Non-Nevada insurers suing state, alleging protectionism

Grace Leong

Friday, June 14, 2002 | 11:11 a.m.

The Council of Insurance Agents and Brokers of Washington D.C has sued Nevada Insurance Commissioner Alice Molasky-Arman in hopes of overturning state laws the council says discriminate against out-of-state insurance agents and brokers operating in Nevada.

The council, in a U.S. District Court lawsuit Tuesday, said it represents 300 of the nation's largest property/casualty insurance agencies and brokerage firms.

At issue are Nevada laws that require all non-resident insurance agents and brokers to obtain a countersignature by a local insurance agent on insurance contracts -- except for life insurance and annuities, health insurance and policies issued to risk retention groups -- and mandate payment of a commission equivalent to at least 5 percent of the insurance premium to the countersigning agent, the suit said.

The suit said enforcing these statutes violates the Commerce Clause, the Equal Protection Clause and the Privileges and Immunities Clause of the U.S. Constitution, which limit the power of the states to interfere with interstate commerce.

The suit said the Nevada laws not only "impose an additional burdensome requirement on non-resident agents and precludes them from engaging in business with persons of their own choice," but also "unjustifiably reduces the amount of commission that a non-resident agent or broker can collect."

Joel Wood, the council's senior vice president of government affairs, said the countersignature requirements are most egregious because they require non-resident agents to give up a percentage of their commission to the countersigning local agents, whom he said weren't adding any value to the transaction.

"There are five states that impose countersigning requirements on out-of-state agents. But Nevada and Florida are the only two of the five states that require non-resident agents to pay money to local countersigning agents and the reason why these laws remain is because of the monetary aspect," he said. "Fifteen states to date have removed countersignature laws because they are deemed protectionistic in today's international economy."

"Supporters of countersigning requirements would probably argue that the original purpose of these laws is consumer protection," Wood said. "But I would like to see if there is any problem with out-of-state agents that have sold policies in Nevada."

"There's a national system to police these activities and a national database for regulators to see if an out-of-state agent seeking licensure in Nevada is suspect. But countersignatures just provide income to the local agents and consumers ultimately are the ones who pick up these costs," he said.

Wood said the Council has been fighting to have uniformity in state insurance licensing laws because of the globalization of financial services and because the "majority of insurance transactions that occur in the commercial property arena are done on an interstate basis."

But he said the Council faces difficulties because each of the 50 states have "historically erected various controls and requirements that have the effect of protecting local agents from out-of-state competition."

The Nevada Attorney General's office, which represents Molasky-Arman, declined comment on the lawsuit.