The Quote That Came With a Fee
A Phoenix surplus lines broker places a policy for a small manufacturing client with an eligible nonadmitted insurer. The premium is $48,000. The broker adds a $2,400 'policy issuance and inspection fee' that is not charged by the insurer and is not disclosed on the application or the binder. The client pays it without question. Separately, the broker collects the surplus lines premium tax and remits it two months late, though it is ultimately paid in full. The broker's license is current and the placement was properly documented.
1. Evaluate the fee. What is the problem and what should have happened?
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The fee is a broker-imposed charge that the insurer does not collect, and it was not disclosed to the client or reflected on the application or binder. That combination is the problem: undisclosed fees charged in connection with a placement misrepresent the true cost of coverage and can constitute an unlawful charge or a misrepresentation to the insured.
If a broker charges a fee, it must be disclosed clearly and in advance, identified as broker compensation rather than insurer premium, and handled consistently with Arizona requirements. The client should be able to see what it is paying the insurer versus what it is paying the broker.
Here, the fix is to disclose the fee, obtain the client's informed acknowledgment, and correct the file. If the fee cannot be justified as disclosed compensation for a real service, it should be refunded.
2. What are the consequences of the late tax remittance, and does full payment cure it?
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Surplus lines premium tax is collected by the broker and held in a fiduciary capacity; it is not the broker's money. Remitting it two months late is a trust and timely-remittance failure even though the tax was eventually paid in full.
Full payment does not cure the late remittance. The obligation includes timeliness, and regulators treat late remittance as a serious matter because it deprives the state of funds and signals weak financial controls. It can support disciplinary action independent of the amount.
The broker should reconcile the tax account, document why the delay occurred, and correct any process that allowed tax funds to sit. If the delay was systemic rather than isolated, that is a supervisory failure, not a clerical one.