As of January 2, 2009 assembly Bill number 2956 and section 1621 through 1623 and section 1732 of the California insurance code became law. The problem, of course, with this attempt to protect consumers is that it creates confusion.

The new statutes define, and limit the actions of, insurance agents and brokers.

New §1621 provides:

An insurance agent is a person who transacts insurance, including 24-hour care coverage as defined in section 1749.02, other than life, disability, or health insurance, on behalf of them admit to the insurance company. The term “insurance agent” as used in this chapter does not include a life agent as defined in this article.

New § 1623 provides:

(a) An insurance broker is a person who, for compensation, and on behalf of another person, transacts insurance other than life insurance with, but not on behalf of, an admitted insurer. It shall be presumed that the person is acting as an insurance broker. If the person is licensed to act as an insurance broker, maintains the bond required by this chapter, and discloses in a written agreement signed by the consumer, all of the following:

(1) That the person is transacting insurance on behalf of the consumer.

(2) A description of the basic services that person will perform as a broker.

(3) The amount of all broker fees being charged by the person.

(4) If applicable, the fact that the person may be entitled to receive compensation from the insurer, directly or indirectly, for the consumers purchase of insurance as a consequence of the transaction.

(b) if a transaction involves both retail broker and a wholesale intermediary broker, the wholesale intermediary broker shall be deemed to have satisfied its disclosure obligations under this section if it provides written disclosures to the retail broker of the criteria set forth in paragraphs (2), (3), and (4) of subdivision (a).

(c) The presumption of broker status is rebutted as to any transaction in the admitted market in which any of the following is present:

(1) The licensee is appointed, pursuant to section 1704, as an agent of the insurer for the particular class or type of insurance being transacted.

(2) The licensee as a written agreement with an insurer containing express terms authorize the licensee to obligate the insurer without first obtaining notification from the insurer that the insurer has excepted, conditionally or unconditionally, the submitted risk.

(3) The licensee is authorized, pursuant to a written agreement with an insurer, to a point other licensees as agents of the insurer, pursuant to section 1704.

(4) The licensee is authorized, pursuant to a written agreement with an insurer, to pay claims on behalf of the insurer.

(d) In all other cases, the presumption of broker status is rebutted based on the totality of the circumstances indicated that the broker-agent is acting on behalf of the insurer.

(e) For purposes of this section, “totality of the circumstances” means evidence indicating whether a broker-agent was acting on behalf of the insurer was acting on behalf of the third person. In determining the totality of circumstances, all relevant facts and circumstances shall be reviewed and the review is not limited to any particular factor factors in this section does not require that any particular circumstance, receive greater or lesser weight.

Unchanged, are sections 31 and 33 of the California insurance code, which are not limited to “admitted insurers,” and which provide:

§ 31. "Insurance agent" means a person authorized, by and on behalf of an insurer, to transact all classes of insurance other than life insurance. An insurance agent is also authorized to transact 24-hour care coverage, as defined in Section 1749.02.

§ 33. "Insurance broker" means a person who, for compensation and on behalf of another person, transacts insurance other than life with, but not on behalf of, an insurer.

What this contradiction between various sections of the California insurance code means to disputes between insureds, their brokers or agents, and insurers will be up to the California courts. What the Legislature has done by enacting a statute defining terms that contradicts other statutes defining the same terms is to guarantee litigation.

California insurance code sections 31 and 33 are simple, straightforward, and to the point. They deal with all people who transact business with any insurer. They are not limited to people who transact business with admitted insurers. By limiting the new statutory requirements to transactions with admitted insurers, the Legislature has allowed insurance agents and brokers who deal with non-admitted insurers—such as Lloyd’s Underwriters, foreign insurers, and insurers who continue to do business without going through the bureaucratic requirements—to become an admitted insurer.

It makes little sense for there to be two statutes defining the exact same term differently.

The Legislature should either amend sections 31 and 33, or delete sections 31 and 33 and amend the new sections to include insurance transactions with non-admitted insurers. To do otherwise will create two separate categories of insurance agents and insurance brokers none of whom will be certain of their status or the requirements of the statutory scheme.

Insurance agents and brokers would be wise to follow the mandate of the new sections with regard to obtaining written agreements from the consumer, even if the insurer with whom the insurance business is being transacted is a non-admitted insurer.