This article is a follow up to Premium Deposits: Dishonored Checks and Cash Payments, published in the January 25, 2010 issue of the Insurance Advocate, and addresses the New York State Insurance Department’s recent “Reconsideration of OGC Opinion No. 09- 12-06: Refusal to accept cash premium payments.”

By way of background, on December 29, 2009, the Office of General Counsel issued Opinion No. 09-12-06, which concluded that an insurance producer may refuse to accept cash premium payments but should not refuse a cash premium payment “if the insured may be adversely impacted by imminent cancellation, nonrenewal or non-issuance of the policy.”

Thereafter on March 10, 2010, in OGC Op. No. 10-03-01, the Department clarified that an insurance producer may refuse to accept a cash payment even if the insured would be adversely impacted by imminent cancellation, non-renewal or non-issuance of the insurance policy, under certain circumstances. For instance, a producer can refuse to accept a cash premium payment if to do so would be in contravention of the insurer’s rules or if it would circumvent anti-money laundering procedures.

As a practical matter, an insurance producer’s refusal to accept cash premium payments most often arises in the context of life insurance policies, where premium payments may be substantial and where life insurance applications typically require premium payments to be made by check payable to the insurance company. Requiring premium payments to be paid directly to the insurer mitigates opportunities for producers to engage in fraud in accepting high premium amounts but in failing to remit such payments to the insurer.

In considering whether to accept a cash premium payment, producers should be mindful of Insurance Law § 2121, which provides that payment to an insurance broker is deemed to be payment to the insurance company. The Department has opined that “[w]hile § 2121 does not require an insurance broker to accept an insured’s premium payment, an insurance broker should do so where it is in the best interests of the insured.” See OGC Opinion 05-02-19 (Feb. 11, 2005).

Deciding whether to accept or refuse a cash premium payment may involve assessing whether the insured would be adversely impacted by imminent cancellation, non-renewal or non-issuance of the policy, and whether the insurer’s rules prohibit cash payments or where the cash payment would circumvent anti-money laundering procedures, or where the acceptance of the cash payment would otherwise be imprudent.