IBA West Submits Testimony Opposing Revised Proposed ‘Broker Fiduciary Duties’ Regulations

May 5, 2005

IBA West submitted written testimony expressing strong opposition to the revised “Broker Fiduciary Duties” regulations proposed by Insurance Commissioner John Garamendi this week.

“While these regulations are less onerous in their revised form, they are still nonetheless an attempt by the insurance commissioner to usurp the powers of the California Legislature to enact sweeping new rules of general application upon all licensees subject to his jurisdiction, and to escape judicial review of his 790.06 enforcement discretion,” wrote Steve Young, IBA West Senior Vice President and General Counsel in a letter to the department.

“If this regulation was actually adopted as drafted, there would be no need for the California Legislature ever to consider another piece of insurance legislation,” Young said. “The Commissioner could simply impose whatever new requirements he wanted by regulation, so long as he prefaced each new dictate with the magic words, “It is an unfair act and/or a misrepresentation to fail to … .”

“Consequently, we believe the regulation as drafted not only lacks statutory authority, but is also unconstitutional on the ground that it violates the separation of powers distinguishing the Executive Branch of government from the Legislative and Judicial branches,” Young wrote.

In addition Young believes the regulation is unconstitutional on equal protection grounds because it effectively singles out independent agents and brokers for harsher treatment than “producers” generally, and on “impairment of contract” grounds because it would substantially interfere with the private contracts many insurers have negotiated with their agents.

In summary, wrote Young, ” the Commissioner has failed to justify any necessity whatsoever for these regulations; he mis-cites provisions of the California Insurance Code; he has no regulatory authority to create affirmative and radically new legal duties upon brokers and agents; and his revised regulations, as drafted, are unclear, ambiguous, and unconstitutional. For all these reasons, we respectfully urge the Commissioner not to adopt the proposed regulations.”

Last fall, the California Department of Insurance announced proposed regulations regarding fiduciary duties owed to a client by insurance salespeople who represent consumers. After a hearing public hearing January, the department invited industry and consumer representative to participate in a workshop to discuss alternative approaches to the proposed regulations.

Last month, the department proposed a revised version of the original regulations ad requested that written comments be submitted to the department by May 2, 2005. A workshop is scheduled for May 9, 2005 where IBA West will expand on their opposition arguments.

A complete copy of IBA West’s testimony can be found at www.ibawest.com.

Topics California Agencies Legislation

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