California Ethics and Laws

Boycott, Coercion or Intimidation

Entering into any agreement that would result in an unreasonable restraint of, or monopoly in the business of insurance.

Solicitors

An Insurance Solicitor is employed to aid a property and casualty broker-agent acting as an insurance agent or insurance broker in transacting insurance other than life, disability, or health.

Administrators

An administrator is any person who collects any charges or premium from, or who adjusts or settles claims on, residents of this state in connection with life, health or annuity insurance coverage and must hold a Certificate of Registration as an administrator issued by the Commissioner. An administrator must have a written agreement with an insurer. A copy of the agreement must be kept for 5 years after the agreement has ended.

Penalties

Violators may be subject to imprisonment in the county jail for 1 year, or state prison for 2, 3, or 5 years and/or a fine of up to $50,000 or double the value of the fraud, whichever is greater. If the violator has a prior felony conviction of the same offense, there will be an additional 2-year sentence for each prior conviction.

Insurance Agent

A person authorized, by and on behalf of an insurer, to transact all classes of insurance other than life, disability, or health insurance, on behalf of an admitted insurance company.

Examination of Insurers

The Commissioner conducts examinations on every domestic insurer in this state not less frequently than every 5 years.

Life Licensees are authorized to transact life and health insurance under one of the following:

-A Life-only agent is a person authorized to transact insurance coverage on human lives including endowments and annuities. -An Accident and Health agent is a person authorized to transact coverage for sickness and bodily injury, including disability income.

The association does not provide coverage for the following:

-A contract or policy not guaranteed by the insurer, such as variable contracts -A contract of reinsurance -Any portion of a contract issued with an interest rate that exceeds statutory limitations -Guaranteed investment contracts -Employer contract that is self-funded or uninsured -A contract that provides dividends or fees in connection with the administration of the contract -A contract issued by an insurer without a Certificate of Authority -An annuity contract issued by a charitable organization that is not engaged in the business of insurance -A contract or policy issued by a health care service plan or managed care plan, charitable organization, fraternal benefit society, a state pool plan, or mutual assessment company

Representations

-A representation may be altered or withdrawn before the insurance is effected, but not afterwards. An applicant for insurance may correct a misrepresentation prior to the issuance of a policy. Once a policy is issued, and until a policy becomes incontestable, a material misrepresentation in the application may result in denial of a claim and/or rescission of the contract by the insurer. -A representation is false when the facts fail to correspond with its assertions or stipulations. -If a representation is false in a material point, whether affirmative or promissory, the injured party is entitled to rescind the contract from the time the representation becomes false.

Agent vs. Broker vs. Solicitor

-A solicitor cannot be employed by more than one property and casualty broker/agent at the same time. -An insurance solicitor cannot at the same time act as either an agent or broker. Agents and brokers cannot act as solicitors at the same time. -An insurance agent cannot act as a broker for any insurer by which the agent is actively appointed.

Prelicensing education is a requirement to obtaining an agent or broker license in California. The requirements include:

-Applicants for a life and health agent or a property and casualty broker/agent license must complete 40 hours of approved instruction and 12 hours of Ethics and Code. -Applicants for a life-only agent, accident and health only agent, property-only or casualty only broker/agent each require 20 hours of approved instruction and 12 hours of Ethics and Code. -Applicants for the Personal Lines Broker-Agent License must complete 20 hours of a pre-licensing course and the 12-hour pre-licensing Code and ethics course. -A new California resident who holds a current resident license from another state and completed equivalent pre-licensing in that state will be exempt from the 40 hour requirement but must complete 12 hours of Ethics and Code. -Pre-licensing education requirements shall not apply to a life and health agent who is limited by the terms of a written agreement with the insurer to transact only specific life policies or annuities having an initial face amount of $20,000 or less that are designated by the purchaser for the payment of funeral or burial expense.

A Life and Disability Analyst cannot be employed or paid by the insurer and must:

-Be a resident of the state of California and at least age 23 -Have worked as a life licensee or employee of a licensee for 5 years -Pass a written examination prepared by the Commissioner A person acting as an analyst without a proper license or after such license has been revoked is guilty of a misdemeanor and is subject to a maximum fine of $1,000 and imprisonment of up to 1 year or both. A Life and Disability Analyst may continue to be licensed as a Life-Only and/or Accident and Health Agent, subject to completion of continuing education requirements and payment of license fees.

