OGC Opinion No. 08-04-37

The Office of General Counsel issued the following opinion on April 29, 2008 representing the position of New York State Insurance Department.

Re: Premium Finance Agency

Question Presented:

May a premium finance agency compensate an insurance agent or broker for referring an insured to the premium finance agency, when the agent or broker also receives insurance commissions from the insurer writing the insurance?


No. A premium finance agency is prohibited from paying a referral fee to an insurance agent or broker.


The inquiry is of a general nature, without reference to particular facts, except that the agent or broker receives commissions from the insurance company writing the insurance.


N.Y. Banking Law § 566(2) (a) (McKinney 2006) is relevant to the inquiry. The statute, in pertinent part, reads as follows:

No premium finance agency, and no employee of such an agency shall pay, allow or offer to pay or allow in any manner whatsoever to an insurance agent or broker or any employee of an insurance agent or broker, or to any other person, either as an inducement to the financing of any insurance policy with the premium finance agency or after any such policy has been financed, any rebate whatsoever, either from the service charge for financing specified in the premium finance agreement or otherwise, or shall give or offer to give any valuable consideration or inducement of any kind directly or indirectly, other than an article of merchandise not exceeding one dollar in value which shall have thereon the advertisement of the premium finance agency, but a premium finance agency may purchase or otherwise acquire a premium finance agreement, provided that it conforms to this article in all respects, from an insurance agent or broker or another premium finance agency with recourse against the agent, broker or agency on such terms and conditions as may be mutually agreed upon…

Thus, by its terms, Banking Law § 566(2)(a) precludes a premium finance agency from paying an “inducement” to any insurance agent or broker in order to finance an insurance policy. The Insurance Department’s reading of the statute is confirmed by the Banking Department itself. See Banking Dept. Opinion of Asst. Counsel (April 14, 2005) (available on the Banking Department’s website at http://www.banking.state.ny.us.

For further information you may contact Principal Attorney Donald Carroll at the New York City office.