The Pennsylvania Insurance Department has ruled that an insurance company’s reduction of an agent’s commission to 0% equals a termination.

The ruling was “a vital win” for independent agents in the state, according to an agents’ association that helped Evans N. Fishel, principal of H.N. Fishel & Associates of Red Lion, Pa., with the case.

The ruling means the insurer, ECM Insurance Group, a commercial lines and farming insurance company based in Everett, Pa., must restore the commission rate for Fishel’s agency to the level it was prior to May, when it was decreased to 0%.

The ruling that ECM’s action against Fishel amounted to a termination means that ECM must comply with the requirements of Pennsylvania Act 143 if it wants to terminate Fishel. The law mandates that an insurance company make “a reasonable attempt to rehabilitate an agency if the agency agreement is terminated for adverse experience, mix of business or lack of premium volume,” according to the PID ruling.

ECM can appeal the ruling to Pennsylvania Commonwealth Court.

Officials at ECM declined comment on the case or a possible appeal.

ECM told Fishel his commission would be cut to 0% because he did not meet its goals for “profitability and production,” according to the ruling, signed by James A. Johnson of the insurance department. ECM, which operates in five states, including Pennsylvania, Maryland and Virginia, told Fishel in 2007 that his commission would be cut by 50% for the same reason.

The Fishel agency’s premium volume was $62,522 and its five-year loss ratio was 13.4%, according to a January 2009 letter from ECM. The numbers put Fishel on ECM’s second lowest tier for commissions, records show.

“Unfortunately, we feel we have not been able to achieve our goal and, as a result, our expenses with your business are higher,” the letter said. “Therefore, beginning May 1, 2009, we will reduce your commission to 0%.”

ECM argued that it was not terminating Fishel because it continued to provide him with a software interface, agent training, licensing fees, marketing efforts and the company’s support staff, records show.

“To the extent that those items may facilitate sales by ECM’s agents, such ‘benefit’ is meaningless if the agent receives no commission for the sale,” Johnson said in the ruling.

Fishel told IFAwebnews.com that about 70% of his business is personal lines, and when ECM exited personal lines several years ago, the number of policies he wrote with ECM dropped. “We’re primarily a personal lines company,” he said, adding that about 30% of his business is commercial lines now. The company writes most of its business in southcentral Pennsylvania.

Fishel said he was “very pleased” with the ruling.

“This ruling is a vital win for the independent agent community,” said Norm Basso in a statement. He is chairman of the Insurance Agents & Brokers of Pennsylvania, which intervened on Fishel’s behalf in the case. “This case was necessary to defend the law, the rights of agents and the dignity of the agency-company relationship. I’m pleased that the department recognized this need.”

Jason Ernest, the IA&B lawyer who handled Fishel’s case, said the ruling provides agents who may be struggling with the clarity they need in dealing with the insurance companies with which they are appointed.

“Agents working on a [commission] schedule really can have the rug pulled out from under them,” Ernest told IFAwebnews.com. “The agent has to know what he has to do. He can’t correct things if he doesn’t know what’s at issue.”