Navigating the Landscape of Agency Agreements

The relationship between insurance agents, brokers, and carriers is vital to the successful operation of the insurance industry. At its core, this partnership rests on the agency agreement, trust, and clear communication.

The Agency Agreement: Defining Roles and Responsibilities

The agency agreement serves as the legal backbone of agent and carrier relations. These contracts vary depending on the type of relationship with the insurer, such as agency, brokerage, captive, independent, wholesaler, or lead generation, among many others.

It is critical that agents carefully review their agreements to confirm the agreements evidence the intended relationship and, if not, request reasonable changes prior to execution.

Here are the essential categories and terms to consider in an Agency Agreement.

Appointment & Authority. Appointing and establishing a producer’s relationship and specific authority to place business with a carrier are fundamental in any agency agreement. To be clear, producer authority is not unlimited, and common restrictions on an agent or broker’s conduct in the relationship include, without limitation:

•

Binding authority.

•

Issuance and modification of coverage

documents.

•

Modifying policy terms or payment

schedules.

•

Territory limitations.

•

Appointment of sub-producers.

•

Claims handling.

Producers and carriers must also be aware of state-specific regulations regarding appointments and their effect. For instance, in California, a “Notice of Appointment” filed with the Department of Insurance creates a presumption that the producer is acting as an agent of the insurer, which prohibits the producer from charging the insured broker fees, as only brokers can charge a broker fee in California. If an appointed producer charges broker fees, either the producer or the carrier could be required to refund them. In states like New York, a licensed broker can charge fees, but an appointed licensed agent cannot. This clarity of roles is essential to avoiding liability and ensuring seamless operations.

Producer Responsibilities. The producer’s responsibilities section in an agency agreement can be extensive. Areas that are typically addressed are:

•

Licensing requirements for both the

agency and individual producer. Failure

to maintain a required license may

result in termination of the Agreement

and no obligation to pay commissions.

•

Retention of insurance transaction

documents.

•

Claims reporting.

•

Maintaining adequate errors and

omissions (E&O) and cyber liability

coverage.

•

Handling of premiums.

Commission Structures. These terms set forth detailed definitions of new and renewal business commissions, bonus structures, and return commissions in the event of cancellations.

Ownership of Expirations. This is a critical provision for producers not to overlook. Producers typically own their expirations (renewal rights in their books of business) during the term and after termination, except in the case of indebtedness to the carrier after termination of the agreement. However, it is not uncommon for the carrier to include numerous other grounds upon which an agency’s book of business would be transferred to the carrier.

Termination & Post-Termination Rights. No relationship lasts forever, and agency agreements include provisions for termination that should be closely reviewed. Whether mutual or for cause, these clauses must comply with state laws, which often mandate notice periods ranging from 30 days (Florida) to 180 days (Louisiana). Producers should negotiate their rights post-termination, such as the ability to continue servicing their books of business until transferred to other carriers and earning commissions on renewals.

Also, some states like California and Washington have agent protection laws that allow for limited policy renewals under certain circumstances, even after termination of the agency agreement, and the right to receive commissions.

Privacy & Data Protection. In an era where data breaches are a growing concern and data security laws are continuing to be implemented, there has been an emphasis on agreements addressing the parties’ respective obligations for handling confidential and personally identifiable information (PII), as well as data breach procedures. Agencies and insurers are required to adhere to and ensure compliance with data security laws and protecting sensitive information.

Indemnification. Mutual indemnification clauses further safeguard both parties by clearly outlining and shifting responsibility in the event of a party’s breach of the agreement.

‘The agency agreement serves as the legal backbone of agent and carrier relations.’

Best Practices for Success

To foster successful agent and insurer relationships, the following are highly recommended:

1.

Review: Carefully review the agency agreement and request changes to key provisions that do not comply with your intended relationship.

2.

Compliance: Regularly verify compliance with the terms of the agency agreement, including licensing, document retention, accounting of premiums and commissions, data protection, among other key provisions.

3.

Adaptability: Be sure to review and update agreements to reflect changes in laws, market conditions, and business needs.

In Closing

The intricacies of agent and insurer relations demand attention to detail and a deep understanding of the contractual and regulatory framework. By following the principles outlined above, producers and insurers can build partnerships that are not only legally sound but also mutually beneficial. To be sure, when it comes to navigating these relationships, preparation and precision make all the difference.

Robinson is founding partner of Michelman & Robinson LLP, a national law firm headquartered in Los Angeles. He is an insurance industry authority who primarily represents retail brokers and agents, and a recognized authority on regulatory issues. Phone: 310-299-5500. Email: mrobinson@mrllp.com.