California Legislature Passes Agent-Broker Bill

California Assembly Bill 2956, which will clarify the duties of an agent versus those of a broker, has passed both the state Assembly and Senate. The bill will now be held at the Assembly desk until the state budget is resolved, when the bill will be sent to the Governor for his signature.

The bill provides that “an insurance agent is a person who transacts insurance other than life, disability or health insurance on behalf of an admitted insurance company. It is presumed a person is acting as an insurance broker if the person is licensed to act as a broker, maintains a specified bond and discloses specific information to the consumer. The bill would provide that the presumption of broker status is rebutted if specified facts exist, or based on the totality of circumstances,” the bill text states.

The bill, Insurance Brokers and Agents of the West (IBA West) explained, establishes four specific situations in which the broker presumption is deemed rebutted: 1) where the insurer has appointed the licensee as its agent for the particular class or type of insurance being transacted and filed a notice of said appointment with CDI; 2) the licensee has a written agreement with an insurer containing express terms that authorize the licensee to obligate the insurer without first obtaining notification from the insurer that the insurer has accepted, conditionally or unconditionally, the submitted risk; 3) authorizes the licensee to appoint other licensees as agents of that insurer; or 4) confers the authority to pay claims on behalf of the insurer.

In any other case, the presumption could be rebutted only if the “totality of circumstances” establishes that the broker-agent is “acting on behalf of the insurer” or “on behalf of a third person,” rather than — as required by longstanding definitions in the Code — acting on behalf of the consumer.

Additionally, the bill codifies a requirement — applicable in all brokered transactions — that brokers disclose their fees in a written agreement signed by the consumer.

The Consumer Group expressed opposition to the bill prior to its passing by the Senate, saying the bill would “undermine a recent court ruling that protects customers from paying deceptive and illegal broker fees to insurance agents. Current law states 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 the customers,” the consumer group said. “This will authorize a ‘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.”

However, The Alliance of Insurance Agents and Brokers (Agents Alliance), IBA West and Western Insurance Agents Association launched a strong grassroots effort to convince legislators of the bill’s importance, saying it will clarify when an insurance professional is acting in the capacity of a broker versus an agent in California.

“We’re happy with how things turned out,” said Mike D’Arelli, executive vice president for the Agents Alliance. “The end-product is the result of good compromise. … It’s important to understand this bill doesn’t change anything for brokers that want to continue doing business as usual. If a broker wants to take advantage of the presumption of being a broker, then he or she must comply with this bill and make certain disclosures that are really good for the customer and consumer,” D’Arelli added. “The consumer really does win here.”