Is An Agency Required To Obtain A License When Its Agent Must Obtain a Non-Resident License?

My last blog post dealt with the question of when an insurance agent must obtain a non-resident license if they are placing insurance coverage for a risk located in another state.  This post will explore the related question of whether the agent’s insurance agency must also obtain a license from the insurance department of the other state.  As with the first post, it will be limited to the laws of the states adjacent to Georgia.  It will also discuss when an agency must obtain a certificate of authority from the business entity regulator of those states.

With one exception, all the states adjacent to Georgia require a business entity that sells, solicits, or negotiates insurance within their state to obtain a license.  The exception is Tennessee, whose law only states that such an entity may obtain a license as an insurance producer.  Unfortunately, unlike individual insurance producers, the law of all these states does not contain any reference to licenses for non-resident business entities.  That can lead to two possible approaches by the insurance departments in those states.  First, the literal interpretation would be that any business entity no matter where its principal offices are located must obtain a license if it sells insurance coverage for a risk located in that state.  On the other hand, the lack of any reference to licenses for non-resident business entities could be interpreted to mean those entities do not have to obtain a license, since the law does not mention them as it does with individual agents.

If you don’t want to expend the time and effort to contact the insurance department in each state to find out how they interpret their state’s law on this question, the safest course of action would be to obtain an agency license in any state where one or more of the agency’s producers have had to obtain a non-resident agent’s license.  If an agent doesn’t have to obtain such a license, it would make no sense for his or her agency to have to obtain one.  But a good argument can be made that if an agent has to obtain a non-resident license, then his or her agency should obtain one, as well, since the agent is a representative of their agency.

A separate, but related question, is whether an agency must obtain a certificate of authority to transact business in a state if it sells an insurance coverage for a risk located in that state.  Such certificates are obtained from the government agency that regulates all business entities in a state, not the state’s insurance department.  This is a very gray area and each state will have it own interpretation of when such a certificate must be obtained.  However, with one exception, all the states adjacent to Georgia have statutes that specifically exempt from the certificate requirement a business entity that sells its products or services in the state through independent contractors or that solicits or obtains orders for goods or services in the state if those orders must be accepted by an entity located outside the state before they become a binding contract.  The exception here is Alabama, which requires any legal entity that would have to obtain a certificate from its Secretary of State if it were created in Alabama to obtain such a certificate.

A good argument can be made that an insurance policy or bond fits within the exemption for orders solicited or obtained that require acceptance outside the state to become binding contracts.  An insurance application must be accepted by the insurance company before a policy or bond will be issued.  As long as the person making the decision to accept the application is not located in the state where the risk to be covered is found, there is no need to obtain a certificate of authority from that state’s business entity regulatory agency.

When Are You Required to Obtain a Non-Resident License?

Unlike most summers, this one has been very busy for my law practice.  I have been involved in the sale of three of my insurance agency clients in the past couple of months, which is one reason I haven’t been as diligent as I should have in making blog posts.  This post concerns an issue that has arisen in each of those sale transactions and about which I sometimes get a question in the Free Legal Service Program I operate for the Independent Insurance Agents of Georgia.  When are you required, as a Georgia resident insurance agent, to get a non-resident agent’s license?  I will address  the related question, are you also required to obtain a license and/or certificate of authority for your agency at the same time in my next post.

Both the above questions are important issues in the context of the sale of an insurance agency, because the buyer will routinely want the selling agency to represent and warrant that it has obtained all the licenses and other governmental approvals required to conduct its business activities.  If those activities involve the issuance of insurance policies covering risks located in other states, which is often the case, the question arises do you, as the agent, need to obtain a non-resident license from the other state’s insurance department, and if you do, what about your agency.  The failure to obtain such a license or licenses when required will not only have a negative impact on the sale of an insurance agency. It can create significant problems for the individual agent and agency with the insurance departments in both their home state and the other state involved.

In late October 2000, the National Association of Insurance Commissioners proposed a model act for the licensing of insurance agents.  This act has largely been adopted by Georgia and the states surrounding it, with one exception noted below.  Under it, the solicitation, sale, or negotiation of insurance coverage by a person in a state is illegal unless that person has the appropriate license for the type of coverage in question, which license has been issued by the insurance department of that state.  The model act contains several exceptions to this requirement.  Unfortunately, only one of them is relevant for the purpose of this post.  It exempts from the license requirement a non-resident insurance agent who sells a commercial lines policy that covers risks located in the state and in other states, as long as the agent is properly licensed by the state in which the insured’s principal place of business is located and the policy covers risks located in that state.

The above exemption is a relatively narrow one, and it is not recognized by Florida.  In Florida, the sale of insurance coverage for any risk located there requires a license that has been issued by its insurance department.  The law of the other surrounding states, Alabama, Tennessee, North Carolina, and South Carolina, will not permit the sale of an insurance policy that covers a Georgia insured’s out of state vacation home or any other personal lines risk located out of state without a license issued by their state’s insurance department.  The same thing is true for any commercial lines risks of a Georgia insured that do not fit within the above exemption.

Fortunately, it is not difficult to obtain a non-resident agent’s license in the states that surround Georgia.  All those states permit the issuance of a non-resident license for any type of insurance for which the non-resident is properly licensed in their home state upon the submission of the required paperwork and license fee, as long as the agent’s home state grants the same privilege to agents who are licensed in the other state, which Georgia does.  When the National Association of Registered Agents and Brokers Reform Act is fully implemented this process will be even easier.  That Act was passed in early 2015 and set a two year time frame for full implementation.  Unfortunately, it seems to have gotten lost in the shuffle of the current political activity in Washington, so its anyone’s guess when it will be fully implemented.