California Legislature Passes Agent-Broker Bill

August 15, 2008

Assemblyman Joe Coto’s Assembly Bill 2956, which will clarify the duties of an agent versus those of a broker, has passed both the California Assembly and Senate. The bill will now be held at the Assembly desk until the state budget is resolved, when the bill will be sent to the Governor for his signature.

The bill would provide that an insurance agent is a person who transacts insurance other than life, disability or health insurance on behalf of an admitted insurance company. The bill “would establish a rebuttable presumption, subject to exception, that a person is acting as an insurance broker if the application shows that the person is acting as an insurance broker and is licensed to act as an insurance broker in the state in which the application is submitted. The bill would specify the grounds for rebutting the presumption,” the bill text states.

The bill, Insurance Brokers and Agents of the West explained, establishes four specific situations in which the broker presumption is deemed rebutted: 1) where the insurer has appointed the licensee as its agent and filed a notice of said appointment with CDI; or in cases where the insurer has a written agreement with a licensee that expressly: 2) confers binding authority; 3) authorizes the licensee to appoint other licensees as agents of that insurer; or 4) confers the authority to pay claims on behalf of the insurer.

In any other case, the presumption could be rebutted only if the “totality of circumstances” establishes that the broker-agent is “acting on behalf of the insurer,” rather than — as required by longstanding definitions in the Code — acting on behalf of the consumer.

Additionally, the bill codifies a requirement — applicable in all brokered transactions — that brokers disclose their fees in a written agreement signed by the consumer.

The Consumer Group initially expressed opposition to the bill, saying it would “undermine a recent court ruling that protects customers from paying deceptive and illegal broker fees to insurance agents. Current law states only insurance brokers who are truly independent of insurance companies can charge broker fees, but AB 2956 would muddy the distinction between brokers and agents, who work for insurance companies not the customers,” the consumer group said. “This will authorize a ‘double-dipping’ in which insurance customers will be forced to pay the same person both an agent commission and a broker fee, even when the person selling insurance is not a truly independent broker.”

However, The Alliance of Insurance Agents and Brokers, IBA West and Western Insurance Agents Association supported the bill, saying it will clarify when an insurance professional is acting in the capacity of a broker versus an agent in California.

Source: California Legislature, IBA West, Consumer Watchdog

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