Producer agreements are comprehensive and complex documents that, among other things, outline the expected terms and conditions between a broker and an insurer. However, because there is no uniformity or standardization with these types of contracts, agencies and brokers are often challenged when it comes to understanding and interpreting exactly what their responsibilities are. As with any contract, it’s critically important for brokers to closely examine the agreement before making the decision to sign.
Most producer agreements outline the specific responsibilities and obligations of the broker under the “Scope of Producer Authority” section of the contract. Others may spell out the terms separately in what may be referred to as a “Duties of Agent” or “Responsibility of Broker” document. In any case, these contracts present legally binding provisions for brokers. And while the particulars of the “Scope of Producer Authority” section can differ among insurers, most will typically include critical terms such as the specific duties and responsibilities of the broker, commission schedules for new and renewal business, any selling incentives or bonuses, business-related reimbursements, due diligence for how brokers should handle premiums collected and maintained in their trust accounts, and even causes for terminating the contract — among others. The fact is, because of the driving nature of producer agreements, brokers need to understand that there is a strong legal force behind these documents and that it is their responsibility to review the particulars and not discount them as business as usual.
This is a very simplistic and basic overview regarding the importance of a broker to carefully review what’s in his or her producer agreement. And, as with any contract, best practices for producer agreements should always include a review by a trusted legal advisor attorney before executing. If there is one takeaway here, it is that brokers must comprehend the terms they are agreeing to. If there are questions regarding any of the contract’s components or if modifications are needed, brokers should negotiate specific changes early in the process. In most cases, insurers will allow a degree of flexibility in their agreements so there is an essential level of understanding and trust between the two parties.
Kristi W. Dean, Managing Partner
Stone Dean LLP
Kristi is an experienced litigator and transaction attorney who represents clients in business transactions and litigation disputes. Her litigation practice focuses on trade secrets, unfair business competition, insurance law and complex business disputes with a focus on insurance-related issues.