PRINTER'S NO. 1154
No. 1044 Session of 1987
INTRODUCED BY D. R. WRIGHT, DeVERTER, WAMBACH, REINARD, CESSAR,
SWEET, DIETTERICK, PICCOLA, FOSTER, GAMBLE, F. TAYLOR AND
MAIALE, APRIL 8, 1987
REFERRED TO COMMITTEE ON INSURANCE, APRIL 8, 1987
AN ACT
1 Amending the act of September 22, 1978 (P.L.763, No.143),
2 entitled "An act establishing certain procedures relating to
3 the termination of insurance agency contracts or accounts and
4 providing penalties," further defining "agent" and "insurer";
5 and further providing for cancellation of contracts.
6 The General Assembly of the Commonwealth of Pennsylvania
7 hereby enacts as follows:
8 Section 1. Section 1 of the act of September 22, 1978
9 (P.L.763, No.143), entitled "An act establishing certain
10 procedures relating to the termination of insurance agency
11 contracts or accounts and providing penalties," is amended to
12 read:
13 Section 1. Definitions.
14 The following words and phrases when used in this act shall
15 have, unless the context clearly indicates otherwise, the
16 meanings given to them in this section:
17 "Agent." [An insurance agent authorized to transact and
18 transacting the business of automobile insurance in the
19 Commonwealth.] An individual, partnership or corporation,
1 licensed by the Insurance Department who contracts with an
2 insurer to sell insurance on behalf of the insurer.
3 "Insurer." An insurance company, association or exchange
4 authorized to transact and transacting the business of
5 [automobile insurance] property or casualty insurance, or both
6 in the Commonwealth.
7 Section 2. The act is amended by adding a section to read:
8 Section 1.1. Scope of the act.
9 (a) General rule.--This act applies to all classes and kinds
10 of insurance which may be written by stock or mutual property or
11 casualty insurance companies, associations or exchanges,
12 including fidelity, surety and guaranty bonds and all other
13 forms of motor vehicle insurance except:
14 (1) Reinsurance.
15 (2) Accident and health insurance.
16 (3) Insurance against loss of or damage to aircraft or
17 against liability arising out of the ownership, maintenance
18 or use of aircraft.
19 (b) Nonapplicability.--The provisions of this act do not
20 apply to:
21 (1) business owned by the insurer and not by the agent,
22 provided such insurer offers to continue such policies
23 through another of its agents;
24 (2) any agency contract in effect for less than four
25 years;
26 (3) an agent whose license has been suspended or revoked
27 by the Insurance Commissioner or whose contract has been
28 terminated for insolvency, abandonment, gross or willful
29 misconduct or failure to pay over to the insurer moneys due
30 to the insurer after his receipt of a written demand thereof;
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1 or
2 (4) an agent who has demonstrated gross incompetence
3 which would normally be cause for agency contract
4 termination.
5 Section 3. Sections 2, 3 and 4 of the act are amended to
6 read:
7 Section 2. Cancellation of contract.
8 (a) Notice.--[After an agency contract has been in effect
9 for a period of five years, no] No insurer shall terminate its
10 contract with an agent without first providing such agent and
11 the Insurance Commissioner with written notification at least 90
12 days prior to the date of termination. Such notice shall advise
13 the agent of his right of appeal under subsection (d).
14 (b) Reason for action.--Such notification shall set forth
15 the insurer's reason for the action.
16 (c) Privileged information.--Any information, document,
17 record or statement so furnished or disclosed to the department
18 shall be absolutely privileged and shall not be admissible as
19 evidence in or as basis for any action against the appointing
20 insurer or against any representative of the foregoing.
21 (d) Administrative review.--Any agent may, if within 30 days
22 of receipt of notice of termination, request in writing to the
23 Insurance Commissioner that [he] the Insurance Commissioner
24 review the action of the insurer for the purpose of determining
25 that said termination was in compliance with the provisions of
26 this [section] act.
27 (e) Restriction on termination.--[No insurer shall terminate
28 its contract with an agent due to the adverse experience of a
29 single year. Prior to such termination it shall be the
30 obligation of the insurer to demonstrate that it has made a
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1 reasonable attempt to rehabilitate such agent.] Prior to
2 termination due to adverse experience, mix of business or lack
3 of premium volume, it shall be the obligation of the insurer to
4 make a reasonable attempt to rehabilitate such agent as set
5 forth in subsection (f). No insurer shall terminate its contract
6 with an agent due solely to the adverse experience for a period
7 of less than two successive years prior to the notice of
8 rehabilitation as set forth in subsection (f).
9 (f) Rehabilitation.--
10 (1) An insurer shall notify an agent, in writing, that
11 the agent is placed on a rehabilitation program.
12 (2) Such notice shall specify the reasonable goals and
13 objectives of the rehabilitation program.
14 (3) Such notice shall inform the agent that failure to
15 attain the goals and objectives specified in the
16 rehabilitation program may result in agency termination.
17 (4) The rehabilitation program of an agent under this
18 act shall not be for a period of less than one year.
19 (5) Compliance with the rehabilitation program and
20 attainment of the rehabilitation goals shall bar termination
21 of the agency solely due to adverse experience, mix of
22 business or lack of premium volume.
23 (6) Upon request of administrative review pursuant to
24 section 2(d), it shall be the obligation of the insurer to
25 demonstrate to the Insurance Commissioner that it has made a
26 reasonable attempt to rehabilitate such agent.
27 Section 3. Continuation of business.
28 (a) Policies.--Where an insurer notifies an agent that its
29 contract shall be terminated, the insurer shall offer to
30 continue such agent's policies and any amendments thereto,
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1 through such agent for a period of 12 months from the effective
2 date of termination, subject to the insurer's current
3 underwriting standards.
4 (b) Commissions.--The terminated agent or an agent under
5 rehabilitation shall be entitled to receive commissions on
6 account of all business continued or written pursuant to this
7 subsection [at the insurer's prevailing commission rate for such
8 business] in accordance with the commission rates in such
9 agent's agreement.
10 [(c) Application of section.--The provisions of the section
11 do not apply to business owned by the insurer and not by the
12 agent, provided such insurer offers to continue such policies
13 through another of its agents.]
14 Section 4. Certain agreements permitted.
15 [(a)] Construction of act.--Nothing contained in this act
16 shall be deemed or construed to prohibit an amendment or
17 addendum subsequent to the inception date of the original agency
18 agreement providing in such subsequent amendment or addendum
19 that the original agency agreement may be terminated at a sooner
20 time than is required by this act provided the agent agrees in
21 writing to such sooner termination.
22 [(b) Certain terminations excepted.--This act shall not
23 apply to:
24 (1) an agent whose license has been revoked by the
25 Insurance Commissioner or whose contract has been terminated
26 for insolvency abandonment, gross and willful misconduct or
27 failure to pay over to the insurer moneys due to the insurer
28 after his receipt of a written demand thereof; or
29 (2) an agent who has demonstrated gross incompetence
30 which would normally be cause for agency contract
19870H1044B1154 - 5 -
1 termination.]
2 Section 4. This act shall take effect immediately.
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