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Florida Countersignature Law Ruled Unconstitutional

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...
October 1, 2003

Impact of Decision Will Extend Beyond the Few States with Similar Laws

By Patricia A. Borowski
Senior Vice President
PIA National

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, to pay the resident agent a fee mandated for that service, and facilitate all aspects of the insurance transaction and service for the Florida exposure are unconstitutional. He further ruled that statutes prohibiting non-resident agents and brokers from being licensed as non-resident surplus lines brokers are unconstitutional.

Should the Court's decision stand, Florida will be required to revise their insurance statutes. Similar revisions may follow in the three other states with retail countersignature laws. How excess and surplus lines producer licenses are issued in many states may be affected to some extent by these changes as well.

Court Findings

The court said that Florida has the right and obligation to protect its consumers and demand that all persons coming into their state to conduct insurance business be licensed in good standing by the same authorities as those domestic persons engaging in insurance. It noted that a state does so by creating non-resident licensing requirements.

Florida, like all other states, mandates that any person placing retail insurance on a Florida risk must have a non-resident Florida producer license to do so, before the fact of the Florida insurance transaction. The court said that in so doing, the state of Florida established its equal requirements, control and oversight of non-residents.

The Court noted that despite granting the retail non-residents a license, the State goes further and prohibits the now licensed Florida non-resident from transacting insurance directly with that license in the state. Instead, Florida only permits the licensed non-resident the opportunity to "team" and "split commissions" with a retail, resident, Florida producer who will complete all insurance transactions and services for the Florida exposure.

In contrast, for the non-admitted placement area Florida does not provide for a non-resident license at all. Rather, it only permits such placements be 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 placement with the wholesale carrier must meet these requirements.

The Judge reminded Florida that insurance is interstate commerce. As such the State can protect its in-state community through the employment of the non-resident licensing process, the legally appropriate vehicle.

However, Florida thwarts interstate commerce efforts in both retail and wholesale insurance business conducted in the state. For excess and surplus lines placement, Florida does not even offer a non-resident license. Although a non-resident license is available for retail producers, its implementation in-state also forces the actual business of insurance only be conducted through a Florida resident retail producer.

Both practices unlawfully frustrate and interfere with the interstate nature and purpose of insurance and thus renders both Florida insurance statutes and regulations in these areas unconstitutional, the court ruled.

Immediate Impact

The economic shock for Florida resident retail producers is significant in that they will experience the immediate loss of their countersigning fees. Even though there may not be a legal challenge to the opinion itself, we encourage retail producer groups to ask for legal protection and relief so as to not be forced to return passed-paid countersignature fees and to secure a fast-tracked, short-term fees transition program so that they are not cut off at the knees immediately.

Direct insurance transactions conducted by non-residents in Florida will also pose new challenges to those non-residents. Until now, they've been able to rely on the resident producer for advice on state law and requirements. In the past if problems arose in this area, the in-state producer bore a significant legal burden. Now, non-residents had better know their Florida insurance law well, because it is their license directly on the compliance and legal line.

The potential impact of this decision will extend beyond Florida and the handful of other states with countersignature laws. In addition to Florida, only Nevada, West Virginia and South Dakota have retail countersignature laws. But many states have requirements that non-admitted insurance be placed by the retail producer only through a resident wholesaler producer for the non-admitted market.

In 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? They must give due consideration to the effect on their operations that state surplus tax laws would have in a multi-state licensed world.

The less obvious impact will be when the state permits non-admitted wholesaler non-resident licenses. Then there will be more obligations on the placing retailer to be sure the non-resident wholesaler with which they do business - and the offered insurance placement - meet or at least do not violate the state's insurance laws (including those relating to how business may or may not be exited into the non-admitted market).

PIA staff is available to work with you on reform steps your state may take in response to this decision. We will also issue updates and briefing sheets to help all of us understand the issues, collaborate in designing the best reforms for PIA agencies and enacting them across the country and, where necessary, in Washington, D.C.

Patricia A. Borowski can be reached at and (703) 518-1360.

This article originally appeared in the October 2003 PIA Connection.

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