Session of 1999
         
HOUSE BILL No. 2198
         
By Committee on Insurance
          
2-1
          
  9             AN  ACT concerning insurance; minimum notice requirements for can-
10             cellation of insurance agents' contracts by insurance company; reha-
11             bilitation and cancellation of agents' contracts by insurance companies;
12             amending K.S.A. 40-2,106 and 40-2,107 and repealing the existing
13             sections.
14      
15       Be it enacted by the Legislature of the State of Kansas:
16             Section  1. K.S.A. 40-2,106 is hereby amended to read as follows: 40-
17       2,106. For the purposes of this act: (1) "Independent insurance agent"
18       means any licensed agent representing an insurance company on an in-
19       dependent contractor basis and not as an employee. This term shall in-
20       clude only those agents not obligated by contract to place insurance ac-
21       counts with any insurance company or group of companies.
22             (2) "Insurance company" means any property or casualty insurance
23       company admitted to the state of Kansas, except the term shall not include
24       any company which requires membership in the company, as contained
25       in the articles of incorporation or bylaws of such company, as a prereq-
26       uisite to insuring that member.
27             (3) "Commissioner" means the commissioner of insurance.
28             (4) "Exclusive insurance agent" means any licensed agent obligated
29       by contract to produce insurance business exclusively or predominately
30       for one insurance company or affiliated group of companies.
31             (5) "Employee agent" means any employee of an insurance company
32       whose principal compensation is by salary and who is exclusively em-
33       ployed as an insurance agent of the insurance company.
34             Sec.  2. K.S.A. 40-2,107 is hereby amended to read as follows: 40-
35       2,107. (a) Insurance companies may contract with independent insurance
36       agents or exclusive insurance agents as to binding authority, policy serv-
37       ices, adjusting services, commissions and other subjects of interest be-
38       tween agent and company. Such contracts which have been effective for
39       more than one year shall not be terminated or amended by the company
40       except by mutual agreement or unless 180 days' prior notice has been
41       tendered to the agent, except that this shall not apply to terminations for
42       fraud, material misrepresentation or failure to pay such agent's account
43       less the agent's commission and any disputed items within 10 days after

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  1       written demand by the company. During such notice period all contrac-
  2       tual conditions existing prior to such notice shall continue. During the
  3       180-day notice period for an exclusive agent, if mutual rehabilitation of
  4       the agent's business is attempted pursuant to section 3, the insurance
  5       company shall not cancel or nonrenew that agent's business or reduce
  6       coverage to any insured of that agent, except in accordance with under-
  7       writing rules applicable to all agents or in accordance with the rehabili-
  8       tation agreement. An exclusive agent and an insurance company may
  9       agree to a different notice period as a part of a mutually agreed upon
10       rehabilitation plan under section 3.
11             (b) Any independent insurance agent whose contract with an insur-
12       ance company has been terminated under the provisions of subsection
13       (a) shall have until the policy renewal date, but not more than one year,
14       to place the business written under such terminated contract with another
15       insurance company.
16             New Sec.  3. (a) After an independent insurance contractual relation-
17       ship has been in effect for a period of one year, an insurance company
18       may not terminate the relationship with the agent unless the company
19       has attempted to rehabilitate the agent as provided in subsection (h). The
20       insurance company shall provide written notice of intent to rehabilitate.
21             (b) After an exclusive or employee agent has been an agent for an
22       insurance company for a period of three years, the insurance company
23       may not terminate such agent's contract or employment as an agent unless
24       the company has attempted to rehabilitate the agent as provided in sub-
25       section (h). The insurance company shall provide written notice of intent
26       to rehabilitate.
27             (c) If the agent and company are not able to reach a mutually ac-
28       ceptable plan of rehabilitation, the company may terminate the agency
29       contractual or employment relationship after providing written notice of
30       termination to the agent at least 90 days in advance of the termination.
31             (d) The notice of termination must include the reasons for termina-
32       tion and a copy of the notice of intent to rehabilitate.
33             (e) An insurance company may not terminate an agency contract or
34       employee relationship based upon any of the following:
35             (1) An adverse loss experience for a single year;
36             (2) the geographic location of the agent's auto and homeowners in-
37       surance business;
38             (3) the agent has filed a complaint with or reported violations of law
39       to any insurance department; or
40             (4) the performance of obligations required of an insurer or agent
41       under Kansas statutes.
42             (f) The company shall at the request of the agent renew any insurance
43       contract written by the agent for the company for not more than one year

