Is an Agent Required to Maintain a Trust Account?

This is the second of the two questions referred to in my first post of 2015 that I was asked by a caller to the Free Legal Service Program that I run for IIAG.  The short answer to it is No, but it is not an unqualified No.

The statute that governs this subject is O.C.G.A. Section 33-23-35.  On the one hand, it states that “all funds representing premiums received or return premiums due the insured by any agent or subagent . . . shall not be commingled with the licensee’s personal funds.”  From this statement, it would seem that the portion of premium payments that do not represent commission due the agent cannot be deposited into the bank account used by him or her to pay their other bills.  But the very next sentence of the statute says, “Nothing contained in this Code section shall be deemed to require any agent or subagent to maintain a separate bank deposit for the funds of each principal, if the funds so held for each principal are reasonably ascertainable from the books of accounts and records of the agent or subagent.”

So it is permissible for an agent to commingle their funds with funds belonging to an insurance company or insured, but only if their accounting methods will allow the amount due to each such company or insured to be “reasonably ascertainable.”  What that phrase means  would be up to the Insurance Commissioner’s Office to decide, as there have not been any court cases that addressed that question and there are no regulations that define it.  However, its meaning would likely be influenced by the duty of an agent and subagent to “promptly” account for and pay to the insurance company or insured the money owed them.

To be safe, an agent that does not maintain a separate account for premium payments should be able to tell from their accounting records at any time how much of the money in their operating account or accounts belongs to each insurance company and insured with whom they deal.  Given the complexity of the accounts current calculations that must be done for each such insurance company, being able to satisfy the statutory duty will require a sophisticated accounting system or software program.

The importance of being able to satisfy that duty is made clear by the last paragraph of the above code section.  The first sentence states, “Any violation of this Code section shall constitute grounds or cause for action by the Commissioner, including, but not limited to, probation, suspension, or revocation of the license.”  The Commissioner is also given the authority to impose fines and other penalties for such violations and a willful violation of the code section that involves an amount greater than $500 is declared to be a felony.

Although the commingling of premium payments due an insurance company or insured with an agent’s personal funds is permissible under the Georgia Insurance Code, the better practice would be to maintain a separate account for such payments.  Doing so will eliminate the possibility of inadvertently using such payments to pay other bills, which could expose the agent to disciplinary action by the Commissioner’s Office, and will make keeping track of how much is owed each insurance company or insured easier.

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