Past Broker Forcing to Buy E&O from His Preferred Vendor

[redsquash]

Last year, I contracted with a Broker to sell life insurance and variable products. Earlier this month I requested them to terminate the contract as I signed up with someone else.

I did not sell anything while I was with the old broker - zero sales. The Broker, now, sent me an invoice for E&O to pay him $4,000. He claims, I'm required to keep the E&O for atleast one more year to cover the risk of the sales I made. But my point is - I did NOT make any sale, so why should I buy E&O to cover the risk that doesn't exist.

I have bought the E&O (Life Agent) for my new IMO, since I will be selling only life policies.

My questions are:
1) Can the broker force me to buy the E&O from his preferred vendor, claiming it was in the contract.

2) Since, I didn't sell anything while on his watch - can he even require me to buy E&O, from any carrier whatsoever.

3) Can my new E&O be treated as sufficient, even if I'm required to have E&O.

4) If the Broker is adamant that I have to pay him $4,000 - should I complain to Dept of Insurance or BBB or FINRA or all? (I;m afraid, Dept of Insurance will just work as courier and will simply forward my complaint to them for response, and will not act as mediator to stress my claim that I should not be forced to buy E&O from broker's preferred carrier)

 

[gmhopks]

Last year, I contracted with a Broker to sell life insurance and variable products. Earlier this month I requested them to terminate the contract as I signed up with someone else.

I did not sell anything while I was with the old broker - zero sales. The Broker, now, sent me an invoice for E&O to pay him $4,000. He claims, I'm required to keep the E&O for atleast one more year to cover the risk of the sales I made. But my point is - I did NOT make any sale, so why should I buy E&O to cover the risk that doesn't exist.

I have bought the E&O (Life Agent) for my new IMO, since I will be selling only life policies.


My questions are:
1) Can the broker force me to buy the E&O from his preferred vendor, claiming it was in the contract.

2) Since, I didn't sell anything while on his watch - can he even require me to buy E&O, from any carrier whatsoever.

3) Can my new E&O be treated as sufficient, even if I'm required to have E&O.

4) If the Broker is adamant that I have to pay him $4,000 - should I complain to Dept of Insurance or BBB or FINRA or all? (I;m afraid, Dept of Insurance will just work as courier and will simply forward my complaint to them for response, and will not act as mediator to stress my claim that I should not be forced to buy E&O from broker's preferred carrier)

FWIW: the very best you can do for yourself in this matter is to contact an attorney and let him/her analyze the contract to determine your obligations (if any at all) and to advise you on how to proceed. Competent legal counsel can save you a lot of money in both the short and long term.

 

[djs]

If it's in the contract, then yes, he can have you have E&O coverage. Now, if the E&O coverage you had was 'occurence' based, then it is covered.

Find out if the policy he had for you was claims based or occurence based and then find out what your new policy is. Hopefully you have coverage for something you might have said, even if the lawsuit is filed next week. If so, then you should be compliant with the intent of the contract.

Dan

 

[Norwayguy]

Last year, I contracted with a Broker to sell life insurance and variable products. Earlier this month I requested them to terminate the contract as I signed up with someone else.

I did not sell anything while I was with the old broker - zero sales. The Broker, now, sent me an invoice for E&O to pay him $4,000. He claims, I'm required to keep the E&O for atleast one more year to cover the risk of the sales I made. But my point is - I did NOT make any sale, so why should I buy E&O to cover the risk that doesn't exist.

I have bought the E&O (Life Agent) for my new IMO, since I will be selling only life policies.

My questions are:
1) Can the broker force me to buy the E&O from his preferred vendor, claiming it was in the contract.

Have you read the contract..He can't claim what is not in a contract.

2) Since, I didn't sell anything while on his watch - can he even require me to buy E&O, from any carrier whatsoever.

I'm not sure but once again what is in the contract is important.

3) Can my new E&O be treated as sufficient, even if I'm required to have E&O.

Definatly not to cover Securities transactions...Also does the policy cover prior acts?

4) If the Broker is adamant that I have to pay him $4,000 - should I complain to Dept of Insurance or BBB or FINRA or all? (I;m afraid, Dept of Insurance will just work as courier and will simply forward my complaint to them for response, and will not act as mediator to stress my claim that I should not be forced to buy E&O from broker's preferred carrier)

Bring the contract with you when you schedule an appointment with an attorney. Specifically ask this question. Has your former broker issued you your U5 yet? If your attorney tells you that it is not in the contract have your attorney write him a letter to enclose with the bill that you are sending back unpaid.

The reason no one really knows is that your B/D can pretty much do whatever they want. FINRA requires your B/D to have a WSP manual and even if the stuff that is in the manaul does not fall under FINRA perview the WSP has the full force of FINRA behind it...its pretty messed up.

My last audit one of the questions the auditor asked was "You are aware you are required to give the B/D the Branches files upon your resignation?" I said that no I was not aware and that I had reviewed the contract and it wasn't in there...I asked him to point it out and handed him the contract after about 15 minutes he said "Well they might be able to construe it from this paragraph", I can't remember the paragraph and I'm to lazy to pull the contract out again, but suffice to say it would be a stretch to construe it that way...at least as far as my attorney said after I brought that specific question up after the audit.