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  1       for property and casualty loss insurance during a period of nine months
  2       after the effective date of the termination, but in the event any risk does
  3       not meet current underwriting standards of the company, the company
  4       may decline its renewal, provided that the company shall give the agent
  5       not less than 60-days' notice of its intention not to renew the contract of
  6       insurance.
  7             (g) No new insurance or bond contract shall be written by the agent
  8       for the company after the effective date of the termination without the
  9       written approval of the company. The agent may increase liability on
10       renewal or in force business for not more than one year for the insured
11       after the effective date of the termination if the increased liability meets
12       the current underwriting standards of the company.
13             (h) Before notice of termination of the agency contract or employ-
14       ment relationship, the company shall negotiate in good faith in an effort
15       to reach mutual agreement with the agent on a written plan for rehabil-
16       itation. The rehabilitation plan must be in writing and must contain the
17       following elements:
18             (1) Identification by the company of the problem areas which need
19       rehabilitation;
20             (2) what the agent must do to avoid termination;
21             (3) how the company intends to assist the agent to avoid termination;
22             (4) the mutually agreed upon corrective action to be undertaken by
23       the agent and the specific target dates for accomplishment;
24             (5) periodic meeting dates at which the status of rehabilitation will
25       be reviewed; and
26             (6) the term of the written plan which must extend for at least one
27       year.
28             (i) All agency contracts or employee agent relationships in existence
29       on July 1, 1999, are subject to the rehabilitation requirement under sub-
30       section (h). The rehabilitation plan need not be incorporated into the
31       agency contract.
32             (j) Nothing contained in this section prohibits the earlier termination
33       of an agency agreement or employment relationship, provided the agent
34       agrees in writing to the earlier termination.
35             (k) During the term of the contract or rehabilitation period the com-
36       pany shall not refuse to renew such business from the agent as would be
37       in accordance with the company's current underwriting standards.
38             (l) The provisions of this section do not apply to termination of an
39       exclusive or independent agent's contract for insolvency, abandonment,
40       gross and willful misconduct or failure to pay over to the company money
41       due to the company after receipt by the agent of a written demand there-
42       for, or after revocation of the agent's license by the commissioner.
43             (m) If it is found, after notice and an opportunity to be heard as

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  1       determined by the commissioner, that an insurance company has violated
  2       this section, the insurance company shall be subject to a civil action by
  3       the agent for actual damages suffered because of the premature termi-
  4       nation of the contract by the company. The commissioner may employ
  5       the department's investigative and enforcement authority if the commis-
  6       sioner has a reason to believe that an insurer has violated this section. An
  7       insurer found in violation of this section is subject to a civil penalty im-
  8       posed by the commissioner not to exceed $10,000 per violation.
  9             (n) In the event that a company's compliance with this section is
10       demonstrated to the satisfaction of the commissioner to represent a haz-
11       ard or potential hazard to the financial integrity of the company, the
12       commissioner, after a hearing, may issue an order relieving the company
13       from its obligation to provide the renewal policies otherwise required by
14       this section.
15             (o) Upon termination of an independent agent's contract, a company
16       is prohibited from soliciting business in the notice of nonrenewal required
17       by K.S.A. 40-276a, 40-277, 40-2,112, 40-2,121 and 40-2,122, and amend-
18       ments thereto.
19             (p) For purposes of this section, a cancellation or termination of an
20       agent's contract is considered to have occurred if the company cancels a
21       line of insurance business or a volume of insurance business that equals
22       or exceeds 75% of the insurance business placed by that agent with the
23       company.
24             (q) Any insurance company which provides a termination and reha-
25       bilitation process substantially similar to subsections (b) through (h) for
26       its agents may petition the commissioner for exemption from the enforce-
27       ment provisions of this section. 
28       Sec.  4. K.S.A. 40-2,106 and 40-2,107 are hereby repealed.
29        Sec.  5. This act shall take effect and be in force from and after its
30       publication in the statute book.