[LTPC-discussions] A must read about who owns your clients and about contacting them
ltpc-disc@ltpcalums.com
ltpc-disc@ltpcalums.com
Thu, 10 Jul 2003 16:18:39 EDT
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Who owns the client: Agent or insurer?=20
=A0 =A0 =A0 =A0 Who owns a life insurance agent's customer list and files? S=
ome=20
agents end up in litigation with their insurance company over this issue.=20
=A0 =A0 =A0 =A0 Insurers represented by captive or career agents generally a=
ssume=20
that they own all the business that these agents write. They regard these ag=
ents=20
as employees. Many agents believe, however, that they own their block of=20
business because they brought the clients to the company.=20
=A0 =A0 =A0 =A0 Arguments can be made that in some situations, the company o=
wns this=20
business. For example, home service agents generally inherit a book of=20
business, a debit, from their company. When a home service agent terminates,=
a strong=20
argument can be made that the business on the agent's debit belongs to the=20
company. But what about business written by a home service agent on the agen=
t's=20
family and friends?=20
=A0 =A0 =A0 =A0 Economic forces and structural changes within the insurance=20=
industry=20
in the United States in the 1970s and 1980s are driving new potentially=20
abusive practices that have also engendered new and different types of bad f=
aith=20
litigation in the '90s. This article will introduce and discuss some of of t=
he=20
more important forces and changes and resulting bad faith claims, other than=
=20
duty to defend and claim denial cases, which are also quite prevalent.=20
=A0 =A0 =A0 =A0 Aside from home service, another example are "orphan" client=
s-those=20
without agents-that an insurance company turns over to one of its=20
representatives for servicing. Here again, the agent did not bring the busin=
ess to the=20
company. Suppose that an agent originally received one small orphan policy,=20=
and=20
subsequently wrote many large estate planning and business policies on this=20
insured's family and business. Whose customers are these?=20
=A0 =A0 =A0 =A0 In most circumstances, agents should be the owners of their=20=
customer=20
list. A 1991 case supports this view. In Burke v. Hawkeye Nat. Life Ins. Co.=
,=20
474 N. W2d 110 (Iowa 1991), the Iowa Supreme Court ruled that distribution b=
y=20
the insurance company of agent's customer list to other agents was improper=20=
by=20
industry standards and resulted in intentional interference with the agent's=
=20
business relationships.=20
=A0 =A0 =A0 =A0 Agents, such as this one, sometimes sue their companies for=20=
the value=20
of their blocks of business. In one such case, the defendant company=20
unintentionally provided a value. This company, when notifying an agent that=
a=20
client's policy was in arrears, informed the agent of the present value of f=
uture=20
commissions that could arise from the policy. The company thus attempted to=20
motivate the agent to contact the delinquent policyowner.=20
=A0 =A0 =A0 =A0 The value assigned was an exact multiple of the premium, tak=
en to one=20
decimal place. This multiple depended upon the plan and the age of the=20
insured. It took into account not only future commissions on the policy in a=
rrears=20
but also commissions on future business likely to arise from that policyowne=
r.=20
For example, term premiums had a high multiple because of the opportunity fo=
r=20
first-year commissions on conversion to a permanent plan. The application of=
=20
these multiples to the plaintiff agent's in-force premiums produced a value=20
based on a method of calculation originating from the company.=20
=A0 =A0 =A0 =A0 Agency contracts sometimes provide that agents may forfeit t=
heir=20
vested renewals if they replace business written under the contract. Replace=
ment=20
of only one policy can trigger forfeiture under some contracts. These renewa=
l=20
forfeiture provisions arise from the insurance company's conviction that it=20
owns the customers.=20
