Volunteer Compliance Form

It is the policy of the Independent Insurance Agents and Brokers of California (IIABCal) to comply in all respects with the letter and spirit of antitrust laws and the guidelines promulgated by the Federal Trade Commission (FTC).

Compliance is not only our legal obligation but is also in the best interests of IIABCal and its membership. Any violation of the antitrust laws could seriously jeopardize IIABCal’s ability to represent its members effectively and its credibility as a leader advocating on behalf of the free enterprise system.

Moreover, violations of the antitrust law or the FTC Guidelines (Section II below) could result in severe penalties against IIABCal and individuals that represent IIABCal. Certain antitrust offenses, such as price-fixing, are criminal violations and individuals convicted of these offenses can be sentenced to three years in prison and fined $100,000. For criminal offenses, IIABCal itself could be fined up to $1,000,000. Violation of the FTC Guidelines will be punishable by a $10,000 fine for each day during which the violation continues.

The antitrust laws also entitle any company or person who is injured by an antitrust violation to sue for three times the damages suffered. These “treble damage” actions can result in huge jury awards and, at a minimum, necessitate heavy defense costs and disrupt business activities.

No one should assume that IIABCal would be immune from the antitrust laws because of the McCarran-Ferguson Act. The courts have construed the McCarran Act narrowly and the law is unsettled on the question whether the McCarran Act applies to the relationship between independent agents or brokers and their companies. IIABCal can expect scrutiny from antitrust enforcement agencies, and others, including the Federal Trade Commission and the states attorneys general.

Therefore, it is imperative that we avoid any possible suspicion that our conduct violates the Antitrust Statutes or the FTC Guidelines.

In some respects, this statement of policy goes beyond the strict requirements of antitrust laws. This has been done because of IIABCal’s interest in avoiding even the appearance of a violation and in maintaining the highest standards of ethics. You should follow these policies unless IIABCal counsel has specifically decided that they need not be followed in a particular case.

IIABCal can act and speak only through those serving as officers, directors, employees and committee or task force members. Under the antitrust laws, the actions and statements of these individuals will be binding on IIABCal in most circumstances. Actions by an IIABCal representative can be attributed to IIABCal even if the person acts without authorization but appears, to an outsider, to have the proper authority. Moreover, acts or statements by an IIABCal representative may be binding on IIABCal where the individual purports to act in a personal capacity but evidence indicates that he or she is really acting on IIABCal’s behalf.

No officer, director, employee, or committee or task force member, has the authority to take any action that might violate the antitrust laws, the FTC Guidelines or this statement of policy. Moreover, no officer, director, employee, or committee or task force member has the authority to direct, approve or condone any such action. To the contrary, all IIABCal personnel and representatives have the affirmative responsibility to ensure that anyone working under them comply with the law and IIABCal’s guidelines.

Violations of this policy statement will be grounds for disciplinary action, adapted to the circumstances of the particular violation. Serious, intentional violation of the policy statement will usually result in loss of office or discharge. Where a violation is attributed to inexperience or excusable lack of information, other corrective action may be appropriate. Where an officer, director, employee or committee or task force member has relied in good faith on the advice of IIABCal counsel after full disclosure of the material facts, no disciplinary action will be taken against the individual.

If you have any knowledge of an actual or suspected violation of the antitrust laws, the FTC Guidelines or IIABCal’s policy, or if you have any doubt whether a particular action is consistent with them, you should promptly consult IIABCal counsel. This policy statement is designed to help you identify potential problem areas, but it cannot provide answers to every possible question. That is the responsibility of IIABCal counsel, who cannot advise you and the association effectively without being consulted and all pertinent facts disclosed.

FTC Guidelines prohibit IIABCal from taking certain actions that relate to direct or dual marketing by insurance companies. Therefore, before you undertake any activity bearing on these subjects, you should consult with IIABCal counsel.

