4000 - Advisory Opinions
Insurance Coverage Afforded an Account Maintained by an Insurance Broker Consisting of Insurance Premiums Held on Behalf of Insurance Companies and Broker's Commissions
FDIC-91-80 September 30, 1991 Claude A. Rollins, Counsel
This is in response to your letter of August 21, 1991, in which you request clarification of deposit insurance coverage for "premium" and "claims" accounts held by an insurance brokerage firm in a fiduciary capacity. Since you offer no facts as to what type of funds a "claims" account contains, I shall address only the "premium" accounts.
Based on my knowledge of the way insurance brokerage firms operate, I will assume for purposes of this opinion that the insurance broker receives insurance premiums from policyholders on behalf of insurance companies and that the brokerage firm is entitled to a percentage of the premiums as a commission. A "premium" account typically contains both types of funds.
Section 330.6 of the FDIC's regulations ("Accounts held by an agent, nominee, guardian, custodian or conservator") governs this situation because the funds are held by the insurance agency as fiduciary for others, as well as for itself. Section 330.6(a) provides that "[f]unds owned by a principal or principals and deposited into one or more deposit accounts in the name of an agent, custodian or nominee, other than an insured depository institution shall be insured to the same extent as if deposited in the name of the principal(s)." 12 C.F.R. § 330.6(a) (1991).
Applying this rule, insurance premiums received by an insurance broker from policyholders that are held temporarily on deposit by the brokerage firm as custodian or agent at an insured depository institution are insured up to $100,000 for each policyholder or underwriter for whom the funds are being held. Prior to the premium due date, the broker would normally be holding such funds for the policyholder; thereafter, for the insuring underwriter.
In order to qualify for this "pass-through" insurance, however, certain recordkeeping requirements must be met. The FDIC's regulations require that the deposit account records of an insured depository institution must expressly disclose the existence of any fiduciary relationship (such as custodian, agent or trustee) pursuant to which funds are held and upon which a claim for deposit insurance may be based. 12 C.F.R. § 330.4(b)(1). This requirement could be satisfied by titling the account "XYZ Insurance Agency for itself and as agent for others." In addition, the details of the relationship and the interests of other parties in the account must be ascertainable from records of either the insured depository institution or the depositor (or a third party whom the depositor has hired to keep such records), maintained in good faith and in the regular course of business. Id. § 330.4(b)(2).
So long as these recordkeeping requirements are met, it is my opinion that deposit insurance of up to $100,000 would be provided for the funds that the brokerage firm owns outright and up to $100,000 for each policyholder or underwriter for whom the funds are being held. Please note, however, that any other funds deposited directly with the institution by the brokerage firm, the policyholder(s) or the underwriter(s) in the same right and capacity would be included within the $100,000 limit.
If you provide me with some specific information concerning the nature of the funds in the "claims" account (e.g., who owns the funds), I will be happy to express an opinion on the insurance that would be provided for such an account.
For your reference, I have enclosed a copy of the FDIC's deposit insurance regulations. Should you have further questions, I can be reached at (202) 898-3985.