Alliance Defends Broker Fees

May 19, 2003

In an effort to secure the rights of personal lines brokers to charge broker fees, the American Agents Alliance has sponsored Assembly Bill 1297, authored by Assemblyman Dario Frommer (D-Los Feliz), explicitly allowing brokers to bind policies.

AB 1297 was designed to eliminate the threat to broker fees, a long-standing battle between brokers and the California Department of Insurance (CDI). The bill would clearly define when a producer is acting as a broker versus an agent.

AB 1297 would amend Section 1625 to read as following: 1625. (c) With respect to any transaction involving a licensee, it shall be conclusively presumed that the licensee acted as an insurance broker in the transaction if the licensee has done each of the following: (1) Obtained from the consumer a signed broker fee disclosure and agreement, in a form that complies with the rules and regulations adopted by the Commissioner pursuant to Section 790.10, acknowledging that the licensee has acted as an insurance broker with respect to the consumer’s purchase of, or application to purchase, personal insurance coverage of a type described in Section 660 or 675, and any personal liability umbrella coverage associated therewith. (2) Maintained in force the bond required by Section 1662 and liability insurance required by Section 1727.5. (d) An insurer may extend binding authority to any fire and casualty licensee who complies with this section.

“We’ve introduced this bill because we are trying to protect the producers right to continue transacting insurance as a broker in the personal lines marketplace,” Lorelle Kitzmiller, Alliance executive director, said. “[There is a] lack of clarity within the existing Insurance Code.”

Kitzmiller said that while the Alliance has been working on this particular bill since the end of 2002, the issue has been an ongoing debate between the Alliance and the CDI since 1996.

“It has become apparent that there are certain mindsets within the CDI that question the validity of brokers in the personal lines marketplace. They are continually putting up roadblocks,” Kitzmiller said.

The recent case of Krumme vs. Mercury illustrates the ongoing dispute over the definition of brokers. The California Superior Court in San Francisco ruled April 16 that Mercury had violated the law with the wording of its producer contracts and the alleged treatment of brokers as agents. However, it was not found that the charging of broker fees was illegal or inappropriate. Attorneys for both sides will meet before the end of the month to negotiate the actions Mercury must take to come into compliance with the court’s ruling.

“We believe that this bill is necessary because the independent brokers in the personal lines marketplace play a critical role—especially in the non-standard market,” she added.

AB 1297 recently passed May 7 in the Assembly Insurance Committee with an impressive show from brokers and supporters, despite strong opposition from consumer groups and the CDI.

“Thankfully, the Assemblymembers understood that AB 1297 does not set any new precedents or business practices, it simply affords the brokers the opportunity of continuing to transact insurance as brokers,” Kitzmiller wrote in an e-mail. “In many underserved areas these brokers are the only conduit for the consumer to access nonstandard insurance.”

It awaits further passage on the Assembly Floor, and will likely be heard before the end of the month.

For more information on AB 1297, and the actions the Alliance has taken to support it, log onto www.agentsalliance.com.

Topics Agencies

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