Insurers are required to ensure that agents offering, marketing, or selling accelerated death benefits are able to describe the difference between benefits provided under an accelerated death benefit and benefits provided by long-term care insurance. Agents must be able to make the following distinctions between the two benefits:

-Benefit eligibility criteria -Whether an elimination period applies and a description of the elimination period -How benefits paid out if not needed -How benefits are paid if needed -Restrictions on benefit amounts -Tax treatment on benefits and premiums -Income and death benefit consideration

The Commissioner's regulations cover all aspects of the business of insurance. Among others, the Regulations include topics such as:

-Criteria the Commissioner may use to deny an application for an insurance license -Fictitious business name approval for insurance producers -Bail transactions -Insurance for motor vehicles as required by the Vehicle Code -Surplus lines of insurance -The sale of insurance products in connection with loans or the sale of real or personal property -Premium financing and the compensation a person may derive from it -Recordkeeping by Agents, Agencies, and Insurers

The Paid-in Capital requirements are as follows:

-For foreign mutual insurers without outstanding capital stock, the value of its assets that is in excess of all expenses, taxes, indebtedness and reinsurance as provided by law. The paid-in capital of available cash assets must amount to at least $200,000. -For domestic insurers, the value of its assets that are in excess of the sum of its liabilities for losses reported, expenses, taxes, and all other indebtedness or the aggregate par value of its issued shares of stock, including treasury shares, whichever is lower.

Insurers, employees or agents are not subject to civil liability for libel, slander, or any other tort by virtue of providing any of the following without malice:

-Information or reports relating to the suspected fraudulent insurance transaction furnished to law enforcement officials or other persons subject to the California Insurance Code -Information or reports required by the Commissioner

Knowingly committing any of the following acts is a violation of the Unfair Claim Settlement Practices:

-Misrepresenting to claimants pertinent facts or provisions in the insurance policy -Failing to acknowledge and act promptly on claims -Failing to adopt and implement reasonable standards for the prompt investigation of claims -Failing to acknowledge claim coverage within a reasonable period of time after proof of loss requirements have been met by the insured -Failing to attempt to promptly and fairly settle claims in which liability is clear -Offering an insured substantially less than what a lawsuit would award -Attempting to settle a claim for less than the amount to which the claimant believed he/she was entitled by reference to written or printed advertising material -Attempting to settle a claim based on an application that was altered by the agent -Failing to inform the insured or beneficiary, upon request, of the coverage under which payment has been made -Failing to settle claims promptly under one portion of the policy in order to influence settlements under other portions of the policy -Failing to provide a reasonable explanation for the denial of a claim -Directly advising a claimant not to obtain the services of an attorney -Misleading a claimant as to the applicable statute of limitations -Canceling or refusing to renew a policy based on religious affiliation

The Department of Insurance and the Insurance Commissioner are a primary source of consumer protection activities in California, and the general purpose of the Code is defined by the four broad "powers" conferred on the Commissioner and the Department of Insurance:

-Prevent insurer insolvency and prevent fraud in the conduct of the insurance business or by individuals. -Insure that policies are reasonably priced and widely available in most lines of insurance. -Establish procedures that guide the operation of insurance companies, and the activities of agents, brokers, and other licensees. -Provide the authority needed by the Insurance -Commissioner to oversee insurance agents and companies.

Some risks can be placed only with non-admitted insurers. Such risks include:

-Shipowner interest, international maritime transportation -Marine builder's risks, dry docks -Aircraft or spacecraft insurance -Property or operations of railroads engaged in interstate commerce

Covered Persons The association provides coverage to persons who own policies and are residents of California. Nonresidents are covered under the following conditions:

-The issuing insurer is domiciled in this state -The insurer never held a Certificate of Authority in the state the covered person resides -The state in which the person covered resides has an association similar to that of California -The person is not eligible for coverage by the association in the state of residence

The Commissioner may file an application with the superior court, and the court may issue an order for the Commissioner to become Conservator of either a financially impaired or insolvent insurer, and be vested with its assets, books, records, property and conduct business, if any of the following conditions exist:

-The person or entity has refused to submit books, papers, accounts, or affairs. -The person has neglected or refused to observe an order of the Commissioner to make good any deficiency in its capital or reserve. -The person is found, after an examination, to be in a hazardous financial condition. -That any officer or attorney in fact has embezzled, sequestered, or wrongfully diverted any of the assets of the person. -That a domestic insurer does not comply with the requirements for a Certificate of Authority, or its Certificate of Authority has been revoked.

