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A federal judge has struck down Florida's countersignature and surplus lines coverage statutes as unconstitutional "to the extent they deny to Florida-licensed nonresident insurance agents the same rights and privileges that they afford to Florida-licensed resident agents."

The ruling could be cited in challenging similar laws in other states.

"Each individual state retains its own sovereignty and its own ability to govern within its borders," U.S. District Judge Robert L. Hinkle wrote in Council of Insurance Agents + Brokers v. Florida Insurance Commissioner Tom Gallagher (4:02cv208-RH), "but no state may build a fence at the border to keep out residents of other states or to keep them from competing for business within the state."

Judge Hinkle of the U.S. District Court for the Northern District of Florida granted the Council's motion for summary judgment "because the statutes plainly draw a distinction between Florida-licensed resident agents and Florida-licensed nonresident agents, and because there is no legitimate rational basis for any such distinction."

He noted the countersignature statutes precluded Florida-licensed nonresident agents from placing property or casualty insurance coverage in the state without the participation of a resident agent, who must be paid at least 50 percent of the commission with respect to property coverages and at least 25 percent of the commission with respect to other coverages.

Under the state's surplus lines statutes, he said, a licensed insurance agent may place surplus lines coverage only if he or she obtains a separate license as a surplus lines agent, but a Florida-licensed but nonresident agent is precluded from obtaining such a license.

In response to Commissioner Gallagher's assertion the Council lacked standing to present the claims, Hinkle agreed it was only the individual nonresident agents who had rights under the privileges and immunities clause, but said "the Council has standing to assert rights of the individuals.

"That is the whole point of the doctrines of associational and employer standing - that entities who do not themselves have the rights at issue may assert the rights of those who do have such rights."

In response to an analogy drawn by the commissioner about the licensure of insurance agents and attorneys, he said the analogy "is both apt and fatal."

It is "apt because practicing law, like placing insurance, is a proper subject for state regulation," he wrote, but "fatal because the state cannot require an insurance agent who makes the appropriate showing of relevant expertise to be a resident of the state as prerequisite to licensure, just as a state cannot require residency for admission to the state bar."

Nonresidents may become members of the Florida Bar with all the same rights and privileges as resident members, he says, but nonresidents who become Florida-licensed insurance agents do not have the same rights and privileges as resident agents under the statutes at issue.

He also rejected Gallagher's argument a purchaser of insurance would benefit from having a local agent for assistance.

"First, the notion that an agent cannot provide assistance outside his home state is nonsense," he said.

"Second, even if geographic proximity were important, the discrimination against Florida nonresidents is at once over- and under-inclusive, a customer in Pensacola may obtain coverage through an unaccompanied agent from Miami (more than 700 miles away), but not from an unaccompanied agent from Mobile (less than 50 miles away)."

But the most important reason is that "in many instances the purchaser of the insurance coverage at issue is not located in Florida at all, but in Atlanta or New York or California; it is the risk, not the purchaser, that is in Florida, Hinkle wrote.

"If the goal of the statutes is to have an agent in the same location as the purchaser, the restrictions on Florida-licensed agents who live outside Florida cut in precisely the wrong direction."

Council President Ken Crerar said the Florida statute "may have been the most egregious" of any such laws in the country, "but it is not the only one."

He said a similar suit had been filed in Nevada in June 2002.

"These are incremental, but very important, developments to modernize the U.S. insurance regulatory structure to meet the challenges of an international marketplace," he said.

"The end of the Florida countersignature law, which was fiercely protected for decades by a group of Florida agents, represents both a symbolic and real leap forward in this effort to promote competition and root out inefficiencies in the insurance regulatory system."
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Publication:Liability & Insurance Week
Date:Oct 13, 2003

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