=A0 =A0 =A0 =A0 What if agents have clients who would benefit from replaceme=
nt?=20
Replacement can benefit a policyowner if the company is not passing on to th=
e=20
policyowner the benefit of current mortality experience or current interest=20=
levels,=20
or if the insured could qualify for a better mortality classification.=20
=A0 =A0 =A0 =A0 There can be other reasons for replacement, such as the poli=
cyowner's=20
desire to switch to a variable product. Agents are placed in an ethical=20
dilemma, torn between professional loyalty to their clients and the possibil=
ity of=20
suffering a severe financial loss that could impair their ability to service=
=20
their clientele. Most replacements, however, do not benefit the policyowner.=
=20
The onus is on the agent and the replacing company to justify the payment, o=
nce=20
again, of first-year commissions and expenses, and for the other problems=20
associated with a replacement. One argument in favor of renewal forfeiture=20
provisions is that they discourage mass replacement, which is very rarely be=
neficial=20
to policyowners.=20
=A0 =A0 =A0 =A0 The courts have frequently failed to uphold post-termination=
=20
restrictions, called "covenants not to compete," that are excessively bindin=
g. In=20
Streiff v. American Family Mutual Insurance Company, 348 N.W2d 505 (Wis. 198=
4),=20
the Wisconsin Supreme Court examined the restrictive provisions in agent Den=
nis=20
C. Streiff's agency contract. Mr. Streiff's contract provided that he could=20
not solicit his former policyowners for a one-year period after termination,=
and=20
that, in order to receive post-termination earnings, he could not act as=20
agent for another insurer that wrote the kinds of insurance written by Ameri=
can=20
Family in any state in which the company operated as a licensed insurer. The=
=20
court found that these contractual restraints were unreasonable as to activi=
ty,=20
duration and territory.=20
=A0 =A0 =A0 =A0 The codes of ethics of the National Association of Insurance=
and=20
Financial Advisors and of the Million Dollar Round Table and the new Code of=
=20
Professional Responsibility of the Society of Financial Service Professional=
s all=20
spell out the obligations of members to their clients. Agency contracts shou=
ld=20
not interfere with a professional agent's client relationships.=20
=A0 =A0 =A0 =A0 At issue is whether the agent is to be regarded as purely a=20=
company=20
employee, like a sales clerk in a department store, or as a professional who=
=20
has developed a clientele over the years. The gradual emancipation of the ca=
reer=20
agent that is taking place should increase the recognition of the life=20
insurance agent as a professional.=20
<A HREF=3D"http://www.markcolbert.com/index.html">Home Page </A>=A0 =A0 <A H=
REF=3D"http://www.markcolbert.com/experience.html">Work Experience </A>=A0=20=
=A0 <A HREF=3D"http://www.markcolbert.com/education.html">Education </A>=A0=20=
=A0 <A HREF=3D"http://www.markcolbert.com/mystory.html">My Story </A>=A0=20=
=A0 <A HREF=3D"http://www.markcolbert.com/Insurance.html">Life Insurance=20
and how it goes bad</A> =A0 =A0 <A HREF=3D"http://www.markcolbert.com/scenar=
ios.html">Scenarios </A>=A0 =A0=20
<A HREF=3D"http://www.markcolbert.com/Badfaith.html">Bad Faith-An Overview <=
/A>=A0 =A0 <A HREF=3D"http://www.markcolbert.com/PolicyUnderfunding.html">Po=
licy Underfunding </A>=A0 =A0 <A HREF=3D"http://www.markcolbert.com/lawyers.=
html">Lawyers </A>=A0 =A0 <A HREF=3D"http://www.markcolbert.com/associates.h=
tml">Associates </A>=A0 =A0 <A HREF=3D"http://www.markcolbert.com/links.html=
">
Links </A>=A0 =A0 <A HREF=3D"mailto:mark@markcolbert.com">* Email * </A>
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<BR>
<BR>
</FONT><FONT COLOR=3D"#ff0000" style=3D"BACKGROUND-COLOR: #ccffff" SIZE=3D7=
FAMILY=3D"SANSSERIF" FACE=3D"Arial" LANG=3D"0"><B>Who owns the client: Agen=
t or insurer? </FONT><FONT COLOR=3D"#ff0000" style=3D"BACKGROUND-COLOR: #cc=
ffff" SIZE=3D3 FAMILY=3D"SANSSERIF" FACE=3D"Arial" LANG=3D"0"></B><BR>
