9 CONSIDERATIONS ... CONTINUED FROM PAGE 9
The contract should also have a separate commission schedule setting forth the commissions applicable to the carrier ’ s lines of business . The agency should be aware of any language stating that the parties or the carrier will set commission rates on a policy-bypolicy basis .
PREMIUM COLLECTION
Many agencies have a role in receiving , maintaining and disbursing transacted premiums and should pay special attention to provisions affecting the flow of premiums . The agency should understand whether the contract provides for company billing , agency billing or a combination of both , as well as the circumstances under which the company may move policies from agency billing to company billing .
With respect to agency billed or direct billed , agents should know what is permitted and under what circumstances . Agencies should consider whether the carrier specifies any circumstances under which it may change the billing method from agency billed to direct billed .
Further , be aware of language requiring the agency to pay premiums “ whether or not collected ” by the agency or similar language . This is contrary to the typical result where nonpayment by an insured will cause the policy to lapse or be canceled . If this concerns the agency , then it may request that its responsibility be limited to remitting premiums it actually receives .
Carriers typically require agencies to waive commissions on any premiums collected by the carrier . Determine whether the contract allows the agency to be relieved of collection if it turns over collection to the carriers , and look out for language that limits the premiums that can be turned over to the carrier for collection , such as audit premiums . The agency should be permitted to turn over all uncollectable premiums to the carrier for collection .
INDEMNIFICATION
An indemnification provision describes the circumstances under which each party is responsible for compensating the other party for any claims or losses arising out of the contract . Agents should take a careful look at how any indemnification provisions are structured and what types of claims or losses might be covered .
Try to ensure the indemnification obligations are mutual . Be aware of language , in the indemnification provision or elsewhere , that requires only the agency to cover the carrier ’ s fees and costs in the event of a lawsuit or collection efforts against the agency . At a minimum , such a provision should be mutual and provide that the prevailing party is entitled to have its costs and fees paid by the other party .
An agency will want to determine whether its insurance adequately covers any indemnification claims that may be made by the carrier against the agency . Also , watch for any language that would impose a so-called contributory negligence standard , whereby the carrier ’ s indemnification obligation is eliminated entirely if the agency contributed even a small fraction of fault . Instead , the agency should seek language that apportions responsibility according to each party ’ s respective degree of fault , or a so-called comparative fault standard .
CHANGES IN OWNERSHIP
A requirement that the agency provide advance notice of a change in ownership can be problematic . Such notice may violate the terms of any applicable non-disclosure agreement between the agency and the counterparty to a merger or acquisition .
The agency-carrier agreement should not terminate immediately upon a change in ownership , and the agency should not have to provide notice to the carrier for every change in ownership . A provision should apply only to changes in a majority or controlling interest .
24 KANSAS INSURANCE AGENT & BROKER