Generally, an insurance “agent” is a person who transacts insurance on behalf of an admitted insurer. In contrast, an insurance “broker” is a person who transacts insurance with, but not on behalf of , an admitted insurer. (Insurance Code Section 1621.) The distinction is important, because an insurer generally is not responsible for errors and omissions of a broker, but can be responsible for errors and omissions of an agent.
Pursuant to legislation effective January 1, 2009, there is now a rebuttable presumption that a licensee is a broker if the licensee (1) is licensed as a broker, (2) maintains a bond in a specified amount, and (3) discloses, in a written agreement signed by the consumer, all of the following:
(a) That the licensee is transacting insurance on behalf of the consumer;
(b) The general nature of the services the licensee will perform as a broker;
(c) The fees being charged by the licensee;
(d) Whether the insurer will compensate the licensee in connection with the transaction.
The presumption that a licensee is a broker is rebutted in case of any of the following: (1) the insurer has filed with the California Department of Insurance a notice appointing the licensee as an agent; (2) the insurer and the licensee have entered into a written agreement that authorizes the licensee to bind coverage; (3) the insurer and the licensee have entered into a written agreement that authorizes the licensee to appoint other licensees as agents; or (4) the insurer and the licensee have entered into a written agreement that authorizes the licensee to pay claims on behalf of the insurer.
In all other cases, the presumption that a licensee is a broker is rebutted if the “totality of the circumstances” indicates that the licensee is acting on behalf of the insurer. (Insurance Code Section 1623.) However, a broker who merely collects and transmits premiums and delivers policies is not deemed to be the insurer’s agent. (Insurance Code Section 1732.)