State RegulationsNY specificDifficulty 2/5
An agent deposits a client's premium check into the agency's operating account, which also pays office rent, and forwards the money to the insurer at month's end. This practice is:
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Answer & full 3-part explanation (select an option above, or peek)
Why D is correct
Under N.Y. Ins. Law §2120 and the fiduciary-account rules of Reg 9 (11 NYCRR Part 20.3 and 20.4), premium funds must be kept in a segregated fiduciary account and not used for the agent's own expenses. An operating account that pays the agency's bills makes client money available for the agent's purposes, which is classic commingling.
Why the other options are wrong
- A) Eventual payment does not cure the interim personal use of trust funds; the breach occurs at the moment of mixing.
- B) A receipt documents the collection but does nothing to protect the funds from being spent on agency expenses.
- C) An insurer's consent cannot rewrite the statutory duty to hold fiduciary funds separate from the agent's own.
Memory hook
The trust account pays no rent — keep premiums out of operating funds.