INSURANCE ‑- CONTRACTS ‑- FEES ‑- APPLICATION OF INSURANCE COMMISSION AGAINST FEE FOR DESIGNING AND INSTALLING EMPLOYEES' PENSION AND PROFIT SHARING PLAN

INSURANCE ‑- CONTRACTS ‑- FEES ‑- APPLICATION OF INSURANCE COMMISSION AGAINST FEE FOR DESIGNING AND INSTALLING EMPLOYEES' PENSION AND PROFIT SHARING PLAN

It is a violation of RCW 48.30.140(1) and RCW 48.30.150 for a licensed insurance agent, when selling insurance in connection with an employee's pension and profit sharing plan, to treat his commission for selling such insurance as partially covering the fee which he would otherwise charge for designing and installing the aforesaid plan, thereby reducing the amount of such fee.

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                                                               September 7, 1978

Honorable Richard Marquardt
Insurance Commissioner
Insurance Building
Olympia, Washington 98504                                                                                                               Cite as:  AGLO 1978 No. 26

Dear Sir:

            By letter previously acknowledged you have requested our opinion on a question arising out of a factual situation which you have described as follows:

            "A firm which specializes in pension and profit sharing plans and which is also a licensed insurance agent and broker performs services for a fee, in connection with the design, installation and management of pension and profit sharing plans.  Insurance may or may not be involved.  If it is, the firm may or may not procure the insurance.  If the firm does procure the insurance, the usual insurance commission is received by it and such commission is applied toward the pension or profit sharing plan fees to the extent of one half of the compensation schedules therefor.

             [[Orig. Op. Page 2]] "As an example, a typical fee schedule calls for $750 plus $10 per participant for the design, installation and dissemination of information to employees of the plan.  At the end of the year, for actuarial or allocation work and preparation of tax returns and filings with the Department of Labor, the fee is $600 a year plus $10 per participant for defined benefit plans, and $400 a year plus $10 a participant for defined contribution plans.  If the firm has written insurance on the participants in the plan, and a commission results, the fees will be reduced by one‑half if the commission is at least that amount.  If there is no insurance, or if the firm does not receive a commission for any insurance, the full fees are charged."

            Your question is whether the foregoing situation constitutes a violation of either RCW 48.30.140(1) or RCW 48.30.150.  We answer in the affirmative on both counts for the reasons set forth in our analysis.

                                                                     ANALYSIS

            RCW 48.30.140(1) reads as follows:

            "(1) Except to the extent provided for in an applicable filing with the commissioner then in effect, no insurer, general agent, agent, broker, or solicitor shall, as an inducement to insurance, or after insurance has been effected, directly or indirectly, offer, promise, allow, give, set off, or pay to the insured or to any employee of the insured, any rebate, discount, abatement, or reduction of premium or any part thereof named in any insurance contract, or any commission thereon, or earnings, profits, dividends, or other benefit, or any other valuable consideration or inducement whatsoever which is not expressly provided for in the policy."

            InMoser v. Pantages, 96 Wash. 65, 164 Pac. 768 (1917), a similarly worded predecessor of this provision of the state  [[Orig. Op. Page 3]] insurance code was involved.  Plaintiff was an agent for a life insurance company.  In that capacity he entered into an agreement with the defendant to arrange for the latter a loan from the life insurance company for which the agent worked.  At the same time, the defendant agreed to take out, through the plaintiff, two life insurance policies with the company.  Significantly, however, the plaintiff agent made no charge for his services to the defendant in obtaining the loan‑-agreeing, instead, to treat the commissions which he was to receive from the insurance company for selling the two life insurance policies to the defendant as full compensation for his services in procuring the loan.  Following this, the loan was arranged and the two policies were issued‑-but the defendant then changed his mind and rejected both.  With that, the plaintiff sued the defendant for his lost commissions on the life insurance policies.  The court, however, ruled that the plaintiff could not recover on the basis of the alleged agreements because the entire arrangement involved a violation of the rebating statute.  In so concluding the court reasoned as follows:

            ". . .  In short, the appellant induced the insurance by a rebate of the premium to the extent of his commission, which he made up by a charge for procuring the loan.  This clearly is in the face of the statute which provides that no insurance agent shall pay, as an inducement to insurance, any rebate of premium payable on the policy, or any special favor, or other valuable consideration, or inducement whatsoever not specified in the policy contract of insurance.

            ". . .

            "Here there is a rebate upon the premium for the policy of insurance, or a rebate of commissions for procuring the loan, either of which was unlawful because an unlawful inducement for the insurance. . . ."

            The parallel betweenMoser and the situation at hand appears exact.  InMoser, the commission for obtaining a loan was totally foregone by the agent‑-i.e., rebated‑-in exchange for his commission for selling insurance to the defendant.  In the situation you question, half the agent's fee for installing and servicing the pension and/or profit sharing plan is  [[Orig. Op. Page 4]] foregone by him‑-i.e., rebated‑-in exchange for his commission on insurance.  In both cases, it could be argued that the rebate is not of an insurance commission, but rather of the consideration for a non-insurance contract.  However, in both cases such an analysis would ignore the realities of the entire situation in which the insurance policy was offered, and would render the ban of RCW 48.30.140(1) on rebating meaningless in any practical sense.  Accordingly, we conclude that the situation posed in your question, like that inMoser, violates RCW 48.30.140.

            Additionally, the situation you describe would further seem to violate RCW 48.30.150.  That statute provides, in pertinent part, that:

            "No . . . agent, broker, . . . shall, as an inducement to insurance, or in connection with any insurance transaction, . . . offer, . . . or allow to the insured or prospective insured . . .

            ". . .

            "Any . . . contract, agreement, or understanding of any kind, offering, providing for, or promising any . . . special returns. . . ."

            It is clear that a savings of one‑half of an employer's fees for its pension and/or profit sharing plan would be a "special return" to it, and would pose an "inducement" to it to obtain its insurance from the agent offering such return rather than from another agent or broker.  Thus, the situation you describe would be improper as constituting not only a rebate but an illegal inducement as well.

            We trust the foregoing will be of assistance to you.

Very truly yours,

SLADE GORTON
Attorney General

EDWARD H. SOUTHON
Assistant Attorney General