A federal district court judge in South Dakota ruled this week that the state’s countersignature law is unconstitutional. The ruling means that 50 states have taken action to eliminate the countersignature requirement.
Eradicating the countersigature laws that bar out-of-state insurance brokers from conducting business without the involvement of a resident agent has been a priority for The Council of Insurance Agents & Brokers for the past two years.
The South Dakota ruling means The Council has successfully challenged every remaining countersignature statute in the United States in the two years since it won its first lawsuit in Florida in 2003. Two successful countersignature challenges by The Council in Nevada and Puerto Rico are still under appeal; the only remaining case awaiting trial is in the Virgin Islands.
The Council represents commercial insurance brokers.
Although it said that the South Dakota decision is likely to be appealed by the state, The Council expressed optimism that soon, no out-of-state insurance broker will again have to obtain the signature of a resident agent and be required to pay a fee for that service.
“These countersignature laws are stubborn vestiges of protectionism that have no place in the 21st Century,” said Ken A. Crerar, president of The Council. “The Council is delighted to have helped bring down these egregious barriers to free commerce.”
U.S. District Judge Charles B. Kornmann, in his decision, said he found “no substantial valid reason for the difference in treatment” between resident licensed insurance agents and nonresident licensed insurance agents.
“The countersignature laws and the discrimination practiced do not bear a substantial relationship to any legitimate objectives of South Dakota,” the judge said in a 12-page opinion.
According to The Council, the South Dakota lawsuit had been particularly hard-fought by the independent insurance agents in the state as well as the state’s governor, M. Michael Rounds, who is an insurance producer and owner of Fischer, Rounds & Associates, Inc. Rounds testified in favor of the countersignature statute, arguing that it provided a safeguard to South Dakotans as well as an opportunity for state residents to have personal contact with a local insurance agent.
The judge rejected that argument, saying that “technological advances” have made it unlikely that a South Dakota customer actually has personal contact with his insurance agent even when that individual is located in the same city.
“Realistically, no reasonable consumer makes a trip to his insurance agent’s office each time there is a question or concern about an insurance policy, even if the agent is just across town.” Judge Kornmann said. “Rather, most questions or concerns that South Dakota businesses or individuals have about their insurance policies would be handled over the telephone or by some similarly convenient means. There is no persuasive evidence that nonresident licensed agents are less available.”