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<BR>
<BR>
<BR>
<BR>
</FONT><FONT COLOR=3D"#ff0000" style=3D"BACKGROUND-COLOR: #ccffff" SIZE=3D5=
FAMILY=3D"SANSSERIF" FACE=3D"Arial" LANG=3D"0"><B>=A0 =A0 =A0 =A0 Who owns=20=
a life insurance agent's customer list and files? Some agents end up in liti=
gation with their insurance company over this issue. </FONT><FONT COLOR=3D"=
#ff0000" style=3D"BACKGROUND-COLOR: #ccffff" SIZE=3D3 FAMILY=3D"SANSSERIF" F=
ACE=3D"Arial" LANG=3D"0"></B><BR>
<BR>
<BR>
</FONT><FONT COLOR=3D"#00008b" style=3D"BACKGROUND-COLOR: #ccffff" SIZE=3D5=
FAMILY=3D"SANSSERIF" FACE=3D"Arial" LANG=3D"0"><BR>
<BR>
=A0 =A0 =A0 =A0 Insurers represented by captive or career agents generally a=
ssume that they own all the business that these agents write. They regard th=
ese agents as employees. Many agents believe, however, that they own their b=
lock of business because they brought the clients to the company. <BR>
<BR>
=A0 =A0 =A0 =A0 Arguments can be made that in some situations, the company o=
wns this business. For example, home service agents generally inherit a book=
of business, a debit, from their company. When a home service agent termina=
tes, a strong argument can be made that the business on the agent's debit be=
longs to the company. But what about business written by a home service agen=
t on the agent's family and friends? <BR>
<BR>
=A0 =A0 =A0 =A0 Economic forces and structural changes within the insurance=20=
industry in the United States in the 1970s and 1980s are driving new potenti=
ally abusive practices that have also engendered new and different types of=20=
bad faith litigation in the '90s. This article will introduce and discuss so=
me of of the more important forces and changes and resulting bad faith claim=
s, other than duty to defend and claim denial cases, which are also quite pr=
evalent. <BR>
<BR>
=A0 =A0 =A0 =A0 Aside from home service, another example are "orphan" client=
s-those without agents-that an insurance company turns over to one of its re=
presentatives for servicing. Here again, the agent did not bring the busines=
s to the company. Suppose that an agent originally received one small orphan=
policy, and subsequently wrote many large estate planning and business poli=
cies on this insured's family and business. Whose customers are these? <BR>
<BR>
=A0 =A0 =A0 =A0 In most circumstances, agents should be the owners of their=20=
customer list. A 1991 case supports this view. In Burke v. Hawkeye Nat. Life=
Ins. Co., 474 N. W2d 110 (Iowa 1991), the Iowa Supreme Court ruled that dis=
tribution by the insurance company of agent's customer list to other agents=20=
was improper by industry standards and resulted in intentional interference=20=
with the agent's business relationships. <BR>
<BR>
=A0 =A0 =A0 =A0 Agents, such as this one, sometimes sue their companies for=20=
the value of their blocks of business. In one such case, the defendant compa=
ny unintentionally provided a value. This company, when notifying an agent t=
hat a client's policy was in arrears, informed the agent of the present valu=
e of future commissions that could arise from the policy. The company thus a=
ttempted to motivate the agent to contact the delinquent policyowner. <BR>
<BR>
=A0 =A0 =A0 =A0 The value assigned was an exact multiple of the premium, tak=
en to one decimal place. This multiple depended upon the plan and the age of=
the insured. It took into account not only future commissions on the policy=
in arrears but also commissions on future business likely to arise from tha=
t policyowner. For example, term premiums had a high multiple because of the=
opportunity for first-year commissions on conversion to a permanent plan. T=
he application of these multiples to the plaintiff agent's in-force premiums=
produced a value based on a method of calculation originating from the comp=
any. <BR>
<BR>
=A0 =A0 =A0 =A0 Agency contracts sometimes provide that agents may forfeit t=
heir vested renewals if they replace business written under the contract. Re=
