BILL ANALYSIS
SENATE COMMITTEE ON INSURANCE
Senator Herschel Rosenthal, Chairman
Senate Bill 351 (Peace) Hearing Date: May 3, 1995
As Introduced: February 10, 1995
Fiscal: No
SUMMARY
SB 351 would require insurers to continue to deal with terminated
obrokerso as well as agents with respect to the renewal of
insurance coverage in specified cases.
DIGEST
Existing law
1. Provides that after a written insurance agency contract has
been in effect for at least one year, it shall not be terminated
or amended by an insurer except under specified circumstances.
2. Generally directs insurers to continue to deal with terminated
oagentso for specified periods of time with respect to the renewal
of insurance coverage in specified cases.
3. Specifically directs insurers to continue to deal with
terminated agents with respect to automobile insurance policies
that cannot be canceled or nonrenewed pursuant to law, and sunsets
this provision on January 1, 1996.
This bill
1. Would extend the requirements cited above in #1 and #2 to
insurance obrokerso
as well as agents.
2. Would require insurers to continue to deal with terminated
agents and brokers in cases where the insurer is prohibited by
statute from nonrenewing the risk (e.g., automobile insurance).
3. Would delete the requirement that a terminated agent [and now
broker] must show a good faith effort to place existing policies
with another insurer as a pre-condition to requiring the insurer
to continue to deal with the terminated agent [and now broker] on
such policies.
COMMENTS
1. Purpose of the bill. The author introduced SB 351 at the
request of the Insurance Agents and Brokers Legislative Council
(ABL). ABL argues that the bill is needed to protect brokers as
well as agents from arbitrary insurer cancellation or non-renewal.
ABL also maintains that the agency termination statutes on the
books need to be updated to apply to brokerage agreements and to
remove the upcoming 1996 sunset provision. ABLos goal is to
provide a fair opportunity for a broker-agent to move a book of
business to another insurer when faced with insurer termination.
ABL also maintains that SB 351 will protect policyholders from
having their insurance coverage needlessly interrupted due to a
contractual dispute between insurance companies and their agents
or brokers. In particular, ABL believes that SB 351 will prevent
insurers from circumventing statutes requiring non-cancellation of
insurance by seeking instead to cancel broker-agent contracts.
2. Authoros amendments. The author and sponsor have indicated
they intend to adopt amendments in Committee. The draft of the
amendments presented to Committee staff:
-clarify that the bill applies to the termination of owritteno
agreements with agents
and brokers;
-clarify that in cases where the insurer must continue to deal
with an agent or broker
for policies where the insurer is prohibited by statute from
non-renewing, the
obligation to the agent or broker lasts only until the insurer is
allowed to nonrenew;
-address the commission payment structure for terminated agents
or brokers who are
still dealing with the insurer pursuant to this bill;
-declare it a violation of this bill for an insurer to attempt to
circumvent the
provisions by canceling or nonrenewing substantially all of an
agentos or brokeros
business, but not canceling the agentos or brokeros contract.
3. Support. Supporters of SB 351 argue that the bill is needed
to protect both consumers and insurance agents and brokers from
arbitrary cancellation or non-renewal, especially in cases where
the insurer is trying to avoid a statutory obligation to renew
insurance coverage -- such as for ogood drivers.o SB 351 would
require the insurer to deal with the policyholderos agent or
broker until the company could legally cancel or non-renew the
policy. They also maintain that SB 351 will give the broker or
agent a reasonable period of time to replace coverage for their
customers, which is particularly important in tight insurance
markets where replacement coverage is difficult to secure.
4. Oppose unless amended. The Personal Insurance Federation
(PIF) opposes SB 351 unless it is amended. PIF believes
that SB 351 will have a chilling effect on the expansion of
insurers selling automobile insurance in California. PIF
maintains that SB 351 will require insurers to maintain auto
insurance contracts even if the business they are maintaining is
not profitable. While agents need adequate time to transfer
existing auto insurance business from one carrier to another if
their contract has been terminated, increasing the time period
from the maximum of one year to an indefinite period of time
removes the incentive for the agent to place the business with
another carrier and puts the insurer in the position of
maintaining unprofitable policies. While PIF does not object to
adding obrokerso to the provisions of law protecting agents with
respect to termination and nonrenewal of contracts, PIF requests
amendments to clarify that insurers are not required to maintain
contracts with terminated agents or brokers for more than one
year, and also requests a sunset date.
5. Oppose. Insurers who oppose the bill argue that obrokerso do
not need the protections afforded agents, because they are
independent of insurers and have always been free to place
coverage with any number of insurers without approval by the
discontinued insurance company. They also object to the
elimination of the ogood faitho effort requirement to locate a
replacement insurer prior to invoking the renewal clause, and
oppose the requirement that an insurer renew in perpetuity any
insurance contract written by the terminated agent or broker for
coverage which is prohibited by statute from being nonrenewed.
Concerns are also expressed about eliminating the 1996 sunset of
Section 769.5 of the Insurance Code. They also suggest that SB
351 could complicate legislative efforts to de-link homeowners and
earthquake insurance which may include maintenance of effort,
non-cancellation provisions.
6. Proposed technical amendment. The sponsor intends for SB 351
to generally merge the provisions of existing Sections 769 and
769.5 of the Insurance Code into Section 769, as amended, with the
goal of avoiding the 1996 sunset provision which applies to
Section 769.5. Section 769.5 involves automobile insurance
policies that under certain circumstances cannot be canceled or
nonrenewed. It is not clear that SB 351 as currently drafted
accomplishes ABLos goal to merge 769.5 into 769. Section 769, as
amended, now references the obligation of insurers to maintain
dealings with a terminated agent or broker in cases where the
insurer is oprohibitedo by statute from nonrenewing the risk. In
the case of Section 769.5, the term oprohibitedo is not used --
instead as a practical matter there are limitations and
restrictions involving nonrenewal of certain auto policies. The
author may wish to further amend SB 351 to ensure that Section
769, as amended, clearly achieves the goal of maintaining dealings
with a terminated agent or broker in cases where insurer
cancellation limitations and restrictions apply.
POSITIONS
Support
Insurance Agents and Brokers Legislative Council (Sponsor)
Lloyd S. Berkett Insurance Agency
Bowman Company Insurance Services, Inc.
Broadwater Insurance Agency, Inc.
CAL Insurance & Associates, Inc.
California Insurance Center of Northern California
California Insurance Wholesalers Association
Mervyn M. Davis Insurance Service
Stephen I. Federman Insurance Services
Fidelity Insurance Service
Fred Glaser Insurance Associates, Inc.
Insurance Brokers and Agents of the West
Insurance Brokers Society of Orange County
Insurance Brokers Society of Southern California
Marketwise Insurance Services
Mascott Insurance Services
McGee & Thielen Insurance Brokers
Neal-Truesdale Insurance, Inc.
Ogino-Aizumi Insurance Agency
Pacific Commercial Insurance Agency
Reeves Company, Inc.
James R. Saunders Insurance Agency
Thaddeus W. Smith & Associates
Society of Insurance Brokers
Stephens and Long Insurance Brokers
Teifeld & Company Insurance Services, Inc.
Tucker-Alexander Insurance Associates
Vannatta Insurance Agency, Inc.
Verga Peninsula Insurance Agency
Voorhies, Parrish & Hussar, Inc.
Weaver & Associates Inc.
Oppose
Alliance of American Insurers
Association of California Insurance Companies
Personal Insurance Federation of California (unless amended)
Consultant: Michael Shapiro