NU Online News Service, July 15, 2:27 p.m. EDT
An article in the New York Post slamming a New York broker for partnering with Lloyd's of London and selling "improper policies" without paying premium taxes is correct in some instances and misses the mark in others, according to industry experts.
The article alleges that in a "far-reaching insurance scandal," Huntington, N.Y-based Waldorf & Associates sold $30 billion of "subpar" insurance, known as independent procurement (IP), through Lloyd's to more than 300 Catholic universities and charities.
David Neustadt, a State of New York Insurance Department spokesman, says Waldorf did, indeed, owe about 15 years' worth of premium tax on the insurance; however, "the department got full taxes and full interest."
He says the reason given for nonpayment of taxes was that Waldorf believed the taxes were not owed because its clients were non-profit charities.
A document provided to NU Online News Service notes that on April 12, 2011 Waldorf agreed to pay $2.435 million in premium taxes by April 15, 2011, as well as a tax penalty of $982,422.40.
"Full compliance with the foregoing will be accepted by the department in full settlement of the Waldorf's premium-tax liability for all Lloyd's placements from 1995 through 2009 as previously reported to the department by the Waldorfs," according to the document.
The document goes on to explain that no excess-line premium taxes were paid because "the Waldorfs considered the transactions to be direct placements for which they incurred no tax liability."
Dan Corbin, director of research with the Professional Insurance Agents of New York State Inc. (PIANY), says that according to the story, Waldorf & Associates made a few mistakes in procuring coverage. One mistake was bypassing a producer licensed to work with an excess-lines company, he says.
The IP policy, he notes, is not a type of policy, as the article states, but rather "the method of procurement of that policy."
An IP policy is procured without the involvement of a New York producer in the transaction. But because there was a producer involved, "it wasn't an independent—IP—policy. And so it was up to the producer to run that through the excess-lines association to make sure those taxes were paid," he says.
Placing insurance with companies such as Lloyd's that are not licensed in New York is lawful as long as it is an eligible company, he says, adding that placement with such a company requires a New York-licensed excess-lines broker to be a party to that transaction—a licensed New York retail broker is not sufficient. It is the excess-lines broker's job to pay the taxes, he says.
But the assumption that the client paid more money by going to the excess-lines market might also be wrong, he says, noting that some lines are cheaper than the admitted market.
"The law does not allow a producer to place business in the excess-lines market just for price," he says.
He explains that the excess-lines market serves a valuable purpose in writing business the admitted carriers aren't willing to write: They have more expertise or more flexibility in their rating and forms.
But because of the flexibility in forms and the fact that excess-lines carriers don't file their forms, the producer needs to be watchful of the coverages being provided, Corbin says.
Lloyd's, accused of partnering with Waldorf for 15 years and profiting "handsomely," tells NU Online News Service: "It is the legal responsibility of the insurance broker, not the insurance provider, to calculate, collect and pay excess-lines premium tax to the state. All insurance cover provided by Lloyd's remains in place. Lloyd's has acted in good faith throughout this matter and has not been subject to any enforcement action."
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