2005
Insurance Reference Manual
Personal Insurance Federation of California Insurance Reference Book
PIFC BACKGROUNDER
CDI Proposed Regulation: Insurance Broker Fiduciary Duties
January 5, 2005
The Personal Insurance Federation of California (PIFC), representing insurers who write over 50 percent of the personal lines insurance sold in California, opposes regulations proposed by the California Department of Insurance (CDI) dealing with insurance broker fiduciary duties for the reasons listed below.
PIFC believes it is important to distinguish between the fiduciary responsibilities performed by insurance agents as opposed to insurance brokers as written in the California Insurance Code §1621 and §1623:
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§1623: An insurance broker is a person who, for compensation and on behalf of another person, transacts insurance other than life with, but not on behalf of, an insurer (insurance company).
Under the proposed regulation, the definition of broker includes "an agent" thereby blurring the line between the obligations of an agent and the obligations of a broker and is inconsistent with current statutes.
PIFC notes that the Commissioner is proposing further changes in regulations governing brokers doing business in California based on a lawsuit filed by New York Attorney General Elliot Spitzer against the nation's largest insurance broker alleging it improperly steered business to certain insurers and arranged phony bids in order to dupe customers into selecting a "chosen" insurer.
PIFC further believes that the remainder of the proposed regulation is inconsistent with the governing statutes and that the Commissioner does not have the authority to adopt the proposed regulation.
Existing law, Article 6.5 of the California Insurance Code, prohibits a person from engaging "in this State in any trade practice which is defined in this article as, or determined pursuant to this article to be, an unfair method of competition or an unfair or deceptive act or practice in the business of insurance. Also Insurance Code § 790.02, Article 6.5 specifically defines unfair methods of competition and unfair and deceptive acts or practices in the business of insurance. Insurance Code §790.03, Article 6.5 specifically prohibits the Commissioner from defining additional "prohibited acts" by regulation."
Any acts considered by the Commissioner to be a prohibited act which are not listed in Insurance Code §790.03, Insurance Code §790.06 requires the Commissioner to address such acts through a case-by-case determination through an administrative proceeding subject to judicial enforcement.
PIFC is opposed to CDI's proposed regulation because it is inconsistent with provisions of the current insurance code and does not meet the requirements of Government Code §11349.1 regarding the necessity of the proposed regulation. PIFC finds the proposed regulation unnecessary, ambiguous and illegal and requests that it be withdrawn.
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