N.Y. Permits Agents to Recover Costs for Bad Checks in Reversal of Opinion

December 21, 2005

New York insurance agents will have the same rights that other businesses have to recover costs when customers write bad checks, according to a new opinion issued December 19 by the New York Insurance Department.

The department has reversed an earlier opinion that agents cannot charge their clients fees even to recover their own costs when banks return clients’ checks due to insufficient funds.

The department took this position at the request of the Independent Insurance Agents & Brokers of New York, Inc. IIABNY said it worked closely with officials to get the opinion reconsidered.

The new opinion is available for download from the IIABNY Web site at http://ny.iiaa.org/news/NYSIDltr121905.pdf .

“We are very pleased with the Insurance Department’s decision on this matter,” said Mark J. Hagan, IIABNY chair of the board and president of Perry & Carroll, Inc., in Elmira, New York.

“The prior opinion placed insurance agents at a disadvantage because, unlike virtually every other business in New York, they were not permitted to recover from clients who give them bad checks. Agents were in the position of having to pay bounced check fees to their banks without being able to recover those costs from the clients who gave them the checks. Fortunately, the insurance department recognized the unfairness of this situation. We thank the department for listening to our concerns and taking the appropriate action in a very timely fashion.”

Current law prohibits agents (not brokers) from charging their clients fees for providing insurance services. The department’s earlier October 21 opinion held that this law applied to all fees, even those that merely reimburse agents for expenses out of their control. The new opinion makes an exception to that rule for a bad check fee because it is repayment for the client’s “wrongful action,” not a fee for service.

“Insurance agents are not looking to take unfair advantage of their clients,” added Hagan. “The vast majority of clients pay on time and with valid checks, and agents value their business. But in those situations where an agent must pay a fee to a bank because a client wrote a bad check, that agent should be able to recover that fee from the client, just like any other businessperson can do in this state.”

Source: IIABNY

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