PIA Analysis
The Details and Larger Meaning of Florida Countersignature Decision on
Resident vs. Non-resident Producer Requirements and State Authority
Overview: On September 30, 2003 Judge Robert L. Hinkle of the U.S. District Court for the Northern District of Florida ruled the state’s insurance countersignature law unconstitutional. Hinkle ruled that statutes requiring non-resident insurance agents and brokers to have a Florida resident agent “counter-sign” any insurance policies placed by the non-resident, and to pay the resident agent a fee mandated for that service, are unconstitutional. The judge further ruled that statutes prohibiting non-resident agents and brokers from being licensed as surplus lines brokers are unconstitutional.
PIA Analysis and Comment:
The September 30, 2003 Opinion issued by the U.S. District Court in Tallahassee sets in a very simple light the issues surrounding application of countersignature and connected/related laws and residency requirements for affecting insurance in Florida.
The State’s Issues:
The court said that the State has the right and obligation to protect its consumers and demand that all persons doing insurance business in their state be licensed by the same authorities as those domestic persons engaging in insurance.
The State does so by creating non-resident licensing requirements that provide the assurance the State seeks to know and confirm that these persons are in good standing to conduct insurance business in their state. These non-resident licenses also give the State the legal instrument over such non-residents so that they and their activities may be policed, and if in error, corrected or punished by the State.
Floridarequires that any person placing insurance on a Florida risk must have a non-resident Florida producer license to do so, and before the fact of the Florida insurance transaction. These statutes are adopted by the Florida legislature and detailed and enforced by the Department of Insurance for the State of Florida.
In so doing, Florida has established its equal requirements, control and oversight of non-residents. Using the Insurance Department’ own example of the practice of law, the Court agreed that one cannot practice law in a state without a license from that state. However, once obtained, lawyers may freely practice law in all states in which they are duly licensed, member of the state bar, keep their bar payments current and their disciplinary sheet clean.
Further, in the non-admitted placement area, Florida does not provide for a non-resident license. Rather, it only permits such placements made by the retail producer, with and through a Florida resident licensed wholesale producer that has a physical agency located in Florida. This requires that the wholesaler making the per se placement with the wholesale carrier must met these requirements.
Court’s Views:
In the Court’s opinion, Florida trips up in making these requirements. Despite requiring the retail non-residents’license, the State then prohibits the licensed non-resident from transacting insurance directly with that license. Instead, Florida only permits the non-resident the opportunity to “team” and “split commissions” with a retail resident Florida producer only, who will complete all insurance transactions and services for the Flrida exposure.
This restriction of trade goes further in the wholesale example, demanding that wholesale transactions only go through resident wholesale producers with physical offices in the state and does not allow a non-resident license status at all.
Insurance is interstate commerce and as such the State cannot unfairly interfere or restrict. It can protect, and the non-resident licensing process is the legally appropriate vehicle.
Ergo both treatments under current Florida insurance law, the Court’s states, are unfair restrictions of trade and thus, unconstitutional.
The Reactions & Impact:
While there is still some time for Florida to react and challenge the ruling, questions are being raised as to whether they or other interest groups in the state will do so. Should the Court’s decision stand, Florida will be required to revise their insurance statutes. They may even be pressed to issue temporary emergency DOI rules until permanent statutory changes can be adopted by the legislature.
RETIAL - The economic shock that Florida resident retail producers may take is significant. his comes at a time when carriers are also closing down marketsl. The domestic insurance market in Florida right now, especially property, is struggling.
We’ve encouraged some consideration being given this fact and a transition plan be adopted to mitigate the immediate impact.
Direct insurance transactions by nonresidents will also pose new challenges to those non-residents, as well. Until now, they’ve been able to rely on the resident producer for advising on state law and requirements. If problems arose in this area, the in-state producer bore a significant legal burden. Now non-residents will -- and they had better know -- their Florida insurance law well.
NON-Admitted - This is the part of the Court’s decision that push similar opinions in many other states, as well. Whereas only four states have retail countersignature laws (FL, NV, SD & WV) – many states have requirements that non-admitted insurance must be placed by the retail producer through a resident wholesaler producer for the non-admitted market.
Florida retail producers still have their resident wholesale producers to place such business on an uninterrupted basis, as would any PIA member in a state faced with a similar Court decision.
In this aspect of the decision, the potential immediate impact is on the non-admitted wholesalers. Do they want to get non-resident licenses? This is an interesting question, because it may pose more surplus lines tax difficulties for such multi-state licensed wholesalers.
However, the less obvious impact will be when the state permits non-admitted wholesaler non-resident licenses. There will be more obligation to the placing-retailer to be sure the nonresident wholesaler with which they do business, and the offered insurance placement, meet or at least do not violate the insurance laws (including those relating to how business may or may not be exited into the non-admitted market) in your state.
What It Means to Agents: There are five things to take away from this decision:
1. Most PIA agencies place and service insurance business in two or more states on a regular basis. This will permit PIA members to do so “directly, ” but through non-resident producer licenses.
However, it also demands that you know all the applicable laws, rules and meanings when you do so. There will continue to be circumstances where the non-resident producer desires “teaming up with” a resident producer of the state for that and other reasons. This Courts’ opinion permits that.
2. For retailers placing non-admitted business with a non-resident wholesaler, be sure you understand and exercise your due diligence and execute a diligent search before placing.
3. Since Florida domestic commerce is growing and increasingly locating owned business operations in other states,Florida producers now have the ability to follow and write that part of the business as well on a non-resident basis in other states.
4. GLBA-NARAB-Part I is not the end of the reform process. Despite the fact that this section of the federal law permitted retail countersignature laws to survive, this Court has not.
5. While the specific issues of this Court decision are unique to Florida, many other states have different, old insurance provisions that will have equal difficulty meeting contemporary legal challenges as insurance regulation is reformed.
Ignoring or fighting that realty leaves one victim to an immediate Court decision that can leave a state insurance community unaware, unprepared and immediately harmed.
PIA staff is available to work with you on what next reform steps your state may need to take or wish to keep pushing further. We will also update and issue reform subject briefing sheets that help all of us to understand the issues and collaborate in designing the best reform designs for PIA agencies, affecting them across the country and where necessary in Washington, D.C.
For additional information contact: Patricia A Borowski
Updated October 13, 2003