On April 10, 2008, the United States Court of Appeals for the Ninth Circuit hammered the final nail into the coffin of the countersignature laws of the various states. Council of Insurance Agents & Brokers and Rebecca Restrepo, v. Alice Molasky-Arman, Case No. 04-17271. Following recent decisions by federal courts in Florida, South Dakota, Puerto Rico and the U.S. Virgin Islands, the federal appellate court ruled in favor of the eradication of the last of the countersignature laws in the U.S. and its territories.
A once common requirement, the movement to repeal the countersignature laws began in earnest in the 1990’s even prior to advances in state reciprocity of agency licensing laws such as NARAB I and II. The history of the countersignature laws dates back to the early twentieth century when states passed the laws as a consumer protection measure. The regulations requiring non-resident agents to receive sign off by a local resident agent were originally intended to ensure compliance with local insurance laws.
By the 1990’s, technology made the countersignature laws an anachronism of regulation. Seemingly the only barrier to their removal from state law books was the commissions provided to resident agents. The few states who maintained their countersignature laws into the twentieth century were some of the most egregious. Florida required that the resident agent receive fifty percent of the full commission, while in Nevada the resident split was five percent of the total commission. The pain of paying local agents for their signature was felt keenly by producers who placed multi-state policies. In the end, the Council of Insurance Agents and Brokers (CIAB) took on the individual state court battle, which overturned the countersignature laws in the few remaining states.
The federal court decisions found the countersignature laws to be an unconstitutional barrier to interstate commerce as a violation of the Privileges and Immunities Clause of the Constitution. That Clause bars state laws which discriminate against citizens of other states where the discrimination is based solely on the fact of citizenship and does not advance a substantial state interest. The intent of the Privileges and Immunities Clause was to place citizens of each state on an equal footing by providing the same economic privileges to all citizens regardless of state citizenship. Ensuring economic parity would result in economic unity for the nation. Supreme Court of Virginia v. Friedman, 487 U.S. 59 (1988).
In the Nevada case, the CIAB challenged the constitutionality of the Nevada countersignature law, Nev. Rev. Stat. § 680A.300, alleging that a California agent, Rebecca Restrepo, was forced to forfeit approximately $ 50,000 annually due to the requirements of the Nevada signature law. The loss in income as a result of the countersignature law was causing her to suffer immediate economic injury.
The Nevada Commissioner argued that the state’s countersignature law protected Nevada consumers by providing a local point of contact for policyholders. Having the involvement of a local agent to provide counsel on coverage issues, assist in the claims process, and protect Nevada residents from unqualified or unlicensed insurance agents, was a substantial state interest that justified the law’s disparate treatment between resident and non-resident agents.
The federal court was not convinced. Citing the Eleventh Circuit case striking down the Florida countersignature law (Council of Ins. Agents and Brokers v. Gallagher, 287 F. Supp. 2d 1302 (N.D. Fla. 2003)), the Ninth Circuit dismissed the Commissioner’s local agency rationale and stated “the notion that an agent cannot provide assistance outside his home state is nonsense; whatever may have been said when people traveled by horseback and communicated by regular mail, today people communicate by telephone and facsimile and e-mail and overnight courier...; state boundaries pose no obstacle.” Id. at 1312. The Court concluded that the discriminatory treatment of non-resident agent and brokers was over-inclusive because “[E]recting a fence at the [Nevada] border does nothing to promote geographic proximity”. A licensed non-resident agent may actually be closer in proximity to the consumer than a licensed resident agent who lives hundreds of miles across the state from the consumer.
As a final matter, the Ninth Circuit rejected the argument that Nevada’s law protected consumers from unqualified or unlicensed insurance agents. Stating that “…residency does not equate with professional competence” and that the record did not contain any evidence that “licensed nonresident agents and brokers are inherently less trustworthy or less competent insurance professionals than Nevada’s resident agents,” the case for countersignature laws was closed for the last time.
Stacey D. Kalberman is Of Counsel in the firm’s insurance group. Ms. Kalberman concentrates her practice in regulatory matters for alternative risk programs, including insurance captives, risk retention and purchasing groups. Ms. Kalberman received her bachelor’s degree from George Washington University and her law degree from Emory University School of Law.