Alliance Opposed to Proposed CDI “Agent Appointment” Regs

The American Agents Alliance has issued its official objections to the proposed regulations (file number RH 04037941), which were submitted on June 3, 2005. The Alliance believes the regs “do not meet the standards of authority, reference, clarity and consistency under Section 11349 of the California Government Code.”

Robert Hogeboom of Barger & Wolen, who helped draft the Alliance response to the proposed regs, said, “The proposed regs would set forth a new method for insurers to appoint and terminate agents in an electronic form to the Insurance Department’s producer licensing
database. The proposed regs stipulate any termination for cause must be explained. Currently, insurers must sign a statement if the termination is due to the belief that the agent may have violated the Insurance Code. It does not require information pertaining to at fault terminations.”

The Alliance voiced several objections to the proposed regulations. Hogeboom explained, “First off, California law stipulates any regulation must be consistent with existing law, not in conflict with the authorizing statute and it must be reasonably necessary to effectuate the statute’s purpose. The Office of Administrative Law (OAL), which is charged with reviewing state agency regulations, does so in accordance with certain standards prescribed by Government Code Section 11349.1, including consistency with existing law, necessity and clarity. There must be proper statutory authority and reference for the regulations to ensure that the commissioner is implementing or interpreting an existing law as opposed to creating a new law which invades the province of the Legislature.”

“In other words,” he continued, “the insurance commissioner cannot simply come up with a regulation that changes existing laws. The commissioner has proposed regulation 2194.43(a) with no discussion or explanation concerning the authority of the commissioner to require notification of “for cause” terminations and explanation of these terminations. Proposed regulation 2194.43(a) does not clarify existing law — it creates a new act and obligation on insurers (notification and explanation of “for cause” termination) which is not consistent with the Code. Lack of consistency and necessity are a basis for the Alliance’s rejection of the regulations under Section 11349(a)(d) of the California Government Code.”

The Alliance also objects the use of the term “producer” in Section 2194.43(a). The term “producer” is inconsistent with the proposed regulation.

Proposed Section 2194.42 refers to the appointment and termination of “agents.” A producer, which is an undefined term in the Code, is commonly understood to include both agents and brokers. Brokers are neither required to be appointed nor terminated under California Law. Accordingly, the use of the term “producer” in proposed Section 2194.43(a) conflicts with the proposed regulations themselves
as they apply to agents, not brokers or producers.

The Alliance believes these proposed regulations are an attempt by the Insurance Department to lump all brokers and agents together by labeling them all as “producers.” Therefore, if the OAL permits these regs to be implemented, carriers may be required to appoint all “producers” — agents and brokers alike.

The Alliance deemed the proposed regulations as another attempt by the Insurance Commissioner to nullify the existence of California insurance brokers. The Alliance concluded its response to the proposed regs by stating, “The Department has no authority to require anything other than the 1704 requirement of the Notice of Termination.

The Department’s current form, Action Notice of Termination 447-54T is also improper to the extent that it requires insurers to sign a statement if the appointment is terminated on the belief the agent may have violated the California Insurance Code.”

Topics California Agencies Legislation