BILL NUMBER: S500

SPONSOR: BRESLIN
 
TITLE OF BILL:

An act to amend the insurance law, in relation to the distribution of
the foreign and alien fire insurance premium tax

 
PURPOSE:

To provide that fire insurance money for fire departments, companies,
and volunteer benevolent associations be distributed in proportion to
the number of active members within each company.

 
SUMMARY OF PROVISIONS:

Sections one and two amend sections 9104 and 9105 of the insurance law
to provide that beginning on the effective date of the chapter of the
laws of 2020 which amended these sections, the monies received by fire
companies shall be distributed to the companies in proportion to the
number of active members within each company. The term 'active member'
              

shall mean a member who participates in firefighting and is subject to
call for whatever duties may be assigned to him or her under the rules
and regulations of the fire department or company of which he or she is
a member.

Section three provides the effective date.

 
JUSTIFICATION:

Sections 9104 and 9105 of the Insurance Law establish a tax on all out-
of-state insurance companies selling policies to protect against loss or
damage by fire of properties within New York. These funds are colloqui-
ally referred to as "2% funds" because the percentage of the tax obli-
gated under the Insurance Law are 2% of the premiums. The tax is paid by
insurers to the New York State Insurance Department and dispensed to
fire departments, fire companies, fire department benevolent associ-
ations, and the Firemen's Association of the State of New York (FASNY).

The overwhelming majority of entities receiving 2% monies spend them
appropriately on approved uses and are in compliance with State law,
their individual charters or enabling legislation, and guidelines put
out by FASNY, DFS, and the State Comptroller. However, a number of prob-
lems have surfaced over the last two decades which, although represent-
ing a tiny fraction of entities receiving 2% monies, have received
sufficient press attention to suggest areas where the program could be
improved.

There have been some high profile disputes in municipalities, where both
an existing voluntary benevolent association and a professional fire
department or fire company co-exist, as to which entity is entitled to
which percentage of the money. Most notably, Eastchester had a Volunteer
Benevolent Association which had for decades received the 2% monies when
the town established a professional Fire Department as well. Because
there was no clarity in the insurance law on how to distribute the money
where multiple entities existed and had active members, the current
formula for distribution was arrived at through the negotiated settle-
ment of a lawsuit. Because of the adversarial way the formula was estab-

lished, this has resulted in continued strained relations between the
two entities.

The Office of General Counsel for the Department of Financial Services
has issued opinions and guidance on how fire districts that contain
multiple fire companies ought to distribute 2% monies for those compa-
nies. The standard set by both the General Counsel's most recent opinion
and court cases over the previous decades have held that the money
should be distributed pro rata on the basis of the number of active
members in each company. They have come to the same decision often, as
there is nothing in the relevant sections of the insurance law to deter-
mine how the money is to be allocated between multiple overlapping
companies, or between a paid and voluntary organization covering the
same fire district. Codifying the "active member" standard would help
resolve or perhaps even avoid future disputes.

 
LEGISLATIVE HISTORY:

2018: A.11027, referred to Insurance in the Assembly.
2019: This is a new bill in the Senate.
2020: S2950a - Referred to Senate Insurance Committee

 
FISCAL IMPLICATIONS:

None.

 
EFFECTIVE DATE:
Immediately.