HOUSE BILL REPORT

EHB 1196

BYRepresentatives Dellwo, Chandler, Nutley, Winsley and K. Wilson; by request of  Insurance Commissioner

Regulating cancellation of contracts between insurers and agents.

House Committe on Financial Institutions & Insurance

Majority Report:  Do pass.  (12)

      Signed by Representatives Dellwo, Chair; Zellinsky, Vice Chair; Anderson, Beck, Crane, Day, Dorn, Inslee, P. King, Nutley, Schmidt and K. Wilson.

Minority Report:  Do not pass.  (1)

      Signed by Representative Baugher.

House Staff:John Conniff.  (786-7119)

AS PASSED HOUSE MARCH 14, 1989

BACKGROUND:

A property and casualty insurance company may not cancel an agency agreement or refuse to renew a class of business without providing 120 days advance written notice to the affected agent.  After the notice of agency cancellation, the company must permit the agent to continue his or her representation of the company for one year as to policyholders who renew their policies with the company.

No insurance company may cancel or refuse to renew the policy of an insured because of a termination of an agency agreement nor may a company cancel or amend an agency agreement or refuse to accept business from an agent if the action is arbitrary or discriminatory.  Moreover, any insurer or agent rejecting business placed by a broker must provide a written explanation of the rejection.

SUMMARY:

Insurance code provisions governing cancellation of agency agreements are repealed and replaced with new provisions incorporating and amending existing code provisions.

No insurer may cancel or refuse to renew a policy because of the cancellation of the insurer's contract with an independent agent.

If an insurer wishes to cancel an agency agreement, the insurer must give 120 days written notice unless the cancellation is the result of certain specific circumstances such as the agent's gross and willful misconduct. During the 120 day notice period prior to agency termination, the insurer may not amend the agency agreement.

Unless the agency agreement provides otherwise, an agent may not accept new business for the cancelling insurer without written permission of the cancelling insurer. So long as the policy written by the agent continues to meet the insurer's standards, the insurer must permit renewal of all policies sold by the agent for a period of one year and the insurer must pay the agent any commission that the agent would have earned but for the cancellation of the agency agreement.

After the one year renewal period, if the agent has not placed a policyholder with a new insurer, the cancelling insurer must offer to renew policies meeting its standards and unless the terminated agent has placed the policyholder with another agent of the cancelling insurer, the insurer may either write the policy directly or assign the policy to another agent.

Once an insurer has cancelled an agency agreement, the insurer is not required to continue to use the cancelled agent's services but the cancelled agent continues as the insurer's agent as to those policies renewed within the one year period following notice of cancellation of the agency agreement.

Unless a policyholder notifies an insurer that the policyholder does not wish to renew his or her policy with the insurer, the insurer must give notice of renewal and must renew the policy if the policyholder continues to meet the underwriting standards of the company. A cancelled agent may provide the written notice that a policyholder does not wish to continue with the insurer so long as the policyholder has given the agent written authorization to provide such notice to the insurer.

The provisions of this act do not apply to business not owned by the agent, to general agents, to non-property and casualty agents, and to cancellations resulting from insurer insolvency.

Fiscal Note:      Not Requested.

House Committee ‑ Testified For:    Ed Southon, Deputy Chief Insurance Commissioner; Paul Mitchell, Farmers Insurance Group; Joe Patton, United Farmers Agents Association; and Basil Badley, American Insurance Association.

House Committee - Testified Against:      Clark Sitzes, Independent Insurance Agents.

House Committee - Testimony For:    The agency cancellation law is unclear as it relates to the relationships between a cancelled agent and the insured.  Changes are necessary to protect policyholders while balancing the interest of agents and insurance companies.  Allowing agents sixteen months to place a policyholder with another company that the agent represents, gives agents enough time to protect the agents' business.

House Committee - Testimony Against:      While most proposed changes to the agency cancellation law are acceptable, changes permitting insurance companies to assign a new agent to service a policyholder of the cancelled agent after a 16 month period are unfair to independent agents.  Independent agents obtained the business for the insurer and should be entitled to continue receiving commissions so long as the policyholder stays with the insurer. Some policy holders cannot be placed with another insurer.