E&O Report | Service Fees – Updated
E&O Report | April 2026 | Volume 41, Number 4
A. Background
I have written extensively over the years about the use and parameters of Service Fee Agreements under NY Insurance Law §2119. That does not mean the topic has been addresses definitely or exhaustively for this reason. This is a gray area and the law is fluid.
What that means is several things. While there are cases ….decisions by the courts that discuss Service Fee Agreements under the statute, often in the context of a Broker challenging superintendent’s determination that petitioner violated that section and NYIL §§2119, 2314, 2122(b), 2102, and engaged in fraudulent and dishonest practices and demonstrated untrustworthiness within the meaning of N.Y. Ins. Law §2110(a)(3),(4)..they are few and far between.
Also relevant is that gone are the days when a lawyer for the Agent or Broker or they themselves could submit a question to the Office of General Counsel of the NYDFS and ask a question and get an official, (and often published) answer called an “OGC Opinion.”
Thus, without such guidance as to the past, it is hard to be definitive about advising of conduct about future actions. There is always a risk factor.
However, the DFS will always understand and appreciate Agents and Brokers acting in good faith and based on the advice of counsel supported by the best interpretation of law at the time.
B. Issue
Recently, several clients have asked me to both draft and advise them as to the use of Service Fee Agreement for (i) specific clients and (ii) general guidelines for their agencies for more widespread use. These assignment required me to delve deeper into the law and the proper use of Service Fee Agreements.
For example, a large corporate Insured terminated the CFO who handled insurance. Concerned about his handling of the insurance for various reasons internal to the Company and having nothing to do with any “failure to procure” suggestion, the Insured asked for their files going back years. This was going to be time consuming and costly for the Broker.
Another client wanted to standardize the use of Service Fee agreements given its historical understanding that for many clients, such as contractors, the issuance of an inordinate amount of Certificates of Insurance, Claims handling and even review of General Contracts and/or subcontractors’ insurance requirements are costly and time consuming.
C. What to Do – A General Answer
First, as always, when in doubt….contact the BIG I or me directly. We are here to help and SPECIFIC answers to your specific issue is always better than general answers. With that caveat please note the following:
1. The Service Fee Agreement:
a. MUST be in writing
b. Signed by the Insured
c. State the additional services to be provided and
d. The Fees to be Charged
For example, in on of the few reported decisions on the subject the appellate court in Citron v. Curiale, 273 A.D.2d 183 (1st Dept. 2000) upheld various determinations of the DFS against the broker, (like it being “engaged in fraudulent and dishonest practices and demonstrated untrustworthiness within the meaning of Insurance Law § 2110 (a) (3) and (4), and revoking all licenses issued by the Insurance Department to petitioner…”) as to the use of the Service Fee Agreement saying:
“Respondent’s determination is supported by, among other substantial evidence, the service fee agreement that petitioner presented to prospective insureds who sought to purchase workers’ compensation insurance through him. That agreement stated only the minimum premium charge, without specifying or clearly defining the amount or extent of the compensation to be received by petitioner, as required by Insurance Law § 2119 (c) (1). The Insurance Law requires that there be one document specifying the broker’s compensation either explicitly or by reference to another identified document setting forth the terms of the compensation * * * a standard not satisfied by the service fee agreement here. In any event, it is undisputed that the documents providing additional information from which an insured purportedly could have derived the amount of petitioner’s compensation were not provided to an insured until after such insured had signed the service fee agreement and made payment.”
2. They must NOT BE too attenuated to the procurement and servicing of the insurance.
3. The fees must be commensurate with the services. Thus, as objective as possible. Do it based on the best metrics you can support.
4. The fees have to be uniform among insureds. Not that it has to be the same amount. The formula for the amount needs to be standardized and uniform in its application. (“However, the fees charged should be reasonable, and like insureds (or potential insureds) should be charged the same amounts for the same services. See Circular Letter No. 9 (2006) (discussing service fee agreements).” and “…the insurer or insurance producer provides the service in a fair and nondiscriminatory manner to like insureds or potential insureds.” https://www.dfs.ny.gov/industry_guidance/circular_letters/cl2009_09)
This is also to avoid “REBATING”. (“The purpose of New York’s rebating and inducement provisions is to require an insurer or licensed insurance producer to provide insurance in a nondiscriminatory manner to like insureds or potential insureds, and to prohibit such an insurer or insurance producer from providing an insured or potential insured with any special benefit not afforded to other insureds or potential insureds. * * * Indeed, the legislative history of Insurance Law §§ 2324 and 4224 shows that the two statutes are intended to reach discrimination, through rebating of any special favor or advantage, between insureds who are equal risks, without specifying the favor or advantage in the policy or contract.”) (Same Circular)
D. Fines, Penalties & Aggregates
As to the consequences of failure to comply with the statute and how the DFS interprets it, please note the following.
As to “Per Violation” and “Aggregate” penalties NYIL §2127 says:
“(a) The superintendent, in lieu of revoking or suspending the license of a licensee in accordance with the provisions of this article, may in any one proceeding by order, require the licensee to pay to the people of this state a penalty in a sum not exceeding five hundred dollars for each offense, and a penalty in a sum not exceeding twenty-five hundred dollars in the aggregate for all offenses.”
“One proceeding” means the administrative enforcement action or hearing, typically a single case or disciplinary matter before the Superintendent where the licensee is charged with violations of the Insurance Law. [Each “proceeding” is assigned its own Case #: that is “CSB” followed by the year and then an 8-digit identifier.] The phrase does not define a calendar period or a limitation on how many proceedings may be brought; it simply contexts the penalty authority to the scope of a single enforcement case. If the Department initiates an enforcement action (e.g., issues a notice of charges against a licensed broker), that action constitutes one proceeding for purposes of § 2127(a).This limits the penalties that can be imposed within that single action, BUT NOT as to multiple separate enforcement actions.
So all violations alleged and resolved in that proceeding are aggregated for purposes of calculating the total penalty caps specified. BUT….if multiple, separate enforcement actions are brought later for different conduct, each is a separate “proceeding” and the penalty authority of the Superintendent applies anew in each. The statute’s language focuses on the count of proceedings, not the number of violations over time.
My experience is that the DFS interprets the above to mean the penalties apply separately to each type of offense. For example, $500 for each service fee violation, $500 for each incident of rebating, and $500 for each incident of any other offense they can find once they start investigating.
The other penalties can be assessed and when are they triggered like loss of license – individual and business. NYIL §2110, subsection (a) lists 17 offenses for which DFS can refuse to issue, suspend, or revoke a producer’s or adjuster’s license. License revocations are normally the result of 1) really egregious behavior, or 2) ignoring the department’s letters. You can find reports from 1/2019 to 1/2026 at https://www.dfs.ny.gov/Industry_guidance/disciplinary_actions.
Finally, the DFS publishes a monthly insurance disciplinary actions report. It usually comes out around the 20th of the month. It sort of tells you where their focus is. For example, there have been several incidents over the last 2 years of DFS fining agencies for displaying carrier logos on their websites without providing the carriers’ full names and headquarters city, in violation of Section 2122(b). (I have had 2 of these recently.)
Conclusion
You work too hard not to be compensated fairly for your work. Commissions, often, do not compensate you for all the work that goes into the procurement and servicing of an account with the care and professionalism I have seen over 40 years on my end of the equation. You can charge a Service Fee. Just make sure to do it right.
Submitted by:
Howard S. Kronberg, Esq. | Kaufman Dolowich, LLP
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