 27, 1965.