There are four key provisions to the FTC Guidelines

1. Definition of “Direct Marketing:” The prohibitions in these Guidelines are geared to the FTC’s definition of “direct marketing,” which is broader than the normal understanding of that term. In addition to truly direct marketing (such as mass mail), the FTC definition includes attempts by insurance companies to acquire or obtain a controlling interest in an independent agency, attempts by insurance companies to obtain exclusive agency agreements with independent agents or agencies, or other insurance company efforts to limit the independent agent’s role in counseling insureds, serving accounts or controlling expirations. …”
   
   
2. Specific Prohibitions: The most important are two basic prohibitions:
   • First: IIABCal cannot recommend or suggest to its members that they do not do business with companies engaged in direct marketing or threaten to withhold business.
   • Second: IIABCal cannot itself attempt to force any company to abandon or refrain from a direct marketing program by threatening the loss of business.
     
     Both prohibitions apply to any IIABCal resolution, policy statement, speech, meeting, discussion, communication, survey, magazine article or publication. The prohibitions apply notwithstanding that a recommendation, suggestion or threat is a hint rather than an explicit remark. For example, you should not describe direct marketing companies as “violators” or “transgressors” because IIABCal members might perceive such language as implying that they should not represent such companies. Similarly, you should not issue any statement of principles on the American Agency System or on direct marketing if the statement lists or identifies companies that adhere or do not adhere to the principles. Any such list might be viewed as a “blacklist” that violates the Guidelines. Statements of policy or dissemination of factual information on the direct marketing programs of individual companies are permitted if there is no purpose to suggest or threaten a boycott.
     
     However, IIABCal may not publish any information, even if it is strictly factual (i.e., without commentary), on actual or threatened agent or broker refusal to do business with direct marketing companies. This prohibition includes the publication or informal circulation of letters that agents or brokers send to IIABCal. IIABCal should not attempt to solicit such letters or otherwise collect information on refusals to do business with direct marketing companies. In meetings of the Executive Committee, Board, or other IIABCal groups, and in any meetings with insurance company officials, you should not even discuss whether agents or brokers have stopped or might stop doing business with direct marketing companies.
     
     You should also be aware that the Guidelines prohibit an indirect recommendation or suggestion of a boycott. Thus, such a comment in a speech or article that was not intended as improper may give rise to legal problems. You should always assume that anything put down in writing or said at a meeting will later come to light. Therefore, it is crucial that any speech, resolution or similar statement on direct marketing be cleared in advance with IIABCal counsel.
     
     Finally, the Guidelines are not confined to actions taken directly by IIABCal. They also forbid any actions designed to assist a local association or chapter or an individual member to take actions that IIABCal is prohibited from taking. For example, you cannot ask a local association official to suggest to members of this association that they not do business with direct marketing companies.
     
     
3. “Safe Harbor” Provisions: In recognition of IIABCal’s legitimate functions, the Guidelines specifically identify four types of activities that are not prohibited: (a) participating, in good faith, in legislative, regulatory and court proceedings; (b) providing information and views to insurance companies and their associations; (c) providing factual information to members; (d) stating policy and expressing views on direct marketing. However, even these activities will lose their protection if they are intended “to invite, initiate, encourage, or facilitate any actual or threatened refusal to deal” with an insurance company. Therefore, it is equally important that your actions, if they involve direct marketing, receive advance approval from IIABCal counsel.
   
   
4. Record-Keeping Requirement: The Guidelines require IIABCal to keep, for specified time periods, all correspondence referring or related to direct marketing. The FTC may inspect such materials upon request. Examples of such items would be letters from members complaining about direct marketing programs or letters from companies providing IIABCal with information on such programs. Therefore, all IIABCal officers, directors, employees and committee or task force members who authored or received any such correspondence should promptly forward a copy to IIABCal counsel.

