Alliance Stands Firm as CDI Continues to Redefine Broker/Agent Fiduciary Duties

January 18, 2005

As the coalition of industry associations, spearheaded by the American Agents Alliance, continues to dig its heels in the sand against a California Department of Insurance assault on brokers and agents, the Department’s push for regulations to significantly change broker/agent fiduciary responsibilities persists. At the January 6th public hearings, representatives from the coalition associations spoke against the proposed regulations, with Executive Director Ken Nigohosian and attorney Bob Hogeboom from the law offices of Barger & Wolen representing the Alliance. The producers’ association reiterated its opposition what it characterized as “disastrous regulations for brokers and agents alike” at a January 13th workshop set up by the Department for all interested parties to find some common ground.

“Our request that the CDI offer concrete evidence of broker-agent misconduct, and not just hypothetical examples and references to other jurisdictions, has so far met with silence, said Alliance Executive Director Ken Nigohosian. “We have heard of some agents who believe that, as such, they will not be affected by these regulations. This could not be farther from the truth. The regulations, if promulgated, will affect all insurance agents and brokers in all lines.”

On Dec. 21, 2004, the CDI began sending out Letters of Inquiry to all domestic insurers seeking information on compensation agreements between individual producers and the respective carriers. The purpose of this inquiry, we believe, is for the CDI to determine if there have been any inappropriate solicitation activities by producers.

Hogeboom, who also represents insurers, issued a letter to CDI General Counsel Gary Cohen indicating that the Letter of Inquiry is without legal foundation. He further asserted that, based on allegations made by the Commissioner in a recent case and in the Statement of Reasons which support the Commissioner’s Broker Fiduciary Duties regulations, the CDI has already declared that contingent agreements without disclosures are, per se, illegal. Hogeboom asked that the Letter of Inquiry be withdrawn as a misleading document without authority.

Responding to Hogeboom’s letter, Cohen agreed that the Letter of Inquiry was without statutory authority, but he noted that the CDI would subpoena all information not voluntarily submitted by insurers. The Alliance is concerned that, if this information is provided to the CDI, it would set off a flurry of investigations, disciplinary actions, and possible litigation against insurers and producers.

“Make no mistake: the CDI is taking full advantage of the national furor over the misdeeds of a few large brokerages to aim its regulatory guns at all of California’s broker/agent community, said Nigohosian. “The Alliance fully supports the CDI’s effort to weed out any criminal activity, such as that uncovered by New York Attorney General Eliot Spitzer. Commissioner Garamendi already has the authority to do so, and these regulations are unnecessary, unrealistic, and unhealthy to California’s insurance market.

Nigohosian stressed that The Alliance and its coalition partners are focused on defeating these regulations in total. “No compromise,” Nigohosian said of the opposition effort. “No backing down.”

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