OGC Opinion No. 07-06-21
The Office of General Counsel issued the following opinion on June 26, 2007, representing the position of the New York State Insurance Department.
Maintaining Premium Accounts in Credit Unions
Question Presented:
May an insurance agent or broker maintain a premium account in a federally insured credit union as well as in a financial institution insured by the Federal Deposit Insurance Corporation (“FDIC”)?
Conclusion:
Yes. An insurance agent or broker may maintain a premium account in a federally insured credit union, provided that the credit union is located and authorized to do business in New York State and permitted by its own regulator to hold premium accounts.
Facts:
The inquirer reports that the National Credit Union Administration (“NCUA”) is a federal agency that insures deposits at credit unions, and you request clarification of a February 13, 2007 opinion of this office. The inquirer wishes to confirm that maintaining a premium account in an institution insured by the NCUA, rather than by the FDIC, is permitted under the Insurance Law and regulations.
Analysis:
Because the primary purpose of a premium account is to maintain the value of the principals’ funds until they are due to be paid rather than to increase their value, agents and brokers holding the funds of others in a premium account must adhere to prudent rules of investing consistent with securing the value of the funds. The restrictions on premium accounts are imposed to ensure that agents and brokers, as fiduciaries, protect their principals’ funds to the utmost degree.
N.Y. Ins. Law § 2120(a) (McKinney 2006) governs the holding of funds received by agents and brokers. It states, in pertinent part:
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 funds held by him or it in any other capacity.
N.Y. Comp. Codes R. & Regs. tit. 11 § 20.3(b)(1) (2001) (Regulation 29) further provides:
An agent or broker who does not make immediate remittance to insurers and assureds of such funds shall deposit them in one or more appropriately identified accounts in a bank or banks duly authorized to do business in this State, from which no withdrawals shall be made except as hereinafter specified (any such account is hereinafter referred to as “a premium account”).
The Department has concluded that federally insured credit unions fall within the term “bank or banks duly authorized to do business in this State” and satisfy the “federally insured” requirement for premium accounts, provided that they are located and authorized to do business in New York State, and the regulator of the credit union permits the holding of such accounts. See, e.g., Office of General Counsel opinion dated October 23, 2000. Whereas the aforementioned February 13, 2007 opinion stated that all funds had to be insured by the FDIC, it was in the context of an FDIC-insured bank account; the opinion did not intend to suggest that the use of a federally-insured credit union account is precluded by law.
Accordingly, the Department has no objection to an insurance agent or broker maintaining a premium account in a credit union insured by the NCUA, subject to the aforementioned qualifications.
For further information you may contact Associate Attorney Jeffrey A. Stonehill at the New York City Office.