The Office of General Counsel issued the following informal opinion on February 12, 2002, representing the position of the New York State Insurance Department.
Re: NYAIP Service Fees
Question Presented:
1) May an insurance broker or agent charge an insured a fee for services performed in relation to the placement of an automobile insurance policy through the New York Automobile Insurance Plan ("Plan")?
2) May such fee be charged with respect to new business and not renewal business?
3) Must such fee be charged to all insureds that purchase the automobile insurance from the Plan through the producer?
Conclusions:
1) An insurance broker may charge an insured a service fee, whether the automobile insurance was placed in the voluntary market or through the Plan, where a written memorandum, signed by the insured and specifying the amount and purpose of such compensation, is obtained pursuant to N.Y. Ins. Law § 2119(c) (McKinney 2000). An insurance agent may only do so when acting as a producer of (and only with respect to) an assigned risk automobile insurance policy written through the Plan, and in such case must do so in accordance with N.Y. Ins. Law § 2119(c). Service fees relating to an assigned risk automobile insurance policy are limited by § 21(C) of the Plan Rules.
2) A producer may charge a service fee in connection with new business, while choosing not to charge a service fee in relation to renewal business. Such distinction constitutes a permissible, rather than unfair, discrimination under the Insurance Law because more services are provided to an insured in first placing an insurance policy than are necessary for renewal.
3) Where the distinction in fees charged to insureds is based on the kind and amount of services provided, such distinction in fees is permissible under the Insurance Law. However, N.Y. Ins. Law § 2324 (McKinney 2000) prohibits a producer from making a distinction between insureds in the charging of service fees based on the producers attempt to induce an insured to purchase insurance (i.e., where the producer does not charge a fee to one insured that it would otherwise charge other insureds for the same or similar services, as an attempt to induce the insured to purchase the insurance).
Facts:
No specific facts were provided.
Analysis:
N.Y. Ins. Law § 2119(c) (McKinney 2000) states, in relevant part, as follows:
(c) (1) 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 adjustment 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.
(2) A copy of every such memorandum shall be retained by the broker for not less than three years after such services have been fully performed. . . . (emphasis added).
Thus, an insurance broker may charge an insured a fee for services performed in relation to the placement of an automobile insurance policy provided that the requirements of N.Y. Ins. Law § 2119(c) have been met.
However, there is no statute that allows an insurance agent to charge an insured a fee for services provided in relation to the placement of an insurance policy. The only fee an insurance agent may charge an insured is a consulting fee pursuant to N.Y. Ins. Law § 2119(a) (McKinney 2000) for consulting services, which are not the kind of services that you inquire about.
There is one exception to this general rule, and that is in regard to policies placed with the New York Automobile Insurance Plan, ("Plan"). Under the Plan Rules, an insurance agent represents the insured, and, therefore, acts as an insurance broker. Thus, for this limited purpose only, an insurance agent may charge an insured a service fee as permitted under, and limited by, § 21(C) of the Plan Rules, which states:
C. $40 Maximum Service Fee
The maximum service fee charged by a producer is applicable to all risks except commercial automobiles, private passenger fleets, and miscellaneous vehicles as enumerated in Section 6.A.1.e.(1) which are used for business.
A service fee not to exceed $40 may be charged per policy year involving the same producer and applicant/insured.
In addition to the $40 maximum service fee mentioned above, producers may charge an applicant/insured for actual disbursements for the following services only:
1. Use of express mail
2. Use of certified mail
3. Use of the Electronic Submission procedure (other than PASS)
4. Obtaining of MVRs for non-New York operators
NOTE 1: Producers will be reimbursed by the Plan for each valid New York State motor vehicle record (MVR) that is attached to all applications submitted to the Plan, in the amount not to exceed the current rate charged by the Department of Motor Vehicles, plus an additional $0.75 per MVR with the exception of any risk that meets the eligibility requirements of Rule 115. Experience Rating. Producers may not charge an applicant/insured for the cost of obtaining MVRs unless it is a non-New York operators license.
NOTE 2: A valid MVR consists of an MVR where a record exists and can be retrieved from the Department of Motor Vehicles (DMV) record system. The Plan will reimburse producers for MVRs that are considered invalid for applicants, but will not reimburse producers for any MVRs that are considered invalid for operators other than applicants. An invalid MVR indicates that no record can be obtained from the DMV to match the operator listed on the application (sometimes referred to as "no-hits").
Since the agent would be acting as a broker in this situation, the agent would also be subject to the N.Y. Ins. Law § 2119(c) (McKinney 2000) requirements.
N.Y. Ins. Law § 2324 (McKinney 2000) states, in relevant part:
(a) No authorized insurer, no licensed insurance agent, no licensed insurance broker, and no employee or other representative of any such insurer, agent or broker shall make, procure or negotiate any contract of insurance other than as plainly expressed in the policy or other written contract issued or to be issued as evidence thereof, or shall directly or indirectly, by giving or sharing a commission or in any manner whatsoever, pay or allow or offer to pay or allow to the insured or to any employee of the insured, either as an inducement to the making of insurance or after insurance has been effected, any rebate from the premium which is specified in the policy, or any special favor or advantage in the dividends or other benefit to accrue thereon, or shall give or offer to give any valuable consideration or inducement of any kind, directly or indirectly, which is not specified in such policy or contract, other than any article of merchandise not exceeding fifteen dollars in value which shall have conspicuously stamped or printed thereon the advertisement of the insurer, agent or broker, or shall give, sell or purchase, or offer to give, sell or purchase, as an inducement to the making of such insurance or in connection therewith, any stock, bond or other securities or any dividends or profits accrued thereon, nor shall the insured, his agent or representative knowingly receive directly or indirectly, any such rebate or special favor or advantage, provided, however, a licensed insurance agent or a licensed insurance broker may retain the usual commission or underwriting fee on insurance placed on his own property or risks, if the aggregate of such commissions or underwriting fees will not exceed five percent of the total net commissions or underwriting fees received by such licensed insurance agent or insurance broker during the calendar year.
It is permissible under N.Y. Ins. Law § 2324 for a producer to charge a service fee in connection with new business, while choosing not to charge a service fee in relation to renewal business. Such distinction constitutes a permissible, rather than unfair, discrimination under the Insurance Law because more services are provided to an insured in first placing an insurance policy than are necessary for renewal.
However, N.Y. Ins. Law § 2324 prohibits a producer from making a distinction between insureds in the charging of service fees where the distinction is made solely to induce an insured to purchase insurance (i.e., where the producer does not charge a fee to one insured that it would otherwise charge other insureds for the same or similar services, as an attempt to induce the insured to purchase the insurance). Where the distinction in fees charged to insureds is based on the kind and amount of services provided, such distinction in fees is permissible under the Insurance Law.
For further information you may contact Senior Attorney Sally Geisel at the New York City Office.