Many if not most insurance agents and agencies hold insurance customer premium payments and other related insurance customer funds in a separate trust account specifically for those funds. These trust accounts are a separate account from the agency’s general operating expense account. However, is there a legal requirement for Minnesota insurance agents and agencies to use a separate trust account for insurance customer funds?
The answer is no. Minnesota insurance agents and agencies are not required by statute or regulation to keep separate accounts for insurance customer premium payments and other agency funds. See Gen. Cas. Co. of Wisconsin v. Mid-Continent Agencies, Inc., 485 N.W.2d 147, 149 (Minn. Ct. App. 1992) (“In Minnesota, agents are not required by statute or regulation to segregate deposits of premium monies from other monies and are allowed to use ‘premiums’ for operating expenses.”) See also 1 Austin W. Scott and William F. Fratcher, The Law of Trusts § 12.2, at 143-44 & n. 15 (4th ed. 1987).
Furthermore, while insurance agents and agencies may be required to “account” for premiums paid to the agency by the insurance customer, and forward these premiums onto the insurance company in the regular course of business, at least one court has ruled that this does not require the agent or agency to hold these premiums in a separate distinct trust account. See Washburn v. Rabun, 487 So. 2d 1361 (Ala. 1986).
In addition, Minnesota Statute § 60K.46 states:
Subd. 5. Premiums. All premiums or other money received by a producer from an insured or applicant for insurance must be promptly deposited directly in a business checking, savings, or other similar account maintained by the producer or agency, unless the money is forwarded directly to the designated insurer.
On its face Minnesota Statute § 60K.46 does not specifically require a separate trust account for insurance customer premium payments. Still, it could be argued that while Minnesota Statute § 60K.46 does not explicitly require separate accounts for insurance customer premium payments; it nonetheless implicitly requires separate accounts.
It should also be noted that other states may have specific statutes and laws that may require the separation of insurance customer premium payments from an agency’s general operating expense account. Agents and agencies with an insurance customer located in a state outside of Minnesota should review that state’s specific insurance statutes and laws to see if the separation of insurance customer funds is required.
Finally, agency agreements between insurance agencies and insurance companies may require by contract that the agent and agency hold insurance customer premium payments in a separate distinct trust account.
All things considered it is highly recommended that insurance customer premium payments and other related insurance customer funds are kept in a separate distinct trust account, even if this is simply for the sake of appearance. If there is any question as to the proper handling of these insurance customer funds it looks more professional. Also, if a question or complaint arises it will be easier to provide an accurate accounting of the premium payments.
In conclusion, even if it is not technically or legally required, it is a very good practice to hold insurance customer premium payments and other related insurance customer funds in a separate distinct trust account.
 Aaron Simon is a litigation attorney with the law firm of Brownson Norby, PLLC. He is admitted to practice law in Minnesota and Wisconsin. A large focus of Mr. Simon’s practice is defending insurance agents and agencies and handling insurance coverage cases in state and federal courts. Mr. Simon is a member of the Minnesota State Bar Association, the Hennepin County Bar Association, the Wisconsin State Bar Association, the Minnesota Defense Lawyers Association, the Defense Research Institute, and the Professional Liability Underwriting Society. To learn more about Aaron, go to https://www.brownsonnorby.com/professionals/aaron-m-simon/.