Agents Alliance Speaker Goldman Proposes End of Broker Fees

October 1, 2007

Plaintiff attorney Norman Goldman, who was behind the infamous Krumme vs. Mercury lawsuit and other broker fee-related legal cases, has proposed that he will work with California insurance producers if they are willing to eliminate all broker fees, and push for carriers to increase commission levels and policy fees to help compensate for the potential loss in revenue.

“I will devote all of my time that is necessary – for free – to lobby the Legislature; to work with the Department of Insurance; to work with Harvey Rosenfield and the Prop 103 people; to go to the Department of Insurance and to make sure that every dollar lost to broker fees is made up in a combination of commission and policy fees,” Goldman told the audience at the recent Alliance of Insurance Agents and Brokers annual convention. “I don’t want to deprive [producers] of one dollar of revenue. I don’t want to hurt you; I don’t want to put you out of business. I am not your enemy. I just want you to make a legal living.”

Alliance Outside Counsel Robert Hogeboom immediately rejected Goldman’s offer. “My first advice is to reject this offer.”

The debate, which included Goldman, Hogeboom and Department of Insurance Senior Staff Counsel Jon Tomashoff during a panel at the annual convention centered around broker-related issues – primarily when producers may be permitted to charge broker fees; and what constitutes a broker relationship versus an agent relationship.

Goldman stated that the Krumme vs. Mercury case provided a template for what constitutes an agent vs. broker relationship.

Hogeboom retorted, “The Krumme decision tells us nothing about what is the difference between an agent and a broker. The Krumme court [decision found] the brokers were acting on behalf of the company in the course of the transaction of insurance – whether right or wrong. They applied the ‘totality test.'” Hogeboom explained the “totality test” means the totality of circumstances must be examined in determining whether the producer is acting as an agent or a broker. The DOI, under Garamendi, tried to argue that if a producer is found to have performed one duty that might be construed as an “agent” function, then the producer must be considered an “agent,” and therefore may not charge a fee, he said.

Goldman argued that, because they represent the consumer, all brokers should be permitted to place business with whatever carrier they desire. He rhetorically asked, “Why shouldn’t brokers be permitted to pace business with Mercury, simply because they did not pass Mercury’s ‘we’ll sniff your shorts’ test?”

Hogeboom replied that carriers should be able to conduct business with whatever producers they select. Legislation has been proposed in California that would codify an insurer’s ability to conduct business with whatever producers they desire. The bill would also codify that carriers may pay contingency incentives to producers. The bill is currently stalled in the Legislature. “A company has the right not to be forced by the Department of Insurance or Norman Goldman to do business with people that they do not want to do business with. It is still a free market society.”

Tomashoff explained that the DOI opposed the legislative proposal because, in its opinion, it would not pass the Proposition 103 litmus test. Prop 103 mandates that any proposed changes to insurance law must further the purpose of 103 and it must pass by a two-thirds majority, he said.

Tomashoff urged the warring sides to get together on these issues. “The Department would very much like to act as a mediator between the agent-broker community and the plaintiff attorneys on these matters.”

When asked whether, given the Prop 103-related hurdles, a legislative solution is feasible, Hogeboom said, “This fight is about whether an agent and broker can charge fees in the first place – not what the company has to report on a rate filing. This issue is about trying to determine under what circumstances is a broker going to have to be appointed as an agent of the insurer.”

Tomashoff added, “If we can come up with a compromise that avoids challenge by those who would use Prop 103 and the requirements of the two-thirds majority and the furtherance of Prop 103 to challenge such a legislative proposal, then that would be ideal. If there is a legislative solution that does not appease some of the consumer groups, then there would be a Prop 103 challenge in the courts – and it would probably be a five year battle before it winds its way through the state Supreme Court.”

The Alliance of Insurance Agents and Brokers is a Sacramento, Calif.-based trade association that recently held its annual convention in Indian Wells, Calif.

Source: Agents Alliance

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Latest Comments

  • October 4, 2007 at 8:09 am
    Octavio says:
    He's a lawyer looking for some ink. It helps his business to says these things. Once again, a self serving lawyer crapping on our business. How would he like a cap on his lawy... read more
  • October 3, 2007 at 10:31 am
    Tommy Lee says:
    In the old days an agent was someone who was able to bind coverage on behalf of the insurance company. End of story. Everyone else was construed as a broker. It is quite evide... read more
  • October 3, 2007 at 8:11 am
    Octavio says:
    Wrong...you can get the same preferred markets thru Superior Access, Abram Interstate and compete with ALL of the preferred markets. You just need to know the available market... read more
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