California Assembly Insurance Committee Passes Agent-Broker Bill

May 5, 2008

California’s Assembly Insurance Committee has passed Assembly Bill 2956 by a vote of 7-0, moving one step closer to codifying the traditional “totality of the circumstances” test for determining whether an insurance professional is acting as a broker or as an agent.

The next step for AB 2956 will be a vote on the State Assembly floor. The deadline to move bills out of the Assembly is May 30.

Debra Jackson, president of the Alliance of Insurance Agents and Brokers, explained that the bill is critical to the livelihood of independent broker-agents. “Current law does not establish clear distinctions between the two. As a result, insurance professionals cannot refer to any consistent set of rules to guide their interactions with customers. In addition, the absence of clear statutory standards has allowed the California Department of Insurance (DOI) to develop a set of legal interpretations that distorts traditional common law notions of what constitutes an “agency” relationship with a consumer. This has imposed severe hardships on insurance brokers.”

Jackson continued, “The entire insurance market — consumers, producers and insurers — benefit from clear standards in terms of who is an agent and who is a broker.”

Michael D’Arelli, executive vice president for the Alliance, added, “This legislation is a direct response to efforts by the DOI to define a list of 14 activities, the performance of any one of which would retroactively re-characterize the broker as an agent, even though the producer and consumer intended and assumed otherwise. This approach by the DOI has created confusion for consumers, it utterly abandons the traditional ‘totality of circumstances’ test under the common law of agency, and it lacks any legal support. Nonetheless, as long as the DOI persists in its position, producers acting as brokers risk being labeled after the fact as agents and subjected to severe legal and regulatory sanctions.”

Meanwhile, Alliance Executive Director David G. Nielson commended the Insurance Brokers and Agents of the West (IBA West) for its cooperation and support of AB 2956. Both the Alliance and the IBA West sent the Committee official letters of support and lobbied the Committee for the measure’s passage. D’Arelli said Alliance members faxed hundreds of support letters to Assembly Insurance Committee members.

However, D’Arelli warned, “This bill is opposed by powerful forces, including plaintiff lawyers, Harvey Rosenfield and plaintiff attorney Norman Goldman (the victorious attorney in Krumme v. Mercury). In fact, Goldman testified that passage of AB 2956 would raise everyone’s auto insurance rates. His words fell on deaf ears, as the Committee members unanimously passed the bill. That said, there is a lot of grass-roots work yet to be done in order to assure passage of AB 2956. When the time is right, we will once again call on all our members to fax letters to their legislators, urging an ‘aye’ vote on the bill.”

For more information and to view the proposed bill, visit http://www.leginfo.ca.gov/pub/07-08/bill/asm/ab_2951-3000/ab_2956_bill_20080324_amended_asm_v98.html.

For additional information on how to help support AB 2956, visit www.agentsalliance.com or www.ibawest.com.

Sources: Agents Alliance, IBA West, California Assembly

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