Several IIABNY members have contacted us about a recent e-mail message Progressive Insurance sent to its agents. The Nov. 26 message informed agents that, “Progressive can no longer offer the option to reimburse an agency banking account for an insured check made payable to the agency which is returned as dishonored by the bank for non sufficient funds.” The company cited a June 2007 advisory legal opinion from the state Insurance Department’s Office of General Counsel as the reason for its action.

IIABNY first became aware of this problem in the fall of 2006 and has been at work on the issue since. Tim Dodge, IIABNY director of research and external communications, wrote the OGC in November 2006, requesting that it reverse a June 2006 opinion. That opinion held that an insurer cannot reimburse a producer for an insured’s bounced check, bill the insured directly, and cancel the policy if the insured fails to pay. IIABNY argued that, because of the agent-company relationship, an insured that provides a dishonored check to the agent has in effect provided it to the company. Our conclusion was that bouncing a check to an agent is essentially non-payment of premium.

In response, Paul A Zuckerman, principal attorney for the Office of General Counsel, reaffirmed the department’s previous opinion. He wrote, “Except with respect to an assigned risk automobile insurance policy, an insurer need not reimburse the insurance producer for the premium, and may not either issue a bill directly to the insured for the premium or issue a notice of cancellation for non-payment of the premium, when an insured fails to pay the bill after the insured’s premium check that was deposited in an insurance producer’s premium sweep account was dishonored, and the insurer already had withdrawn funds representing the premium from the producer’s account.”

As a result, Progressive and other companies have chosen to stop reimbursing producers for bounced checks from their insureds. IIABNY, while continuing to pursue this matter with the Insurance Department, is also working on legislation that would take the burden for collecting on bad checks off producers. The association has drafted language for a bill and will work with the insurance committees of the Assembly and Senate and the department on a reasonable solution.

Reprinted with the permission of IIABNY