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4000 - Advisory Opinions

Insurance Coverage of Premiums Held by Insurance Broker on Behalf of Insurance Companies


November 15, 1990

Gerald J. Gervino, Senior Attorney

In your letter to Mr. Alfred J.T. Byrne, our General Counsel, you ask two questions concerning the insurance coverage afforded funds which you will hold in a fiduciary capacity and deposit in an insured bank.

Your company is an insurance broker located in California. In this capacity, you represent over 40 insurance companies. Your company's sales force markets insurance products to thousands of clients and causes the insurance companies to actually issue insurance policies to insure the various risks covered.

As a representative of these insurance companies, your company is authorized to bill and collect premiums for them and to keep the funds so collected in a trust account at a local bank. The funds are held in the account by you in a fiduciary capacity for all of the over 40 insurance companies that you represent.

You ask two questions:

1.  Considering that your company, acting in a fiduciary capacity, is holding trust funds in amounts of approximately *** million dollars for any of about 40 insurance companies, what amount of insurance would apply to the account? If your company broke the single trust account into 40 or 50 separate trust accounts, none of which exceeded $100,000, would each of these accounts be fully insured to a maximum amount of $100,000.

Ownership interests in a custodial/fiduciary account of the various insurance companies, who have designated you as agent for the collection of their premiums, will be separately insured, if the following recordkeeping requirements are met with respect to the account. Your company's fiduciary relationship must be evident from the deposit account records of the insured depository institution. The details of the relationship and the interests of the other parties in the account must be ascertainable from either the deposit account records of the insured depository institution or from records maintained, in good faith and in the regular course of business, by the depositor or by some person that has undertaken to maintain the records for the depositor.

If these requirements are met, funds of each insurance company for which your company is agent would be added to any other proprietary funds of that insurance company on deposit in the same bank and insured to the statutory maximum of $100,000.

The result would be the same if funds held for each insurance company were maintained in separate fiduciary accounts.

2.  If your position on question one above is that there is no way to fully insure our trust account(s) using either of the two methods therein conveyed, what could your department recommend by way of our fully protecting this $*** million daily balance?

Our answer to question one negates your condition to this hypothetical question.

If you have any further questions, please write or call me at (202) 898-3723.

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