The Office of General Counsel issued the following informal opinion on December 22, 2000 representing the position of the New York State Insurance Department.
RE: Reinstatement Fee
Question Presented:
Is it permissible for an agency, which is acting as program manager on behalf of an insurer, to charge a reinstatement fee in connection with a livery policy that has been cancelled due to nonpayment?
Conclusion
An agency cannot charge a reinstatement fee in connection with a livery policy that has been cancelled due to nonpayment.
Facts
An operator of an insurance agency is involved in the marketing of various types of coverage, including automobile insurance for livery vehicles. This agency is currently acting as the program manager, for an insurance company in connection with a livery vehicle insurance program located in upstate New York. In this capacity, it is responsible for many of the administrative functions ordinarily handled by the insurer with respect to this book of business. It does not act in this capacity for the insurer throughout the state and does not handle the rate or form filings on the insurers behalf.
The agency noted a tendency by certain insureds to repeatedly allow their policies to be cancelled for nonpayment of the premium. This resulted in repeated cancellations and reinstatements of coverage on the same risk and is unnecessarily burdensome to administer. The agency would favor charging a reinstatement fee to insured policyholders to discourage this practice. Any reinstatement fee would be imposed only with respect to policies in the book of business for which the agency served as program manager.
Analysis
As a general rule, agents act only for the insurer as principal and their compensation must come from that source alone. N.Y. Ins. Law § 2314 (McKinney 2000) prohibits licensed insurers, their employees or representatives, and brokers from charging a rate or premium that departs from filed (or manual) rates in effect. To permit an insurer or its agent, who stands in the insurer's shoes, to collect an additional amount of money, however denominated (such as a reinstatement fee or service fee) would run counter to the purpose of having rate filing and rate approvals in place for insurers. See Counsels Corner, The Bulletin of New York State Insurance Department (March, 1991), and cases cited therein.
The only exceptions to §2314 are found in N.Y. Ins. Law § 2119 (McKinney 2000). N.Y. Ins. Law § 2119(c) is limited to brokers, who act for the insured, not for the insurer, and who charge a service fee in accordance with the requirements of that section. Permitting agents to charge a service fee without authorization under N. Y. Ins. Law § 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. An insurance agent may receive additional compensation from a client as authorized under N.Y. Ins. Law § 2119(a) for certain consultative services, such as the "examining, appraising, reviewing or evaluating any policy, bond, annuity or pension or profit-sharing contract, plan or program or for making recommendations or giving advice with regard to any of the above. . . ." The proposed reinstatement fee, however, could not be characterized as permissible compensation under N.Y. Ins. Law § 2119 (a).
In conclusion, although an agent may be entitled to fees for advising a party to be charged within the meaning of N.Y. Ins. Law § 2119(a) (McKinney 2000), such agent may not charge a fee for servicing or or performing administrative functions with respect to insurance policies, irrespective of written agreement.
For further information contact Supervising Attorney Michael Campanelli at the Departments New York Office.