placement of only one policy can trigger forfeiture under some contracts. Th=
ese renewal forfeiture provisions arise from the insurance company's convict=
ion that it owns the customers. <BR>
<BR>
=A0 =A0 =A0 =A0 What if agents have clients who would benefit from replaceme=
nt? Replacement can benefit a policyowner if the company is not passing on t=
o the policyowner the benefit of current mortality experience or current int=
erest levels, or if the insured could qualify for a better mortality classif=
ication. <BR>
<BR>
=A0 =A0 =A0 =A0 There can be other reasons for replacement, such as the poli=
cyowner's desire to switch to a variable product. Agents are placed in an et=
hical dilemma, torn between professional loyalty to their clients and the po=
ssibility of suffering a severe financial loss that could impair their abili=
ty to service their clientele. Most replacements, however, do not benefit th=
e policyowner. The onus is on the agent and the replacing company to justify=
the payment, once again, of first-year commissions and expenses, and for th=
e other problems associated with a replacement. One argument in favor of ren=
ewal forfeiture provisions is that they discourage mass replacement, which i=
s very rarely beneficial to policyowners. <BR>
<BR>
=A0 =A0 =A0 =A0 The courts have frequently failed to uphold post-termination=
restrictions, called "covenants not to compete," that are excessively bindi=
ng. In Streiff v. American Family Mutual Insurance Company, 348 N.W2d 505 (W=
is. 1984), the Wisconsin Supreme Court examined the restrictive provisions i=
n agent Dennis C. Streiff's agency contract. Mr. Streiff's contract provided=
that he could not solicit his former policyowners for a one-year period aft=
er termination, and that, in order to receive post-termination earnings, he=20=
could not act as agent for another insurer that wrote the kinds of insurance=
written by American Family in any state in which the company operated as a=20=
licensed insurer. The court found that these contractual restraints were unr=
easonable as to activity, duration and territory. <BR>
<BR>
=A0 =A0 =A0 =A0 The codes of ethics of the National Association of Insurance=
and Financial Advisors and of the Million Dollar Round Table and the new Co=
de of Professional Responsibility of the Society of Financial Service Profes=
sionals all spell out the obligations of members to their clients. Agency co=
ntracts should not interfere with a professional agent's client relationship=
s. <BR>
<BR>
=A0 =A0 =A0 =A0 At issue is whether the agent is to be regarded as purely a=20=
company employee, like a sales clerk in a department store, or as a professi=
onal who has developed a clientele over the years. The gradual emancipation=20=
of the career agent that is taking place should increase the recognition of=20=
the life insurance agent as a professional. </FONT><FONT COLOR=3D"#00008b"=20=
style=3D"BACKGROUND-COLOR: #ccffff" SIZE=3D3 FAMILY=3D"SANSSERIF" FACE=3D"Ar=
ial" LANG=3D"0"><BR>
<BR>
<BR>
<BR>
<BR>
<BR>
<BR>
<B><A HREF=3D"http://www.markcolbert.com/index.html">Home Page </A>=A0 =A0 <=
A HREF=3D"http://www.markcolbert.com/experience.html">Work Experience </A>=
=A0 =A0 <A HREF=3D"http://www.markcolbert.com/education.html">Education </A>=
=A0 =A0 <A HREF=3D"http://www.markcolbert.com/mystory.html">My Story </A>=
=A0 =A0 <A HREF=3D"http://www.markcolbert.com/Insurance.html">Life Insurance=
and how it goes bad</A> =A0 =A0 <A HREF=3D"http://www.markcolbert.com/scena=
rios.html">Scenarios </A>=A0 =A0 <BR>
<BR>
<A HREF=3D"http://www.markcolbert.com/Badfaith.html">Bad Faith-An Overview <=
/A>=A0 =A0 <A HREF=3D"http://www.markcolbert.com/PolicyUnderfunding.html">Po=
licy Underfunding </A>=A0 =A0 <A HREF=3D"http://www.markcolbert.com/lawyers.=
html">Lawyers </A>=A0 =A0 <A HREF=3D"http://www.markcolbert.com/associates.h=
tml">Associates </A>=A0 =A0 <A HREF=3D"http://www.markcolbert.com/links.html=
">Links </A>=A0 =A0 <A HREF=3D"mailto:mark@markcolbert.com">* Email * </A></=
B></B><BR>
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