By THOM SENZEE Contributing Reporter Sanford Michelman of Encino law firm Michelman & Robinson led a team that crafted a new law to eliminate ambiguity about the distinctions between insurance brokers and agents. “Our local lobbyists were instrumental in getting this passed in Sacramento, and we couldn’t be more pleased,” said Mitzi Like, CEO of L/B/W Insurance and Financial Services in Valencia. “It was badly needed because it wasn’t clear what the state government considered to be a broker or an agent.” Like and many of her colleagues in the independent insurance business believe that without Michelman’s legislation they might have faced extinction in the not-too-distant future. In fact, according to an industry trade group, a court ruling against a major carrier threatened to open a floodgate of lawsuits regarding fees based on insurance sellers who considered their roles to be as brokers. They feared a stampede of plaintiffs’ attorneys were preparing suits based on a precedent set in Krumme v. Mercury in which they would argue licensees who acted as brokers were actually agents representing the carriers, and therefore not entitled to the broker’s fees they had charged. “It would seem to be an easy issue to resolve,” Michelman said. “But the confusion being caused in this, the most regulated state in the nation in terms of insurance, required a definitive law.” Generally, agents represent the company whose insurance they are selling, not the buyer. Conversely, a broker’s responsibility is to the customer. Michelman said Assembly Bill 2956 was written to clarify what the terms “broker” and “agent” mean by looking at each sales transaction individually and holistically. “By saying it’s the totality of the circumstances that decide if you have compliance, you can more accurately determine who may not be deemed a broker and not an agent,” Michelman said. “One will have greater weight than the other, depending on the totality of the circumstances.” Yet some in the industry doubt if the definitions in AB 2956 will make much difference in the way they do business because, according to them, they already disclose their role in every transaction. “In either capacity agent or broker we’re expected to protect the interests of insurance carriers and buyers,” said Alberta Bellesario of Paul Davis & Alberta Bellesario Insurance Services in Van Nuys. Much of the ambiguity prior to the passage of AB 2956 affected independent “agents,” who were actually brokers except when they were acting as agents. Confused? So were many in the industry. “With, say, a State Farm agent, it’s very clear; they represent State Farm,” Bellasario said. “Then you have people like me who try to walk the line between broker and agent try to find what is best for the client, and at the same time not do anything to the detriment of the company.” Michelman and Robinson represents a “significant portion” of the state’s insurance industry in regulatory matters, according to Michelman. His efforts to get a broker-agent-definitions law passed were complemented by one of L/B/W’s account executives. Dawn Abasta is president of the San Fernando Valley chapter of Insurance Brokers and Agents of the West (SFV-IBA). “The waters were getting muddy after Mercury got their hands slapped,” Abasta said, referring to the decision that found Mercury Insurance Group guilty of deceptively charging customers broker fees while not acting as a broker (i.e., not offering a multiplicity of carriers). “This new law clears the water,” Abasta said. But Santa Monica-based Consumer Watchdog (formerly The Foundation for Taxpayers’ and Consumers’ Rights) said just the opposite is true. In a letter to Assemblymember Joe Coto (D-San Jose) opposing the bill before it was passed, the organization warned ” AB 2956 would authorize a double-dipping in which insurance customers will be forced to pay the same person both an agent commission and a broker fee.” However, SFV-IBA and its parent organization IBA-West said the ruling against Mercury had opened a door to civil liabilities and proposed regulations that would have put most independent brokers and agents out of business. “The insurance commissioner wanted to give us smothering fiduciary responsibility, rather than allow us to do the best job possible without our hands being tied,” Abasta said. “Everybody would have found every possible way of suing us.” According to Abasta, in addition to protection for independent licensees, customers will benefit from AB 2956 thanks to new mandatory disclosure provisions. Michelman agrees. “For the customer, this puts disclosure about the role of the agent or the broker at the front end, and the back end if there is ever an issue,” he said. A spokesperson for Governor Arnold Schwarzenegger said the governor signed the bill because it was needed. “This has been a long-time issue,” the spokesperson said. “This bill provides an important distinction between an agent and a broker.”