DON'S DISCUSSION

IA&B Legal & Corporate Affairs Director Don Bankus Are you a member with a question? Contact Don to find the answer at 800-998-9644, ext. 603 or DonB@IABforME.com.

QUESTION:

Our agency holds a resident producer license in our state of domicile. In other states, we obtain a non-resident license for the agency and a singular licensee. Since our agency has other individual resident licensed producers who actively produce business in the non-resident states, is this practice OK?

ANSWER:

The practice of simply licensing the agency and a singular designated producer in states where the agency maintains a non-resident license may seem ideal from a purely pragmatic perspective. However, doing so when there are other licensed producers in the agency who actively “sell, solicit, or negotiate” insurance products in that state puts both the agency and those who do not have the requisite non-resident license at risk of violating the respective states’ insurance producer laws.

Whether you are a Pennsylvania, Maryland, or Delaware resident licensed agency, with very limited exceptions, the proper (and statutorily required) way to address non-resident state licensing is to license the agency,* as well as each and every producer in the agency who actively “sells, solicits, or negotiates” risks of insurance located in the non-resident states.

STATUTORY REQUIREMENTS

The issue at hand is governed by respective states’ producer licensing statutes, which generally provide that:

▲ As to the individual and the agency – “A person shall not sell, solicit, or negotiate a contract of insurance in this state for any class or classes of insurance unless the person is licensed as an insurance producer for that line of authority under which the contract is issued”;

▲ As to the agency – Agencies are expressly prohibited from accepting applications or orders for insurance from any person or securing insurance that was sold, solicited, or negotiated by any person acting without an insurance producer license;

▲ In addition to this licensing requirement, these same statutes will also prohibit a producer from acting on behalf of an insurer unless the insurer has appointed the producer.

POTENTIAL REPERCUSSIONS

Violations of a respective states’ statutory provisions can have significant repercussions for both the agency and affected producers who aren’t licensed in the nonresident states, including:

▲ Denial, suspension, revocation, or refusal to renew a license;

▲ The imposition of a civil penalty/ fine, which can be severe (for example, up to $5,000 per violation in Pennsylvania, and $20,000 per violation in Delaware);

▲ Violators may be determined to have committed a misdemeanor.

FINAL THOUGHTS

While licensing only the agency and a single producer may have worked to date – and although licensing all applicable personnel can be laborious and expensive – the business of insurance is highly regulated and scrutinized. Failure to adhere to the requirements of the respective states’ licensing statutes can ultimately lead to unwanted consequences.

* There are only a handful of states with laws that don’t require licensing of the agency. These include Iowa, Rhode Island, Tennessee, Vermont, and Wisconsin.

This document is not a legal opinion and should not be relied upon as such. The intent of this document is to provide a general background regarding the topic or topics discussed, not to provide legal advice. Producers and agencies should consult an attorney regarding specific situations and specific questions with respect to the topic or topics covered in this document. Neither the Insurance Agents & Brokers nor any of its employees shall be responsible for any errors or omissions regarding any statements made in this document, nor any errors or omissions regarding any statutes, regulations, court rules, and/or any other government documents cited in this document.