The Office of General Counsel issued the following informal opinion on May 10, 2002, representing the position of the New York State Insurance Department.

Re: Monies collected by an insurance agent/administrator from employers in connection with a group health insurance plan

Questions Presented:

1) Was the insurance agent responsible in a fiduciary capacity under N.Y. Ins. Law § 2120(a) (McKinney 2000) for that part of the funds it billed to the employers of the group health insurance plan sponsored by the Chamber of Commerce that was used by the agent to establish and operate the Wellness and Employee Assistance Program?

2) Is the agent potentially subject to disciplinary action by this Department under the New York Insurance Law should the monies in question that are left over from the Wellness and Employee Assistance Program, not be returned to the employers?


1) Yes. When the funds for the Wellness and Employee Assistance Program were collected by the agent from the employers as premium the agent had a fiduciary obligation as to them under N.Y. Ins. Law § 2120(a) (McKinney 2000).

2) Yes, however whether or not such action is likely, depends upon the facts and legal conclusions to be drawn from the actions of the agent as to the monies in question.


The inquirer’s client is licensed in New York State as an insurance agent and also acts as a group health plan administrator (the "Agent"). The Agent had a long-standing relationship with a Chamber of Commerce ("the Chamber") to whose members ("the employers") the Agent sold and administered a group health insurance plan ("the Plan"). In the 1980’s, when such plans were subject to experience rating, the Agent and the Chamber implemented a Wellness and Employee Assistance Program ("the EAP Program") for the employees of insured Chamber members. The Agent contracted with a human services agency to provide the services under the EAP Program.

While the EAP Program was operational the Agent would bill each employer in the Plan. The bill specified a single total amount billed as premium. When payment was received by the Agent, the money was allocated by the Agent for premium due the insurer, administrative costs due to it as agent/administrator, and the costs of the EAP Program. The Agent deposited all of the money billed and collected by it into its premium account. The inquirer states that the employers were aware that the amounts they paid for the group health insurance plan included contributions toward the EAP Program.

After April 1, 1993, due to the statutory change effected under 1992 N.Y. Law 501, the Plan was no longer experience rated but instead became subject to community rating. The Agent then stopped billing the employers for the costs of the EAP Program. For a time after the statutory change, there were legal challenges to the validity of the new law. Pending the outcome of the litigation, the Agent decided to transfer the remaining monies for the EAP Program in its premium account into a separate bank account in the Agent’s name, earmarked as funds to be used solely to pay for the EAP Program. Also, at this time, the Agent terminated the EAP Program and the contract with the human services agency because, under community rating, it was no longer necessary to maintain the Program to keep health costs down for insured employees. Nevertheless, money was still owed to the human services agency that had run the EAP Program and the Agent made those payments out of the separate account. After the human services agency had been fully paid, a sum of money was left over and remained in the separate account. It is the subsequent handling of this money ("the monies") which is the subject of this inquiry.

By 1995 or 1996, the Agent gave up on the possibility that the litigation challenging the community rating law would be successful and return the Plan to experience rating. At this time it chose to close out the separate bank account and gave the monies to the Chamber for safekeeping. According to the Agent, the reason that the monies were transferred was tax concerns since while the monies remained in the separate bank account, the interest being earned was taxable to the Agent. At the time of this transfer there was no written agreement between the Agent and the Chamber as to the status of the monies. However, the inquirer asserts that there was never any agreement that by turning over of these monies to the Chamber the Agent relinquished any claims over said monies, nor was the transfer an acknowledgment of who was legally entitled to the money.

At about the same time, the Plan’s insurer instituted a requirement that a defalcation bond be provided to protect it should the Agent go bankrupt or abscond with fiduciary funds. The Agent considered the cost of obtaining and maintaining the defalcation bond as an administrative cost of the Plan which was passed on to the employers. A large deductible was retained on this bond so as to keep the cost of the bond down. It was the Agent’s understanding that the Chamber, on behalf of its employer/members participating in the Plan, would be responsible to pay the deductible amount, if necessary, out of the monies now being held by the Chamber. The inquirer asserts that the decision to hold the remaining monies for the foregoing purpose was made jointly by the Chamber and the Agent in order to avoid having to raise premiums charged to the employers in order to cover the deductible on the defalcation bond.

Subsequently, the Chamber ceased sponsoring the Plan and terminated its relationship with the Agent. The Plan is now defunct because the employers have switched to another plan that the Chamber is now sponsoring. The Chamber refused the Agent’s request to return the monies to the employers. The monies in question still remain with the Chamber and the inquirer alleges that they are recorded on the books of the Chamber as a segregated account.

The Chamber has instituted litigation against the Agent that is currently pending before the New York State Supreme Court, over its falling-out with the Agent in connection with the Plan. The Agent has counterclaimed against the Chamber seeking the return of the monies so that it may return the money to the employers. The Agent wants the Chamber to turn over the monies to it so that it can be returned to the employers who were still in the EAP Program when it was terminated. It is the Agent’s contention that there should be such a return because it was the employers’ money that funded the EAP Program in the first instance and which is now being held by the Chamber.


It would be inappropriate for the Department to opine on most of the questions presented since most of the questions are currently pending before the New York State Supreme Court for resolution.

However, we will address that portion of the inquiry as to the fiduciary duty of the Agent in regard to its actions under the New York Insurance Law and the potential for disciplinary action against the Agent being taken by the Department as its licensing authority.

Under the New York Insurance Law, an insurance agent and broker have a fiduciary obligation regarding monies that have been collected from its insurance Agents in that capacity. N.Y. Ins. Law § 2120(a) (McKinney 2000) provides, as follows:

Every insurance agent and every insurance broker acting as such in this state shall be responsible in a fiduciary capacity for all funds received or collected as insurance agent or insurance broker, and shall not, without the express consent of his or its principal, mingle any such funds with his or its own funds or with the funds held by him or it in any other capacity.

The Agent billed and collected from the employers, the Plan premiums as a single amount. The figure billed for as Plan premiums included the premiums to be forwarded to the insurer, administrative expenses and the cost of the EAP Program. The portion of the premium bill that was intended to be used for the EAP Program was not separately identified in the bill and, therefore, these monies constitute funds received by the Agent as an insurance agent under N.Y. Ins. Law § 2120(a) (McKinney 2000). Once in the Agent’s possession, for purposes of the Insurance Law, they are fiduciary funds for which the Agent is responsible.

As fiduciary funds, these monies were to be held by the Agent for the benefit of the employers (and the insured employees). The Department could institute disciplinary proceedings against the Agent, for demonstrating incompetence or untrustworthiness to act as an insurance agent based upon allegations it improperly failed to return the monies to the employers. However, under the circumstances as presented, it is more likely that the Department would not act in a disciplinary proceeding until the litigation has been resolved.

For further information you may contact Associate Attorney Barbara A. Kluger at the New York City Office.