SENATE 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

Senate Committee on Financial Institutions & Insurance

Senate Hearing Date(s):March 28, 1989; March 30, 1989; March 31, 1989

Majority Report:  Do pass as amended.

      Signed by Senators von Reichbauer, Chairman; McMullen, Matson, Rasmussen, Sellar, Smitherman, West.

Senate Staff:Benson Porter (786-7470)

                  March 31, 1989

AS REPORTED BY COMMITTEE ON FINANCIAL INSTITUTIONS & INSURANCE, MARCH 31, 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 policyholders to renew their policies through the agent for one year.

No insurance company may cancel or refuse to renew the policy of an insured because of a termination of an agency agreement.  A company also may not 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Insurance code provisions governing cancellation of agency agreements are repealed and replaced with new provisions incorporating and amending existing code provisions.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 write any new business for the cancelling insurer without written permission of the cancelling insurer.  So long as a policy written by the agent continues to meet the insurer's standards and there is no valid reason for nonrenewal, the insurer must permit renewal of policies sold by the agent for a period of one year from the date of agency termination.  The insurer must pay the agent any commission earned had the agency agreement not been cancelled.

After the one year renewal period, the cancelling insurer must offer to renew policies meeting its standards unless the terminated agent has placed a policyholder with a new insurer or 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.  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 he or she does not wish to renew the policy, the insurer must give notice of renewal if the underwriting standards of the company are met.  If the policyholder has given written authorization, a cancelled agent may provide the written notice that a policyholder does not wish to continue with the insurer.

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

Appropriation:    none

Revenue:    none

Fiscal Note:      none requested

SUMMARY OF PROPOSED SENATE AMENDMENT:

If, after the one-year renewal period, the cancelling insurer is required to offer to renew policies, the insurer must assign the policy to another agent in the policy holder's locality when possible.  Insurers are permitted to directly write business not subject to this section.

Health maintenance organizations are specifically excluded from this section.

Senate Committee - Testified: Basil Badley, AIA; Clark Sitzes, Independent Agents; Jerry Moore, Independent Agents; Frank Keller, Agents and Brokers Legislative Council (pro); Ed Southon, Insurance Commissioner's Office (pro)