California Governor Signs Agent-Broker Bill

California Gov. Arnold Schwarzenegger has signed Assembly Bill 2956, clarifying the duties of an agent versus those of a broker.

The bill, Insurance Brokers and Agents of the West explained, establishes four situations in which the broker presumption is deemed rebutted: 1) where the insurer has appointed the licensee as its agent and filed a notice of said appointment with CDI; or in cases where the insurer has a written agreement with a licensee that expressly: 2) confers binding authority; 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,” rather than — as required by longstanding definitions in the Code — acting on behalf of the consumer.

Additionally, the bill requires that brokers disclose their fees in a written agreement signed by the consumer.

“The real goal is to make sure if someone who wants to be broker acts as a broker and doesn’t wake up and find out he or she was acting as an agent,” said Sanford Michelman, managing partner with Michelman & Robinson.

“Agents and brokers should make sure documents are clear to consumers that they either are or aren’t an agent. … In layman’s terms, the bill gives clarity on what brokers need to do to make sure they’re not misrepresenting or mistake misrepresenting themselves as agents.”

Going forward, Michelman recommended brokers talk to their legal advisors and review their practices to see if they are operating in a way the bill defines a broker should operate. “The same goes for insurance companies,” he said. Insurance companies should evaluate their clients to make sure they’re not operating more like an agent and don’t realize it.

IBA West will be conducting a series of classes this fall to help inform brokers and agents of the requirements of the new law.

The Alliance of Insurance Agents and Brokers, IBA West and Western Insurance Agents Association supported the bill.