The Office of General Counsel issued the following opinion on March 24, 2006, representing the position of the New York State Insurance Department.
Re: Insurance Broker Charging Separate Fees for Placing Insurance.
May an insurance broker that procures workers" compensation coverage for clients in a group self-insurance trust charge the clients a separate fee, in addition to receiving a commission from the self-insurance trust, for placing insurance?
Yes. The insurance broker may charge its clients a separate fee, in addition to receiving a commission, provided there is a written memorandum signed by the party to be charged, which specifies or clearly defines the amount or extent of such compensation. However, such fees should be reasonable and different insureds should not be charged different amounts for the same services.
X is a workers" compensation self-insurance trust for a group of homogenous risks. Y is licensed as an insurance agent and broker and procures workers" compensation coverage for clients in X's group self-insurance trust. Since the inquirer stated that Y is procuring the workers' compensation coverage on behalf of the clients, which we assume are the insureds, Y is acting in the capacity of an insurance broker. The trust, through a third party administrator, pays a 5% commission on new business placed in the trust and 2.5% on renewals. Y's commissions for placing the insurance have been reduced and it wants to recoup this loss by charging the insured a separate fee. The inquirer would like to know whether, under the New York Insurance Law, Y may charge a separate fee to its clients, in addition to receiving the commission from X.
As a preliminary matter, a group self-insurance trust that is formed pursuant to the Workers" Compensation Law to provide workers" compensation insurance is an exempt insurer under the New York Insurance Law.1 However, there is no comparable exemption for an insurance broker that procures workers" compensation insurance for an insured through a self-insurance trust.
N.Y. Ins. Law § 2119(c) (McKinney Supp. 2006) provides, 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 sale, solicitation or negotiation 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.
In accordance with the above, an insurance broker may charge the insured a separate fee, in addition to the commissions that it receives, provided there is a written memorandum signed by the party to be charged, which specifies or clearly defines the amount or extent of such compensation.
Unlike an insurance broker, there is no statute that allows an insurance agent to charge an insured a separate fee for placing insurance. The only fee that an insurance agent may charge an insured is a fee for providing consulting services as described in N.Y. Ins. Law § 2119(a) (McKinney Supp. 2006). There is one exception to this general rule, and that is in regard to policies placed with the New York Automobile Insurance Plan. Under the Rules of the New York Automobile Insurance Plan (2001), an insurance agent represents the insured, and, therefore, acts an insurance broker. Thus, for this limited purpose only, an insurance agent may charge an insured a service fee as permitted under the Plan.
Accordingly, in the present case, the insurance broker may charge the insured a separate fee, in addition to the commission that it receives from the self-insurance trust, provided that it complies with Section 2119. However, such fees should be reasonable and different insureds should not be charged different amounts for the same services.
This opinion is limited to an interpretation of the New York Insurance Law. We express no opinion on any other laws.
For further information you may contact Associate Attorney Pascale Jean-Baptiste at the New York City Office.
1 See Office of General Counsel Opinion No. 00-10-03, dated October 13, 2000, which is currently available on our website located at http://www.ins.state.ny.us.