The federal antitrust laws applicable to IIABCal also deal with another issue, prohibiting agreements between competitors to eliminate or limit competition. Particularly serious are (1) price-fixing, that is, agreements to raise or stabilize prices; and (2) boycotts, that is, agreements to refuse to deal, or threaten to refuse to deal, with other competitors, customers or suppliers. Price-fixing agreements and, in some instances, boycotts are criminal offenses and are illegal per se. This means that the courts will not consider any excuses or justifications, whether they are ignorance or the law, good faith or reasonableness. Price-fixing and boycotts may also be illegal whether or not they were successful or actually harmed anyone.

An “agreement” to boycott or fix prices need not be an actual or explicit agreement, such as one put down in writing or reached at a meeting. Rather, an “agreement” may take the form of a tacit understanding, what the courts sometimes describe as a “meeting of the minds” or a “knowing wink.” An “agreement” can also be proven by circumstantial evidence. For example, an agreement to boycott could be proven based (a) on speeches by an officer harshly criticizing a particular company for its business practices and stating that each member has the right to “vote with his feet” and (b) evidence that some member shortly thereafter canceled contracts with that company.

The antitrust laws have a widely differing impact on IIABCal activities. In some areas, the antitrust laws impose significant constraints; in other areas, the antitrust laws impose no limitations. Set forth below are guidelines that should be followed in those areas where there are potential antitrust hazards.

The two most antitrust sensitive areas are commissions and collective refusals to deal with companies.

A. Commissions

Serious antitrust problems would arise from any action or recommendation by IIABCal on the level of commissions. More specifically, IIABCal representatives should strictly avoid: (1) any recommendations on the desirable percentage, amount or general level of commissions; or (2) any actions, threats or statements designed to pressure insurance companies into setting commissions at a particular level or to generally raise them or stabilize them or slow their descent. Any such recommendations or actions could be perceived as evidence of an agreement between members to fix their commissions–an agreement that, if proven, would expose IIABCal and its representatives to criminal or civil prosecution for price-fixing. There are, however, certain subjects generally related to commissions, but not specifically directed at the level or amount of compensation, that IIABCal may discuss and address in its recommendations. For example, IIABCal may discuss and make recommendations on procedural questions involved in agent-company disputes over commissions, such as the agent’s right to a hearing or the appropriate method for resolving the dispute (e.g., arbitration). As another example, IIABCal may participate in legislative or regulatory proceedings or litigation involving commissions. IIABCal may also collect information on commissions as long as any publication of such information is not accompanied by recommendations on the appropriate level of commissions. But because of the extreme antitrust sensitivity of this entire topic, advance legal clearance should be obtained for any activities that relate to commissions.

B. Boycotts

The antitrust laws prohibit IIABCal from organizing or assisting a boycott of companies because IIABCal or its members dislike their business practices. Specifically, IIABCal cannot suggest to its members, directly or by implication, that they cancel agency contracts, move books of business, place moratoriums on new business or do business only with certain companies. You should also avoid putting together any lists of companies engaged in disfavored business practices, since identifying them in this fashion may be perceived as a “blacklist.” You should observe these prohibitions even though you or IIABCal as a whole may have legitimate concerns over unfair terminations, mid-term cancellations, restrictive coverages or excessive rates. Perceived problems with company practices can be addressed by IIABCal but not by suggesting a boycott. The best rule of thumb is to avoid discussions or recommendations concerning the practice of specific companies without first consulting with IIABCal counsel.

C. Company Termination or Unfair Treatment of Agents and Brokers

Except for the prohibitions on recommending boycotts and trying to influence the level of commissions, the antitrust laws do not prevent IIABCal from communicating with insurance companies or otherwise expressing views on agent-company relationships, including such questions as termination and unfair treatment. Likewise, IIABCal legitimately can encourage companies to adopt fair procedures for resolving disputes with their agents or brokers.

D. Company Contracts with Agents and Brokers

IIABCal also may develop and recommend standard contractual provisions governing the relationship between companies and their agents or brokers. The antitrust laws do, however, impose certain limitations on what IIABCal can do.

