Bad Check Charges

DATE: January 17, 2003 RE: Bad Check Charges TO: All Insurers Licensed in Alabama "Premiums" are defined in the Insurance Code, for premium tax purposes, as "[a]ll amounts received in cash or otherwise on risks in this state as consideration for contracts of insurance...." Section 27-4A-2(8), Code of Alabama 1975. For purposes of fire and marine insurance rate approval, premium is "[t]he consideration paid, or to be paid, to an insurer for the issuance and delivery of any binder or policy of insurance." Section 27-13-20(2), Code of Alabama 1975. Likewise, for purposes of casualty and surety insurance rate approval, premium is "[t]he consideration paid or to be paid to an insurer for the issuance and delivery of any binder or policy of insurance." Section 27-13-60(2), Code of Alabama 1975. The "bad check charge" authorized by Section 8-8-15 is a type of debt or obligation created by that statute. It does not exist separate and apart from the statute. It is not, therefore, an insurance premium or any other sort of charge for or arising from insurance sales. It is a charge that arises from a dishonored negotiable instrument and a specific code section. This position is bolstered by the concluding sentence in Section 8-8-15, which reads as follows: "Charges imposed in connection with the dishonor of a negotiable instrument shall not be deemed interest finance or other charge made as an incident to or as a condition to the grant of the loan or other extension of credit and shall not be included in determining the limit on charges which may be made in connection with the loan or extension of credit as provided in this section or in any other law of this state." Therefore, based on these definitions, premium is not inclusive of the "bad check charge" imposed in connection with the dishonor of a negotiable instrument pursuant to Section 8-8-15, Code of Alabama 1975, and thus is not subject to insurance premium tax imposed in Section 27-4A-3 nor the rate approval requirements of Chapter 13 of Title 27, Code of Alabama 1975. All insurance companies are therefore permitted to assess a "bad check charge" pursuant to Section 8-8-15, since this is not a charge or insurance, and in so doing will not violate Section 27-12-17, Code of Alabama 1975, even if the "bad check charge" is not specified in the policy or rate classification filing.