Joseph P. Hougnon, Attorney at Law

Insurance Brokers & Agents License Defense


Generating nearly $300 billion in annual insurance premiums, California has the largest insurance industry in the United States and the sixth largest insurance industry in the world. This enormous insurance market is partially generated by the nearly 1300 insurance companies and over 320,000 insurance agents and brokers who sell insurance of various types in the State of California. All of these companies, agents, and brokers are regulated by the California Department of Insurance, or CDI.

The CDI is essentially the largest consumer protection organization in the state. Charged with enforcing California’s insurance laws, the CDI has the power to license brokers and agents, investigate consumer complaints, and prosecute insurance fraud. When the CDI believes that a violation of the state’s insurance laws has occurred, they can and will take action against the licensee involved. Ultimately, these actions may result in the suspension or revocation of the broker or agent’s license to sell insurance in the state.

Obviously, losing your license to sell insurance would have serious consequences on your ability to effectively earn a living. This is why it is so important to take any communication from the CDI regarding an investigation, complaint, or accusation very seriously. As a licensee, you have rights when it comes to defending yourself against the Department – but only if you exercise them correctly.

Investigations, Citations and Accusations

The activities of any given insurance agent or broker are governed by the California Insurance Code, as well as the California Business and Professions Code. Both Codes are vast and complicated. In addition, each Code sets out dozens of insurance license classifications. Each license classification has its own set of regulations regarding professional behavior. This means that at any given time, there are literally hundreds of statutes that may apply to any given agent or broker. A violation of any one of these statutes, brought to the attention of the CDI through consumer complaint or other event, may be enough to trigger an investigation.

If this investigation leads the CDI to believe that a minor violation has occurred, a citation will be issued against the broker or agent in question. In matters involving a citation, the maximum penalties involved include fines and public disclosure of the violation.

If an investigation leads the CDI to believe that a more serious violation has occurred, the matter is referred to the CDI’s Legal Enforcement Office for the issuance of an accusation. The penalties involved in an accusation are more severe and include suspension and revocation of an agent’s or broker’s license.

The Administrative Hearing

Once a citation or accusation is issued by the CDI, notice of the matter is sent to the agent or broker involved. The notice must contain specific allegations of which insurance laws or statutes the CDI believes the agent or broker violated. It must also include a Notice of Defense form.

The Notice of Defense form is used by the agent or broker to put the CDI on notice that he or she intends to formally defend themselves against the allegations being presented.  It is important to note that the Notice of Defense must be filed within 15 days of the date that the CDI mailed the notice of the accusation. A failure to do so will, in the majority of cases, result in an agent or broker being barred from presenting any defense to the Department’s accusation. In such a case, some form of license discipline is a foregone conclusion.

Once an agent or broker files a Notice of Defense, the matter is scheduled for hearing before an administrative law judge employed by the California Office of Administrative Hearings, or OAH. Prior to the hearing, the agent or broker will have an opportunity to examine all of the investigative files that the CDI has generated in the case so far. These files will often allow an agent or broker to get a clearer idea of how the CDI intends to proceed against them at the hearing.

At the hearing, the CDI has the burden of proving that the allegations against the agent or broker are supported by the evidence. A license to sell insurance is considered a professional license. This means that the CDI has to prove its case by clear and convincing evidence. This somewhat difficult burden of proof to meet is made even more difficult by the fact that the case will be heard before an administrative law judge, or ALJ, and not a jury.

The hearing proceeds very much like an informal trial. The agent or broker will have the opportunity to cross-examine all of the witnesses who the CDI calls to testify. The CDI, in turn, will have an opportunity to examine all of the witnesses that the agent or broker calls to testify.

Once both sides have presented their cases, the hearing will adjourn. The ALJ will then has 30 days to issue a proposed decision. It is called a “proposed” decision because the findings of the ALJ are not binding on the CDI. Within 100 days of the issuance of the proposed decision, the CDI can:

  • Adopt the decision in its entirety
  • Adopt a portion of the proposed decision or
  • Reject the decision and substitute a decision and penalty of its own.

Should the agent or broker not agree with the CDI’s decision in the case, they have the opportunity to appeal the matter in state court. It is important to note that the state court will not hear new evidence in the case. They will only examine the record for legal errors.

As you can see, the CDI disciplinary process is complex. To a layperson, the entire process can seem daunting and even impossible. This is why it’s important to have an experienced insurance license defense attorney on your side, fighting to protect your livelihood. Feel free to contact our office today for a free and confidential consultation.

Joe Hougnon, Esq.

Answers to all your questions are only a phone call away. Call Now at (916) 730-5251.