First, the association cannot require, either directly or through threats of punitive measures, that members or insurance companies use provisions developed by IIABCal. For example, IIABCal cannot deny company participation in IIABCal programs, otherwise open to insurers, because those companies do not utilize the recommended contractual provisions. Such use must be left to the free choice of agents, brokers and companies.

Second, no standardized provisions on the level of commissions should be adopted, for any reasons given above.

Third, the antitrust laws require that any standards-setting organization open the process to all interested parties. Usually, it is preferable to affirmatively solicit the views of interested parties. Consequently, all agents, brokers and companies, whether or not members of IIABCal or participants in IIABCal programs, should be invited to present their views on company contractual provisions.

Fourth, no contractual provision should be drafted with the purpose of limiting the competition or disadvantaging competitors (e.g., contractual provisions penalizing companies who engage in dual marketing experiments or preventing them from entering into exclusive contracts.)

Fifth, recommended provisions should be available for use by all, including non-members of IIABCal (although IIABCal can impose a reasonable fee to cover such costs as the expenses of printing forms, etc.)

E. Company Rates, Underwriting Practices and Coverages

It is completely consistent with the objectives of the antitrust laws for IIABCal to encourage companies to lower rates and make coverages more available. But in doing so, IIABCal must not threaten companies with refusals to do business or other punitive measures because of their rating or underwriting practices. Additionally, IIABCal should avoid suggesting to companies that insurance availability could be increased if they privately agreed – without sanction by state regulators – to divide up high-risk markets or territories. No matter how well intentioned, agreements to allocate customers or territories are, like price-fixing and boycotts, illegal per se. However, it is permissible to discuss any actual or proposed Joint Underwriting Association, Market Assistance Plan, or similar residual market plan with state regulators or companies. (See also additional guidelines set fourth in Part G below.)

IIABCal surveys on rates, underwriting practices and market conditions may generate antitrust problems depending on the circumstances. Surveys or reports should be confined to information on past transactions, and they should not be accompanied by recommendations on future rates or underwriting practices. Most importantly, because surveys may generate antitrust problems, always seek attorney guidance in advance.

F. Policy Provisions and Forms

It is entirely legitimate under antitrust laws for IIABCal to issue recommendations on policy forms, or provide its views on these subjects to companies, industry associations (such as ISO) and state regulators. The single caveat is, as always, that we should avoid threatening any companies with withdrawal of business if they adopt provisions that IIABCal disfavors.

G. Company Meetings

As previously noted, the antitrust statutes permit meetings between IIABCal representatives and company officials to express the views of members or obtain information from company management. There are, however, several precautions that should be observed.

First, there should be absolutely no discussion on the level of commissions (see Part III A above).

Second, because of the FTC Guidelines, conversations on direct marketing topics should be strictly limited to obtaining information and expressing members’ views in a non-threatening fashion. This is expressly permitted by the Guidelines.

Third, if you think company meetings may involve discussion on such antitrust sensitive topics as rates and underwriting practices, you should attempt to meet with companies on a one-to-one basis. Joint company meetings may generate suspicion of collusion between competitors in which agents and brokers were involved. Conversely, where joint meetings are held, there should be no discussion of company plans or intentions on rates and underwriting practices.

H. Financial Institutions

Generally, the antitrust laws do not limit IIABCal’s ability to lobby for or against federal or state legislation pertaining to insurance activities of financial institutions, or where IIABCal participates in regulatory proceedings and litigation on the same subject. However, IIABCal may lose this antitrust immunity if lawsuits are frivolous and there is no purpose but delay. Consequently, IIABCal representatives must not deliberately seek to prolong legal proceedings, without regard to the merits, so as to delay a financial institution’s entry into the insurance market.

