NU Online News Service, Dec. 11, 2:06 p.m. EST
The Pennsylvania Department of Insurance has determined that a carrier's reduction of an insurance agency's compensation to zero is an act of termination and illegal under state law.
A decision to that effect this week by Pennsylvania Insurance Commissioner, Joel Ario, stems from a dispute between ECM Insurance Group of Everett, Pa., and H.N. Fishel & Associates, Inc. an insurance agency in Red Lion, Pa.
A spokesman for ECM declined to comment saying it is a confidential matter.
Beginning in July of 2006, ECM said it would reduce the commission of H.N. Fishel from agreed upon 13 to 25 percent to zero over a three year period.
The company said the agency did not reach commission or loss ratio goals over that period of time and the reduction in commission was a consequence. However, the company did not reduce commissions immediately, and it was not until May that the company actually stopped paying commissions.
Under Pennsylvania law, a company must first attempt to rehabilitate an agency before it can terminate the agency's contract. It also must give legitimate reasons for the move.
While ECM was not terminating the contract, arguing that the agency would still receive some year end bonuses, Insurance Commissioner Ario ruled that the action of reducing the agency's commission to zero was an act of termination and ordered the company to restore the agency's commission payments.
Jason F. Ernest, vice president and general counsel for the Insurance Agents & Brokers of Pennsylvania, which represented the Fishel agency, said while there have been incidents like this in the past, this is the first time an agent has gone to the commissioner for an opinion.
The decision, he said, helps to clarify the relationship between agents and companies. While the decision only pertains to Pennsylvania agents, it could be used as a precedent in other cases. It could also serve as a wake-up call to agents in other states to examine their termination laws and determine if the protections are strong enough.
"Our termination statute is a good one and we worked to make it as strong as it is," said Mr. Ernest. "We do not want to see it undermined and others may want to bolster theirs or turn to ours for guidance."
Evans Fishel, president of H.N. Fishel said he took the matter to the association because, "I thought it was completely unfair."
He said he was especially disturbed at the company's actions because, as he interpreted the company's performance guidelines, he was above their volume requirements.
He said he is happy with the decision and has not heard from the company. He said ECM restored his commissions back to their original amount shortly after he filed the complaint with the department, adding that he is still doing business with them.
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