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.