Tuesday, November 23, 2010





Insurance Agency Was Not a “Franchise” Under Arkansas Relationship Law

This posting was written by Pete Reap, Editor of CCH Business Franchise Guide.

An insurance agent was not a “franchisee” of an insurance company, entitled to the protections of the Arkansas Franchise Practices Act, because she did not have the unqualified authority to sell policies or commit the company to an insurance contract other than a temporary binder policy, which could be cancelled at any time at the company’s discretion, the Arkansas Supreme Court has decided.

The state supreme court affirmed a ruling by an Arkansas trial court, granting the insurance company summary judgment on the agent’s claim that the company violated the Arkansas franchise law by terminating the agency contract.

The agent had no authority to set or change prices, as evidenced by her complaint that the insurance company continued to change policies and increase prices, resulting in her loss of business, according to the court. She had no authority to change the premium, the date on which payment was due, or the terms of the insurance policy.

She admitted that she did not sell any tangible product, that she did not charge money outside of the premium paid to the insurance company for insurance services, and that the money changing hands consisted of premiums she forwarded to the insurance company.

Thus, the evidence showed that only policies acceptable to the insurance company could be underwritten under the agent’s contract and that only the insurance company could commit itself to provide coverage, the court held.

Under the Arkansas Franchise Practices Act, the unqualified authority to sell or distribute goods or services was an essential component of a “franchise” agreement. The agent lacked that authority, the court ruled.

The November 11 decision in Gunn v. Farmers Insurance Exchange will be reported at CCH Business Franchise Guide ¶14,891.

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