The (Non) Franchising Relationship of the Life Insurance Agent

Abstract

The conclusion that the life insurance agent is a franchisee is unjustified because the life insurance agent is either an employee or an independent contractor, whereas the franchisee appears to be a hybrid, possessing characteristics of both and perhaps of other legal entities. In modem franchising, the payment of money, by whatever name the payment may be called, by the franchisee to the franchisor, is a critical requirement, recognized as such by franchisors, franchisees, legislators, regulators and commentators on the subject. No such requirement exists for the life insurance agent. In his discussion of the subject at this Annual Meeting,' Harold Brown makes the unqualified statement that independent life insurance agents are franchisees every sense of the (Independent is not defined). Although the term broker has occasionally crept into the life insurance lexicon from the property and liability field, the life insurance industry mostly has been content to ruminate on the question whether its field representatives are either employees or independent contractors.2 That question causes enough problems. Now, even before that one is solved, Brown rattles our reverie with another concept-that the life insurance agent is a franchisee, not only a franchisee, but one every sense of the word. At least at this point in the history of life insurance companyagent relationships, not to mention the somewhat seemingly confused state of the law of franchising itself, the validity of this conclusion is questionable. These observations are not to imply that life insurance agents should not be considered as franchisees. Maybe they should be. The implication is just that they do not now seem to fit into that classification, whatever H. James Douds is General Counsel for The National Association of Life Underwriters. This paper was presented at the 1975 Annual Meeting of the Association. 1 The Franchising Relationship of the Life Insurance Agent, Annual Meeting, American Risk and Insurance Association, 1975. 2When the serenity of the business was threatened with the term solicitor the matter was handled nicely by the enactment of statutes outlawing the term. E.g., W. Va. Code 533-12-20: . . No solicitors shall be permitted for life insurance agents. The question of employee-independent contractor status is part of an excellent discussion on life insurance agent contracts in Henry, Lifetime Agency Contracts, 1954 Proceedings, Legal Section, American Life Convention 19, 27.