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Homeowners Choice Limited Producer Agreement


   

This review of the the Homeowners Choice limited producer agreement for policies assumed from Citizens exclusively focuses on major issues of concern to insurance agencies and does not address general contract issues or provisions of the contract that contain boilerplate language.

Items of Concern

  • Grants the General Agent the unequivocal right to purchase the Producer’s policyholder information, expirations and renewal rights anytime after one year from the date of the Agreement at a price of 1.5 times the sum of the commissions paid by the General Agent to the Producer in the previous calendar year.
  • Indemnification language is not fair and mutual.
  • Allows the General Agent or the Company to engage in “general promotional activities directed toward the Producer’s policyholders” who are insured under the terms of the Agreement.

Provision-by-Provision Review

Structure corresponds to the lettered and/or numbered paragraphs of the contract (PDF).

1. Appointment

Defines “Policies” for purposes of the Agreement to include policies assumed by the Company from Citizens and those policies issued by the Company and produced pursuant to the Agreement. (In fact, the title of the Limited Producer Agreement also references “Voluntary Business”).

3. Producer Authority

3.3 No Authority to Accept Premium Payments—States that the Producer has no authority to accept premium payments in connection with Policies, but if Producer does receive a payment, it must IMMEDIATELY be delivered to the General Agent. “Immediately” is not specifically defined.

4. Compensation

Allows the General Agent to amend or replace the Commission Schedule at anytime by delivery of written notice to the Producer.

7. Limited License

Provides that the Producer grants the General Agent and the Company a limited license to include the Producer’s name on any policy, billing statements, and other communications directed to the Policyholder. “Other communications” are not defined and could possibly be interpreted to include solicitations for other insurance products.

 8. Termination

Allows either party to terminate the Agreement for any reason with 15 days written notice to the other party. Also allows the General Agent/Company to terminate any appointment under this Agreement for any reason, upon written notice, without terminating the Agreement. It is not clear whether this provision refers to the appointment of the Producing Agency or to an appointment of a Producing Agent. If it refers to the termination of the appointment of the Producing Agency, how could the Agreement remain in effect? Also, there is no dispute resolution process or appeal right provided to the Producer for termination of an appointment, and no specific notice period is required.

9. No Limitation on Company or General Agent Authority

Provides that the General Agent reserves the right, “in its sole discretion,” to withdraw authority from the Producer. There is no dispute resolution process or appeal right provided to the Producer.

10. Policyholder Information

10.1. Ownership and Use of Policyholder Information and Expirations—Acknowledges that Producer owns Policyholder information including expirations, subject to General Agent using and retaining such information for billing, providing insurance services to the policyholders and other internal business purposes. Because of the broad nature of the language following the words, “subject to…,” it is not clear how the General Agent may actually use the Producer’s policyholder information. In addition, the language specifically allows the General Agent or the Company to engage in “general promotional activities” directed toward Policyholders, which, again, is not specifically defined and may erode the Producers’ ownership of expirations.

10.2 Purchase Right—Grants to the General Agent an absolute and unequivocal right to purchase all of the Producer’s interests in any and all Policies written under this Agreement, which includes expirations, renewal rights, and rights to use Policyholder information. This purchase right can be exercised by the General Agent anytime after the Agreement has been in effect for one year for a purchase price of 1.5 times the sum of the commissions paid by the General Agent to the Producer during the previous calendar year, and the it requires the Producer to deliver all Policyholder information necessary for the General Agent to provide professional insurance agent services to the Policyholders. In addition, the language provides that if the General Agent does exercise this purchase right, the Producer is still free to solicit those Policyholders on behalf of another insurance company. Despite the Producer’s ability to continue to solicit the Policyholders, this purchase right language is clearly an erosion of the Producer’s ownership and control of expirations and may even go so far as to require the Producer to provide to the General Agent information regarding other policies that the Producer writes for those Policyholders.

13. Indemnification

The language in 13.1 regarding “Indemnification by the General Agent” is not identical to the language in 13.2 regarding “Indemnification by the Producer” in that the Producer is required to indemnify the General Agent for direct or indirect damages arising out of wrongful acts, but the General Agent is only required to indemnify the Producer for direct damages arising out of wrongful acts.

13.5 Contributory Acts—Provides that neither party is required to indemnify the other if the other party’s own wrongful acts caused or substantially contributed to the damages. “Caused or substantially contributed” is not adequately defined and this could create a situation where indemnification obligations are totally nullified by contributory negligence, as opposed to alternative language regarding comparative negligence, which may create an outcome that is more equitable to both parties.

16. Producer’s Agents and Employees

Provides that the Producer will be strictly liable for the performance of its agents, representatives, employees, vendors, and other assistants performing services under the Agreement. Strict liability is a legal standard that would not allow the Producer to raise any legal defenses, such as lack of knowledge of any illegal, unlawful, or negligent activities of these individuals under the Producer’s supervision.

18. Publicity

Provides that the Producer will not make any statements, in public or in private, that would tend to discredit, dishonor, embarrass, or reflect adversely upon the Company or General Agent. This seems to be an overly broad provision that gives the Company and General Agent a lot of discretion in determining a violation of this provision.

28. Amendments

Requires a written instrument, signed by both parties, to amend the Agreement. Thus, any changes the Producer wishes to make to the Agreement must be agreed to, in writing, by the General Agent.

29. Legal Matters

Provides that the venue for all litigation arising out of the Agreement will be Hillsborough County, and that both parties irrevocably waive all rights to demand a jury trial. In addition, the language provides that costs of litigation, including attorneys’ fees, will be borne by the non-prevailing party, defined as the party awarded less than 70 percent of its claim.

30. Loss and Damage Limitations

Provides that neither party will be liable under this Agreement to another party for indirect, incidental, or punitive damages, except as provided in the “Indemnification” section of the Agreement or for breaches of the “Confidentiality” and “Publicity” sections of the Agreement.

31. Equitable Relief

Provides that injunctive relief may be entered against a party to this Agreement if monetary damages are an inadequate remedy.

32. Third Party Beneficiary

Provides that the Company is a third party beneficiary of this Agreement between the Producer and the General Agent and therefore, the Company will be entitled to enforce the terms of the Agreement.

35. Continuing Obligations

Provides that the following provisions of the Agreement will survive the termination of the Agreement: Sections 12 (Privacy), 13 (Indemnification), 14 (Confidentiality), and 18 (Publicity).

FAIA’s Office of the General Counsel provides this contract review only for general information and comments. It is not intended to answer specific individual legal, business, or other questions. It was prepared solely for use as a guide, is not a substitute for the Agent’s/Agency’s independent evaluation of any provision in a contract, and is not a recommendation that the contract be signed, revised or rejected. Any communication you have with the Company regarding this contract should be an individual communication, and not on behalf of a group of agencies or through FAIA. If specific legal or other expert advice is required or desired, please seek the services of an appropriate, competent professional, such as a licensed Florida attorney familiar with the Florida Insurance Code. 


Reviewed October 2014 

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