Question of the Week - Working for Multiple Agencies

Q.    I am a principal in an agency that specializes in commercial lines insurance.  We have a good relationship with another agency in our city that specializes in personal lines.  We are discussing a business relationship in which I might be added to their organizational license as an agent.  Does California prohibit an individual broker-agent from working as an agent or broker for more than one agency or brokerage at the same time?

A.    The answer depends in part on the capacity in which you would be working in one or more agencies or brokerages.

Any person who “transacts” insurance must be licensed, and the California Department of Insurance issues a variety of licenses in property/casualty, and life/health, lines of insurance.  A broker-agent licensee is authorized to act in the capacity of a “broker,” an  “agent,” or a “solicitor,” if they meet the particular requirements for licensees to act in those capacities.

For example, before one can lawfully act as an “agent,” at least one insurance company must have filed a notice of agency appointment with the California Insurance Commissioner.  Before one can lawfully act as a “solicitor,” an agency is required to file a similar notice with CDI.  Before one can lawfully act as a “broker,” the licensee must procure a bond and file proof with the Department of Insurance.

Under California Insurance Code Section 1632, licensees are generally permitted “to act in one or more of the capacities” covered by their license.”

However, one exception to the general rule is set forth in Insurance Code Section 1640, which prohibits solicitors from acting as an agent or broker, and also prohibits brokers and agents from acting as solicitors.

Another qualification—which applies solely to solicitors—is contained in Insurance Code Section 1704(f).  That provision expressly permits solicitors to work for more than one agency or brokerage at the same time, but requires the employing agencies or brokerages to enter into an agreement governing how they will determine on whose behalf the solicitor is transacting when dealing with prospects who are not customers of any of the agencies or brokerages.  In the absence of such agreement, all of the agencies or brokerages are deemed jointly and severally liable for all acts of the solicitor.

There are no similar Code provisions limiting or qualifying multiple employment of “agents” or “brokers.”

There are at least two other statutory considerations:  First, relating to the difference between employees and independent contractors; second, considering when individual licensees are required to be endorsed onto an organizational license. 

With respect to solicitors, Insurance Code Section 1704 requires that “Every fire and
casualty broker-agent acting in the capacity of an insurance solicitor shall have filed on his or her behalf with the commissioner a notice executed by an insurance agent or insurance broker appointing and agreeing to employ the solicitor as an employee (emphasis added) within this state.”

A plain reading of that statute suggests that “solicitors” may NOT be hired as independent contractors.   However, similar restrictions do not apply to “brokers” or “agents” who are working for an agency or brokerage.  Consequently, if it is important to the brokerage/agency and the licensee for that person to work as an independent contractor, rather than as an employee, the licensee would need to be hired as a “broker” or as an “agent” of the organization.

Section 1640 of the Code expressly prohibits a “solicitor” from working at the same time as an agent or broker.  However, Code Section 1704(f) expressly permits solicitors to work, as solicitors, for multiple employers, and suggests a process for allocation of liability among various employers.  The Code does not limit the number of agencies or brokerages for whom an agent or broker may transact insurance, so long as the legal prerequisites for agent (i.e., the action notice) and broker (i.e., bond) are satisfied for each employing entity.

The California Insurance Code is less clear on the question of when an individual licensee submitting business to an agency or brokerage needs to be added, or endorsed, onto the organizational license as a person authorized to transact insurance thereunder.

Insurance Code Section 1661 does not expressly require organizations to endorse every individual onto its organizational license who may submit business to the agency or brokerage, but the statute does require that if an organization “desires to change, remove, or add to, the natural person or persons who are to transact insurance under authority of its license” (emphasis added), it must modify the list of individuals listed as transactors on the organizational license accordingly.

By implication, therefore, the California Department of Insurance has historically taken the position that if an organization permits an individual to “transact insurance under authority of its license,” then such individual should be endorsed onto the organizational license.

Whether or not a person is “transacting insurance under authority of” an organizational license, as opposed (for example) to merely referring business on occasion to the organization is a question of fact; the answer to which would vary by circumstance. 

However, to the extent that a reasonable consumer would conclude that an individual is working for an organization, as opposed to working for himself (through, for example, advertising, business cards, email addresses, or other marketing, or through other actions directly related to the transaction of insurance), then CDI would likely take the view that the individual should be named on the organizational license as a transactor.

In practical effect, there is a business advantage for an agency or brokerage to endorse individuals onto its organizational license (in addition to meeting the implied statutory obligation); it permits the endorsee to do business in the name of the organization or any DBA it is permitted to use.

Likewise, there could be at least one disadvantage (in addition to the minimal cost of making the filing) in endorsing individuals onto the organizational license—making it easier to assert vicarious liability against the organization for the licensee’s conduct in situations where the individual was transacting for the organization.  However, the absence of an endorsement would not prevent regulators or plaintiffs’ attorneys from asserting liability against the organization where the facts proved the individual was transacting insurance for the organization.

Brokerage and agency owners should be aware that a slightly different rule applies in cases where an organization is endorsing onto its organizational license an individual who has not yet obtained individual licensure from CDI.  In those cases, California Insurance Code Section 1705 provides that endorsement of such individuals onto an organizational license constitutes a declaration by the organization that the individual “is of good reputation” and “worthy of the license sought.”

While the legal significance of that declaration is open to debate, it could potentially be used to assert greater liability against an organizational licensee when applicable.

Because there is a well-developed but complex body of labor law distinguishing “employees” from “independent contractors,” it is advisable to utilize a well-drafted written agreement—regardless of the capacity and/or exclusivity in which in individual is working.

One other consideration is contractual rather than statutory.  Covenants-not-to-compete are illegal in California; such provisions are typically designed to prevent employees from going to work for competitors if they leave the incumbent employer.  However, employers may lawfully require their employees to work full-time for them, and are also permitted to protect “trade secrets” and other proprietary information from disclosure, so it would be important for licensees to ensure they were not subject to such contractually limitations.

In order to ensure that there are no “conflict of interest” problems, contractually, ethically, or legally, any employee or independent contractor considering concurrent employment with another agency or brokerage would be well-advised to disclose that arrangement to the initial employer, in writing, before entering into additional contractual relationships.