CDI Amends Proposed “Action Notice” Filing Regulations

The California Department of Insurance has agreed to delete a controversial section of proposed regulations that would have required insurers to notify CDI whenever a notice of agency appointment was terminated “for cause.”

California Insurance Code Section 1704 long required insurers to notify CDI whenever an insurance producer is given an agency appointment, and also whenever the appointment is terminated. The notice of agency appointment is also known as an “action notice.”

In proposed regulations titled, “Prescribed Method for Filing of Notices of Appointment of Agents and Notices of Termination of Appointment of Agents,” CDI attempted to require insurers to file all action notices electronically, rather than in paper form.

The department also proposed to require insurers to notify CDI whenever an agency appointment was being terminated “for cause” — a provision that IBA West and the Alliance of Insurance Agents and Brokers urged CDI to delete from the regulations.

“This provision is unsupported by the underlying statutory authorities cited by CDI, and the term is nowhere defined in the regulations,” IBA West General Counsel Steve Young said in testimony submitted July 18. “As a consequence, it is impossible for insurers or licensees to know when such explanation would be required. A ‘for cause’ termination, presumably, would always be present in the rationale of the insurer making the termination; yet a termination could be ‘for cause’ without any illegality or other misconduct on the part of the producer.”

Alliance Cunsel Bob Hogeboom of Barger & Wolen agreed with IBA West. “There is no statutory authority which requires insurers to explain their reasons for termination of an agent,” he said. “Further, there is no statutory definition of a termination a “for cause.’ The Alliance believes this provision would have opened the door to unnecessary scrutiny of the terminated agents by the DOI.”

Alliance Executive Director Ken Nigohosian said, “The association told the DOI that we do not object to the provision calling for mandatory electronic filings of action notices. However, we objected strongly to the DOI’s use of the generic term ‘producer’ that was included in the same provision mandating notification of a termination ‘for cause.’ We believe this was an attempt on the part of the DOI to lump together all agents and brokers.” In new testimony submitted this week, Young thanked the department for adopting the IBA West recommendation and expressed support for the proposed regulations as revised.

The text of the proposed regulations is available from CDI; its file number is RH 04 03 7941, and copies may be obtained by calling Natasha Ray, senior staff counsel, at (916) 492-3559, or e-mail rayn@insurance.ca.gov. For copies of the IBA West testimony submitted Oct. 24, visit: http://www.ibawest.com/pdf/Articles/RH04037941102405.pdf.

Topics Carriers Legislation Agencies