Court Decisions on Contingent Commissions a Major Win for PIA Agents

Last week PIA reported on a series of decisions that, when taken together, reaffirm the legal arguments made by PIA in our court filings over the past two years. The September 28 ruling by a federal judge dismissing the remaining racketeering claims pending against several dozen insurers and brokers in a class action lawsuit is significant is several respects.

The decisions reaffirm that receiving contingent compensation is neither illegal nor unethical, and that the kind of flawed disclosure regimes contained in questionable settlement agreements which were selectively imposed on Main Street agents who were never accused of any wrongdoing, are not required by the law.

Background:  In the wake of scandals stemming from industry wide investigations by then-New York Attorney General Eliot Spitzer into bid-rigging and client-steering allegations against a handful of insurers and mega-brokers, settlement agreements were negotiated. Some called for outright bans on the payment of contingent commissions, while others proscribed a disclosure regime.

But instead of being applied just to those suspected of wrongdoing, these agreements were applied to all Main Street agents in all jurisdictions nationwide. While those suspected of wrongdoing were included in the negotiations leading to these agreements, Main Street agents were shut out, but then included in the sanctions that were imposed. Then, to add insult to our injury, some of those suspected of wrongdoing subsequently had the sanctions against them reduced by authorities, while the restrictions on Main Street agents were kept in place!

In short, Main Street agents were getting used. That's why PIA decided to fight back. PIA made clear from the outset that we would write, speak, act and litigate - in short, we would fight hard to defend the integrity of PIA members.

PIA had the fortitude of character to stand up when others were retreating, making clear to the media, insurers, insurance regulators, state AGs and other insurance trade associations that adverse comments and actions blindly taken against retail Main Street agencies were factually and legally wrong, unfair and would not be tolerated. PIA was the first to challenge such actions in court. PIA provided the most comprehensive legal briefs in the federal district court action.

PIA was the only insurance trade association that provided the NAIC with the correct way to draft a producer compensation disclosure model and, when they did not act on our advice, we opposed their disclosure in the states. As a result, no state ever adopted the flawed NAIC disclosure model.

It has been a long, hard struggle. Although some legal skirmishes may remain, PIA members have won a major victory in the battle to defend the integrity of all PIA members and protect their business interests.

Courts Underscore Receiving Producer Compensation is Legal (PIA 10/2/07)