On September 25, 2008, Governor Arnold Schwarzenegger signed AB 2956 into law. The new law clarifies the legal distinction between an agent and a broker. This affects insurers’ liability and whether a producer as a broker may charge broker fees.

AB 2956 was proposed by the producer trade associations in California in response to efforts by the prior administration and plaintiff lawyers to define a list of activities any one of which would render a broker an agent (the “any one act” test).

These activities served as the basis for various lawsuits and Department of Insurance disciplinary actions against brokers and insurers claiming that the brokers were de facto agents of the insurer.

The bill codifies the totality of circumstances test that has long been the common rule in California. It expands the role of the current statutory presumption of broker, increases disclosure consumer requirements, and clarifies Section CIC 1732 which was relied upon to support the any one act test.