This antitrust immunity, moreover, does not extend to activities outside the legislatures, courts and regulatory agencies. The same prohibitions against boycotts apply as they do in other areas. Therefore, IIABCal cannot recommend that its members refuse to do business with banks attempting to enter the insurance market, for example, by suggesting that members withdraw their accounts from such financial institutions. Further, there should be no published or circulated lists of banks that are selling insurance, since any such list may be perceived as a blacklisting device.

I. Membership Requirements and Access to Programs and Services

In construing the antitrust laws, the courts have recognized that the central function of trade associations — to represent the common interests of their members — is legitimate. Accordingly, trade associations may limit membership to those who have the same profession or manner of doing business. IIABCal and local affiliates thus do not violate the antitrust laws when they limit membership to all licensed agents or brokers on commission who own their expirations.

Neither IIABCal nor its affiliates, however, can discriminate between producers who meet these membership criteria. For example, a producer cannot be expelled from an association because he has a business arrangement with a bank or because he represents a direct writing company. Since membership in IIABCal is based on membership in its local associations or chapters, IIABCal officers and directors should urge affiliates to correct any apparent instance of a wrongful refusal to admit or wrongful expulsion.

Similarly, IIABCal may not exclude members or insurance companies from services or programs offered by IIABCal because the association objects to their business practices. Of course, IIABCal can expel members and companies or subject them to appropriate disciplinary action for failure to pay dues, breach of IIABCal rules or other wrongful conduct that has nothing to do with questions of competition or methods of doing business.

This Statement of Principles regarding Conflicts of Interest enables those in leadership positions to understand clearly what is expected of them and to make certain that the best interests of the Association and its members will be continuously pursued.

The Board of Directors directs that each officer, director, trustee, committee chairman, committee member, employee and independent contractor associated with or employed by IIABCal and its affiliated organizations (hereinafter referred to as the ‘Association’) agree to the following Statement of Principles regarding Conflicts of Interest and acknowledge such agreement by completing the IIABCal online Volunteer Compliance Form. The office of the CEO shall secure this agreement from each of the above individuals on an annual basis following the annual meeting. The CEO shall then transmit forthwith copies of any statement containing disclosures to the Executive Committee.

A. Each officer, director, trustee, committee chairman, committee member, employee and independent contractor associated with or employed by the Association shall recognize that he or she is in a position of trust, expected to act in good faith at all times with undivided loyalty to the Association; to subordinate personal interests to those of the Association where these two conflict; and to act in such a manner as to avoid the appearance that his or her position may be used to advance his or her private interests or the private interests of others.

B. Such individuals shall make full written disclosure at the end of this statement of any interest (including any direct or indirect ownership interest) in a business with which the Association contracts for goods or services, or contemplates so contracting, and about which the individual has knowledge. Such individuals shall also make full written disclosure of any close personal relationship (such as relative or close personal friend) that they have with any person or firm with whom the Association contracts for goods and services, or contemplates contracting with, and about which such individuals have knowledge. Such individuals further agree promptly to disclose in writing to the CEO any such relationship or interest that arises subsequent to the signing of this statement.

C. “Contracts” as used throughout this Statement refers to any relationship entered into by IIABCal for the procurement of goods or services.

D. Such individuals who have a relationship or ownership interest as discussed in Paragraph 2 agree, in addition to full disclosure, to excuse themselves from any deliberations regarding the person or firm with whom IIABCal does business or contemplates doing business, unless specifically requested to participate, after disclosure, by the Board of Directors or Executive Committee.

E. Such individuals shall also make full written disclosure to the CEO, who shall then inform the Executive Committee, of all gifts received from a person or firm with whom the Association contracts for goods or services, or contemplates so contracting, having a cumulative value in excess of $250 on an annual basis. Gratuitous meals, lodging or transportation received from such a firm or person on an annual basis having a cumulative value in excess of $500 shall also be disclosed. This is not to imply that acceptance of such consideration amounts to a conflict of interest. Properly utilized such free services help to defray IIABCal expense. However, we ask for disclosure.