OIA frequently receives calls from agents who face the task of evaluating a new carrier contract, so we summarized those calls to bring you this resource that highlights the most common provisions and explains just what exactly they may (or may not) mean.
These are the “whereas” clauses of an agreement. They give the reader some background and a general idea of what the agreement is about, who the parties are, and why an agreement is even involved.
Most of these agreements defer any form of employer/employee relationship and regard the agent as an independent contractor. This is done to limit the legal liability the company could potentially incur by establishing an employer/employee relationship.
Review this portion of the agreement for any additional responsibilities the company may place on the agent, they are typically written in plain language and clearly articulate an agent’s duties.
The company is responsible for providing the customary services of an insurance company to its policyholders. The specifics may vary from carrier to carrier, but for the most part, they are fairly boilerplate.
Some carrier agreements mandate that an agency submit a written request to disseminate advertising materials that reference the company, if the materials did not come directly from the company.
The general description of the commission schedule is set out in this section.
The payment plan specific to the agency will be laid out in an exhibit following the agreement. This section will specifically refer to the exhibit name (e.g., Exhibit A).
The company may subsequently revise the commission schedule, usually upon advanced written notice.
Purchase or Sale of Agency
Some agreements may explicitly provide for a course of action in the event of an agency sale.
If a carrier agreement does not state what to do, this does not mean there is no course of action set out by the company. It’s important that you call the company and see what their policy is.
Often, they will require written notice of the sale of the agency or the transfer or sale of the agency’s book of business with the company.
Sometimes, a sale of the agency or transfer or sale of the agency’s book of business with the company will trigger termination of the agreement itself.
Carrier agreements may contain a few variations of termination provisions within this section.
The most commonly seen are: termination for cause, termination without cause, and automatic termination.
With termination for cause, a breach of the agreement has likely occurred, and a party is exercising their power to terminate the agreement. A remedy phase is often given where a party can cure the breach before the agreement terminates. To exercise this power of termination, advanced written notice is often required.
For termination without cause, no breach of the agreement is necessary. A party may exit the agreement if it is more convenient to do so and does not constitute an abuse of discretion. It’s highly likely that advance written notice is required for this provision.
In an automatic termination clause, a triggering event will occur that will automatically end the agreement, without notice. Triggering events include, but are not limited to, loss of license, fraud, and loss of agency’s ability to sell property and casualty insurance.
It is also important to distinguish whether the ability to exercise the termination provision is bilateral or unilateral.
Bilateral means both parties have the power to terminate, while a unilateral provision gives the company the sole power to terminate.
Most carrier agreements include an arbitration clause that mandates arbitration in the event of a dispute.
The place of arbitration is often pre-determined in the agreement as well as the selection process for arbitrators. The state law that governs the arbitration is provided here as well. This arbitration is often binding.
Indemnification provisions spell out the course of action in the event a legal claim or liability arises.
The typical format is as follows:
The company will hold the agency harmless against civil liability for various acts including: failure to comply with the Fair Credit Reporting Act, and acts, errors, or omissions of the company in the handling of policies.
The agency will hold harmless the company for the agency’s failure to comply with the Fair Credit Reporting Act, instances of agency fraud, misrepresentations, and acts, errors or omissions in the handling of policies.
Other Common Provisions
Severability: If one provision of the agreement is held to be unenforceable, the rest of the agreement will remain valid and enforceable.
Privacy and security: This section often lays out how the company handles sensitive personal information.
Entire agreement/prior agreements: This provision states that the agreement itself is the full agreement between the agency and the company and will, in the event of a conflict, supersede all other written or oral agreements between the parties.
Waiver: This section states that any failure of the company to insist strict reliance to the terms of the agreement does not constitute a waiver of such terms for any subsequent default.
Governing Law: if the agreement does not have an arbitration provision, it will have a governing law provision which describes which state laws will govern the agreement.
Additional Contract Review Support
As part of your OIA membership, you have access to reviews of agency/company agreements completed by the Big “I” Office of General Counsel.
To access the reviews, you’ll need to be logged in to the Big “I” National website, which you can do by clicking on “sign in” at the top-right of the contract review page.
Have additional questions about carrier contracts? Let us know!
NOTICE: The Ohio Insurance Agents Association, Inc. (OIA) provides this information with the express understanding that 1) no attorney-client relationship exists, 2) neither OIA nor its attorneys are engaged in providing legal advice and 3) that the information is of a general character. You should not rely on this information when dealing with personal or professional legal matters; rather, seek legal advice from retained legal counsel.