California’s Senate Banking, Finance and Insurance Committee approved two bills — one allowing insurance cmpanies to require spyware to be installed in vehicles, and the other clarifying the duties of an agent versus those of a broker.
AB 2956 would provide that an insurance agent is a person who transacts insurance other than life, disability or health insurance on behalf of an admitted insurance company. The bill “would establish a rebuttable presumption, subject to exception, that a person is acting as an insurance broker if the application shows that the person is acting as an insurance broker and is licensed to act as an insurance broker in the state in which the application is submitted. The bill would specify the grounds for rebutting the presumption,” the Assembly Bill text states.
In committee, the bill was amended to clearly define “totality of the circumstances,” the traditional test used to determine whether an insurance professional is acting as an insurance agent or broker.
According to the Alliance of Insurance Agents & Brokers, rather than relying upon the traditional “totality of the circumstances” test to determine whether a producer is acting as an agent or broker, “the de facto agency legal fiction creates retroactive liability for producers who think they are brokers, who disclose to consumers they are brokers, and who have no agency appointment with carriers to whom they submit business,” said David G. Nielson, Alliance executive director
“Instead of looking at the totality of the circumstances, the California Department of Insurance and plaintiff lawyers are creating this ‘gotcha’ situation, alleging that brokers who have performed ‘any one act’ on behalf insurers are really de facto agents, who have illegally charged broker fees that must be disgorged for all transactions going back as far as four years. This is fundamentally unfair and the Legislature agrees,” Nielson said.
“Current law does not establish clear distinctions between [and agent and broker]. 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,” said Alliance President Debra Jackson.
The bill is critical to the livelihood of independent broker-agents, Jackson said. “The entire insurance market — consumers, producers and insurers — benefit from clear standards in terms of who is an agent and who is a broker.”
Alliance Executive Vice President Mike D’Arelli 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.”
The Alliance of Insurance Agents and Brokers, Insurance Brokers and Agents of the West, and Western Insurance Agents Association support the bill.
“What we’re trying to do is restore legal status quo before the DOI attempted to rewrite all these laws,” said Steve Young, general counsel for IBA West, of the groups’ support of the bill.
However, consumer advocacy group Consumer Watchdog, which opposes the bill, said the cost of insurance will go up under AB 2956. “The bill would undermine a recent court ruling that protects customers from paying illegal broker fees to insurance agents. Current law is clear that only insurance brokers who are truly independent of insurance companies can charge broker fees, but AB 2956 would muddy the distinction between brokers and agents, who work for insurance companies not customers. This will authorize ‘double-dipping’ in which insurance customers will be forced to pay the same person both an agent commission and a broker fee, even when the person selling insurance is not a truly independent broker,” the group said in a statement.
The second bill approved by the Senate committe, AB 2800, would allow insurance companies to require drivers to install spyware in their cars that tracks speed, acceleration, location, time of day, mileage and other data. Sponsors say the bill would encourage motorists to drive less by lowering insurance rates for lower mileage.
However, Consumer Watchdog said AB 2800 would give discounts to drivers who agree to insurance companies’ mileage verification methods, not those with low mileage. The result would allow insurance companies to overcharge motorists based on irrelevant criteria that Proposition 103 prohibits, the group said.
“Proposition 103 already requires insurers to charge people less if they drive less. Under new regulations that take effect next month after years of delays by the insurance industry, annual mileage will be much more important than zip code, as the voters dictated. AB 2800 just lets insurance companies get around these long-overdue changes by charging drivers more for refusing to let them spy in their cars,” said Carmen Balber, advocate with Consumer Watchdog. “The insurance industry is cloaking its anti-consumer actions under the guise of ‘environmental protection.”
Sources: Alliance of Insurance Agents and Brokers, California Legislature, Consumer Watchdog, IBA West
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