 

[VolAgent]

My last audit one of the questions the auditor asked was "You are aware you are required to give the B/D the Branches files upon your resignation?" I said that no I was not aware and that I had reviewed the contract and it wasn't in there...I asked him to point it out and handed him the contract after about 15 minutes he said "Well they might be able to construe it from this paragraph", I can't remember the paragraph and I'm to lazy to pull the contract out again, but suffice to say it would be a stretch to construe it that way...at least as far as my attorney said after I brought that specific question up after the audit.

Here is a simple solution. Have each client sign a letter stating that you may keep a copy of their file should you leave your present B/D.

Your B/D the original, which will get archived and never seen again, and you get a copy to keep servicing the client with.

 

[redsquash]

My new policy is 'CLAIMS MADE AND REPORTED" I dont know what type of Policy BD claims to have for it, because I never saw any E&O policy. I was on his roll for over a year. I couldn't find the copy of contract, it seems I might have lost it, or never received from him. In his letter, BD specifically mentioned "Article XXX of the contract" so I'm guessing it might be in the contract that they require me to have E&O for one year after I leave them.

But my point is, I didn't sell any product subject to risk (or no product at all), then why should I have E&O for one more year.

Is hiring an attorney really feasible in this situation? A good attorney might cost atleast 2000 with no guarantee if or not he will be able to fight succesfully.

I was leaning towards filing complaint with the State Dept of Insurance. I know my state has a law, where a "lender" cannot force anyone to buy "insurance" from their preferred vendor. So I thought may be the same would apply here as well.

I dont know how can BD shelter behind the contract, when there was no risk sold by me.

 

[VolAgent]

My new policy is 'CLAIMS MADE AND REPORTED" I dont know what type of Policy BD claims to have for it, because I never saw any E&O policy. I was on his roll for over a year. I couldn't find the copy of contract, it seems I might have lost it, or never received from him. In his letter, BD specifically mentioned "Article XXX of the contract" so I'm guessing it might be in the contract that they require me to have E&O for one year after I leave them.

But my point is, I didn't sell any product subject to risk (or no product at all), then why should I have E&O for one more year.

There are ways to commit an E&O error without selling a policy. Also, it is not uncommon to want E&O insurance for a least a year after leaving. I know some medical practices require the doctors to keep malpractice insurance for a year after leaving.

I was leaning towards filing complaint with the State Dept of Insurance. I know my state has a law, where a "lender" cannot force anyone to buy "insurance" from their preferred vendor. So I thought may be the same would apply here as well.

I dont know how can BD shelter behind the contract, when there was no risk sold by me.

One, it is not a loan. And two, most DOIs could care less about the agents, except to punish them for bad acts.

Also, it is the contract. It is always a good idea to enforce a contract, even when their is no apparent need. It establishes a precedent for following the contract should an issue arise later. If the carrier gets a reputation for not following its contract, a judge may not enforce it in a later lawsuit.

 

[Norwayguy]

My new policy is 'CLAIMS MADE AND REPORTED" I dont know what type of Policy BD claims to have for it, because I never saw any E&O policy. I was on his roll for over a year. I couldn't find the copy of contract, it seems I might have lost it, or never received from him. In his letter, BD specifically mentioned "Article XXX of the contract" so I'm guessing it might be in the contract that they require me to have E&O for one year after I leave them.

But my point is, I didn't sell any product subject to risk (or no product at all), then why should I have E&O for one more year.

Is hiring an attorney really feasible in this situation? A good attorney might cost atleast 2000 with no guarantee if or not he will be able to fight succesfully.

I was leaning towards filing complaint with the State Dept of Insurance. I know my state has a law, where a "lender" cannot force anyone to buy "insurance" from their preferred vendor. So I thought may be the same would apply here as well.

I dont know how can BD shelter behind the contract, when there was no risk sold by me.

Starting from this point forward and I mean RIGHT NOW make a folder in a filing cabinet for your contracts. Second you need to start reading these things. I would contact your old B/D and ask nicely for a copy of your contract there might even be more things in there affecting your ability to sell products. You should review your contract periodically and especially before you decide to resign in the future so that you know what your responsibilties are.

Since you mentioned you purchased E&O that does not cover Securities I hope you are aware of how and when your series 6 will expire...Typically you can not go more than 2 years without being associated with a B/D before you will be required to retest if you want back into the industry...However my understanding is that if you miss Reg Element your Series 6 will expire even before the 2 years are up...You need to do Reg Element 2 years after you first pass your exam and then every 3 years there after.

 

[redsquash]

If it's in the contract, then yes, he can have you have E&O coverage. Now, if the E&O coverage you had was 'occurence' based, then it is covered.

Find out if the policy he had for you was claims based or occurence based and then find out what your new policy is. Hopefully you have coverage for something you might have said, even if the lawsuit is filed next week. If so, then you should be compliant with the intent of the contract.

Dan

Can my new E&O policy [Claims Made and Reported] be termed as compliant with the intent of the contract? Or should it have been of some other classification?

 

[Norwayguy]

Can my new E&O policy [Claims Made and Reported] be termed as compliant with the intent of the contract? Or should it have been of some other classification?

Your question can not be answered...You need to get the contract and read it....Actually I can answer your question...Since this E&O does not cover securities there is no way they would ever consider it adequate. But like I was saying you need to get and read the contract...I can almost bet that they require you to have THEIR converage.