BILL NUMBER: S5306
SPONSOR: BAILEY
 
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.
 
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 percent funds" because the percentage of the tax
obligated under the Insurance Law is 2 percent 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 benevo-
lent associations, and the Firemen's Association of the State of New
York (FASNY).
The overwhelming majority of entities receiving 2 percent monies spend
them appropriately on approved uses and follow State law, their individ-
ual charters or enabling legislation, and guidelines put out by FASNY,
DFS, and the State Comptroller. However, several problems have surfaced
over the last two decades which, although representing a tiny fraction
of entities receiving 2 percent 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
what percentage of the money. Most notably, Eastchester had a Volunteer
Benevolent Association which had for decades received the 2 percent
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
settlement of a lawsuit. Because of the adversarial way the formula was
established, 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 host multi-
ple fire companies ought to distribute 2 percent 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 based on the number of active members in
each company. They have come to the same decision, as there is nothing
in the relevant sections of the insurance law to determine how the money
is to be allocated between multiple overlapping companies, or between a
paid and voluntary organization covering the same fire district. Codify-
ing the "active member" standard would help resolve or perhaps even
avoid future disputes.
 
LEGISLATIVE HISTORY:
2021-22: Referred to Insurance
2023-24: Referred to Insurance
 
FISCAL IMPLICATIONS:
None.
 
EFFECTIVE DATE:
Immediately.

Statutes affected:
S5306: 9105 insurance law, 9105(d) insurance law