STATE OF NEVADA
DEPARTMENT OF BUSINESS AND INDUSTRY
DIVISION OF INSURANCE
Proposed Temporary Regulation Concerning Broker’s Duties To Client: Duty Against Self-Dealing, Duty To Disclose Compensation and Duty To Disclose All Quotes; Violations.
Authority: NRS 679B.130 and NRS 233B.063(3)
Section 1. Chapter 686A of NAC is hereby amended by adding thereto the provisions set forth as Sections 2 to 12, inclusive.
Section 2. Definitions. (NRS 679B.130, 686A.015, 686A.230(3)) For purposes of Sections 1 to 12, inclusive, the words and terms defined in Sections 3 to 8, inclusive, shall be applied.
Section 3. “Affiliate” defined. (NRS 679B.130, 686A.015, 686A.230(3)) “Affiliate” means a person that controls, is controlled by, or is under common control, as that term is defined in NRS692C.050, with the broker.
Section 4. “Broker” defined. (NRS 679B.130, 686A.015, 686A.230(3)) “Broker” has the meaning ascribed to it in NRS 683A.321. However, for purposes of Section 1-12, it shall not include an insurance producer who acts only as: (1) an intermediary between an insurer and the client’s broker, for example, a managing general agent, or wholesale broker; or (2) a reinsurance intermediary.
Section 5. “Client” defined. (NRS 679B.130, 686A.015, 686A.230(3)) “Client” means a natural person, corporation, association, partnership or other legal entity who is a named insured, or one who seeks the advice of a broker about becoming an insured or receiving a quotation. For purposes of Sections 1-12, a client does not include one that is merely:
(1) A participant or beneficiary of an employee benefit plan; or
(2) Covered by a group or blanket insurance policy or group annuity contract sold, solicited or negotiated by the broker or affiliate.
Section 6. “Represents” defined. (NRS 679B.130, 686A.015, 686A.230(3)) “Represents” means to act on behalf of a client in relation to an insurance transaction or potential insurance transaction.
Section 7. “Insurance Transaction” defined. (NRS 679B.130, 686A.015, 686A.230(3)) “Insurance transaction” shall be defined as set forth in NRS 679A.130, and shall also include the procurement or the potential procurement of insurance, or the giving of advice concerning matters related to the nature and type of insurance policies, coverage, terms, duration, premiums or premium payment arrangements.
Section 8. “Compensation” defined. (NRS 679B.130, 686A.015, 686A.230(3)) “Compensation” means both standard and non-standard commissions as further defined
(1) Standard compensation means a payment received by a producer from an insurer which is paid pursuant to a set compensation schedule offered to all producers for services provided in connection with the placement of insurance coverage.
(2) Non-Standard compensation means consideration in any form for the production of insurance received by some producers from an insurer or other source which is paid in addition to or in lieu of the standard compensation and paid pursuant to a separate agreement for additional services or other consideration provided in connection with the placement of insurance coverage.
Section 9. Scope. (NRS 679B.130, 686A.015, 686A.230(3)) The scope of Sections 1 to 12 includes all insurance producers required to be licensed as producers in Nevada, performing in the capacity of a broker as defined in Section 4.
Section 10. Broker’s Duties To Client. (NRS 679B.130, 686A.015, 686A.230(3)) In addition to other provisions in the Insurance Code that define a broker’s duties and as may otherwise be imposed on a broker by traditional agency principles under Nevada law, a broker shall also owe the following duties to a client when representing that client in an insurance transaction or potential insurance transaction:
(1) Duty against self-dealing: A broker must not unreasonably place his own financial or other interest above that of his client’s interest in an insurance transaction or potential insurance transaction.
(2) Duty to disclose compensation: Prior to or simultaneously with a client’s purchase of the insurance, in addition to any other written disclosures required in the Insurance Code, a broker shall make the disclosures set forth in (a)-(f) below, to the client. These disclosures must be made followed by a documented acknowledgement by the client and the broker, clearly indicating the client’s understanding of the contents of the disclosure statement prior to or simultaneously with the client’s purchase of insurance or any other insurance transaction that would entitle the broker to compensation as a result of his representation of the client. In the case of a purchase over the telephone or electronic means, the client’s understanding of the disclosure must be documented by the broker followed by a documented acknowledgement by the client and the broker. Required disclosures:
(a) That the broker may receive compensation in some form for the sale of the insurance to the client from an insurer or other source;
(b) The name and identity of the source of the compensation, and whether the broker has any ownership interest in or is under common control with the entity providing the compensation;
(c) Whether the compensation is standard or non-standard compensation;
(d) That the compensation received by the broker may differ depending upon the product and insurer;
(e) If the compensation is non-standard compensation, that the broker may receive additional remuneration from the insurer based upon other factors which must be disclosed; and
(f) The name and identity of any other business entity reasonably known to the broker that will receive compensation from the insurer for assisting the broker in the sale of the insurance to the client, including the source, nature, amount or value, and the method of calculating such compensation to the other business entity.
(3) Duty to disclose all quotes. Prior to a client’s purchase of insurance, a broker shall disclose to the client the name of each insurer, or any other source, which supplied the broker a quote that would reasonably meet the client’s specifications.
Section 11. Violations. (NRS 679B.130, 686A.015, 6865A.230(3)) A broker who does not comply with the provisions of Section 10, violates NRS chapter 683A and NRS chapter 686A, and shall be subject to penalties as set forth in the Insurance Code, including those specified in NRS 683A.451, 683A.461, and NRS 686A.183.