Court Upholds Repeal of Puerto Rico’s Countersignature Law

April 3, 2006

The U.S. Court of Appeals for the First Circuit has refused to overturn a ruling striking down Puerto Rico’s controversial countersignature law that required non-resident commercial insurance brokers to have the countersignature of a Puerto Rico resident agent before they could do business on the island.

The decision in Puerto Rico is not yet final because the Commonwealth still has 90 days to seek a Supreme Court review of the ruling. Although it is unlikely the Supreme Court will accept the case for review, agents and brokers must continue to comply with existing law until the Commonwealth has exhausted its review rights.

U.S. District Judge José Antonio Fusté originally struck down Puerto Rico’s countersignature statue in March of 2005, and Puerto Rico’s insurance commissioner, Dorelisse Juarbe Jiménez, then appealed the judge’s ruling.

In her appeal, Commissioner Jiménez did not seek to defend the law’s constitutionality; rather she sought to throw out the case, arguing The Council did not have standing to file the suit originally, nor had it adequately demonstrated injury to its members. The three-judge federal panel found no merit in those arguments.

“In the end, this appeal involves the commissioner’s attempt to preserve in place an unconstitutional statutory scheme on the flimsy basis that the wrong plaintiff sued, when in fact, the plaintiff has asserted all of the elements needed for standing, and the Commissioner has never contested the accuracy of these assertions,” the court said.

The decision brings that plaintiff, The Council of Insurance Agents & Brokers, a step closer to the successful completion of its decades-long battle to eliminate all countersignature statutes on the books.

Due to Council lawsuits, countersignature requirements are no longer enforceable in Florida, West Virginia and South Dakota. The Council also has won a countersignature victory in Nevada, but the state’s attempt to overturn that decision on appeal is still pending. The only case yet to come to trial is in the Virgin Islands.

The Council is notifying judicial authorities in both Nevada and the Virgin Islands of the Puerto Rico decision in hopes of speeding resolution of those cases.

“These requirements are a throw-back to the days of protectionism, and they have no place in today’s global economy,” said Ken A. Crerar, president of The Council.

“We moved on this front because it significantly impacts the business of our members. We believe our lawsuits have saved Council members hundreds of thousands of dollars in annual expenses.” The Council represents the commercial insurance brokers.

The Council won its first countersignature lawsuit in Florida in September 2003, followed by similar victories in Nevada, South Dakota and Puerto Rico. In West Virginia, where The Council also had filed suit, the state legislature rescinded the countersignature law rather than attempt to defend it in court. In his original decision, Judge Fusté said Puerto Rico’s argument that the statute was needed so “that the insurer, through its agent, be constantly accessible” to customers was “unconvincing.”

“Defendant’s suggestion that the residency requirement is necessary to ensure agent proficiency in Spanish and that this is necessary to protect the insured interests likewise falls flat,” the judge ruled. “Although Spanish is widely spoken on the Island, both Spanish and English are the official languages of Puerto Rico.”

The judge granted The Council’s request for summary judgment because Puerto Rico’s countersignature requirement clearly violated the Constitution’s privileges and immunities clause. The federal appeals court upheld that ruling in its entirety.

Source: The Council of Insurance Agents & Brokers

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