The Office of General Counsel issued the following opinion on December 12, 2005, representing the position of the New York State Insurance Department.
Re: Agent or Broker Charging Fee for Insufficient Check Charge
May an insurance agent or broker ("the producer") seek reimbursement from its client to reimburse the producer when the producers bank imposes an insufficient check charge on the producer because the clients check that was deposited in the producers premium account was dishonored by the bank upon which it is drawn?
An insurance producer may seek reimbursement from its client to reimburse the producer when the producers bank imposes an insufficient check charge on the producer because the clients check that was deposited in the producers premium account was dishonored by the bank upon which it is drawn.
No specific facts are alleged. This is a general inquiry.
In an earlier letter to the inquirer, we noted that there is no statute that authorizes an insurance agent to charge a fee for its services. This is unlike the case for an insurance broker, which may charge a service fee if it obtains a written service agreement pursuant to N.Y. Ins. Law § 2119(c) (McKinney 2000 & 2005 Supp.). Treating the reimbursement as if it was a fee, we concluded that an insurance agent could not seek reimbursement from the insured when the insureds check is dishonored by the bank upon which it is drawn.
On further reflection, it is our opinion that the insurance agent is not charging a fee for the agents services. Rather, the agent is merely seeking reimbursement for a bank fee that was imposed on the agent by the bank because of the insureds wrongful action, be it negligent or otherwise; and therefore the agent is entitled to seek recompense from the insured in the same way that the agent may do so with respect to the premium payment that was dishonored. The Department does not consider the reimbursement when the brokers clients check is dishonored to be a service fee and an insurance broker does not need to obtain a § 2119 agreement for the broker to seek such recompense.
However, if the producer has paid the premium to the insurer from the producers premium account, the insurer may not cancel the policy for non-payment of premium nor may the producer request the insurer to cancel the policy because the check was dishonored. Nor may the producer use a return premium or a claim payment to offset against the amount owed to the producer. In such a case, the producer acts in a fiduciary capacity for the purpose of forwarding the payment to the insured and the producer may not detain the remittance or utilize it for another purpose, unless the producer has specific authorization to do so from the insured.
Reference was made to an earlier opinion of this Department, which addressed late payment fees, reinstatement fees and premium installment fees as being outside of the rating structure. (Opinion 01-01-06.) However, please note that those are fees that only an insurer may charge, not its agent.
For further information please contact Principal Attorney Paul A. Zuckerman at the New York City Office.