The Insurance Code also requires all producers who meet with prospective clients age 65 and older in their homes for the purpose of transacting life insurance, annuities, or disability insurance products to first provide a written notice of the first meeting at least 24 hours in advance. The notice provides information concerning:

-The products that will be discussed -Who will be attending the meeting, and the insurance license numbers of those persons -Alerts the consumer to the fact that they may have any other persons (family members or advisers) of their choosing at the meeting, and that they have the right to terminate the meeting at any time The notice may be delivered in person, by mail, fax, or email. Producers must retain a copy of such notices in their files for a minimum of 5 years. Established clients may be given the notice at the time of an appointment.

Life and Disability Analyst

A Life and Disability Insurance Analyst is a person who, for a fee, advises an insured, beneficiary or person who: -Has any interest in a life or disability insurance contract or has questions regarding the rights in his/her contract -Reviews clients' incomes, insurance and investments -Makes recommendations

Broker

A broker is someone who for compensation transacts insurance on behalf of another person, but not an insurer. There are no brokers for life or health insurance in California. All life licensees are agents when transacting life or disability insurance, regardless of the language the insurance company may use in its agency agreements, advertising, or other communication.

Twisting

A form of misrepresentation involving replacement of existing insurance which induces a person to lapse, forfeit, or surrender an existing policy, based on an unfair comparison of features or concealment of material disadvantages of a proposed policy.

California Annuity Suitability Education Requirements

A life-only agent who sells annuity products to individual consumers must complete an initial 8-hour training course prior to soliciting for sales. Agents must complete 4 hours of subsequent training every 2 years prior to license renewal.

Natural Person

A living human being (as opposed to a business entity).

Claimant

Any person who asserts a right of recovery under a surety bond or insurance policy.

Certificate of Authority

A person cannot transact any class of insurance business in this state without first being admitted or authorized by securing a Certificate of Authority from the Commissioner. The certificate will be issued once the applicant meets the necessary qualifications. The penalty for unlawfully acting as an insurer without a Certificate of Authority is imprisonment (state or county jail) not to exceed 1 year, and/or a fine not to exceed $100,000.

Nonresident Agent

A person who does not reside in California but is licensed to represent an admitted insurer in this state.

Resident Agent

A person who resides in California and is licensed to represent an admitted insurer in this state.

Genetic Characteristics and Disability Traits

Admitted insurers issuing disability insurance for hospital, medical, or surgical expenses cannot refuse to accept an application, refuse to issue, cancel, renew, charge a higher rate or premium, or place a limitation on insurance on the basis of a person's genetic characteristics. This includes any scientifically or medically identifiable gene or chromosome that is known to cause a disease or disorder that is presently not associated with any symptoms of any disease or disorder. There can be no discrimination in the fees or commissions of agents or brokers writing or renewing disability insurance on the basis of a person's genetic characteristics.

Deceptive Advertising

Advertising insurance that an insurer will not sell. An intentional violation is considered a misdemeanor punishable by a fine of up to $10,000. This does not prohibit an insurer from advertising insurance products it is licensed to sell in this state where the product is not available as long as the unavailability is disclosed. This does not apply to advertisements by an insurer where the advertisements are broadcast and originate from outside this state. This also does not apply to any insurer that refuses to sell a policy of insurance on the basis of its underwriting guidelines.

Regulation of Admitted and Non-admitted Insurers

An admitted insurer is one that has complied with the laws of this state to become authorized to transact insurance and has been issued a Certificate of Authority from the State. Admitted insurers are also known as "standard" insurers because they sell policies for the standard market, which covers average or better than average risks. When risks are too high for the standard market, they may be covered by other types of policies, such as surplus lines or assigned risk. A non-admitted insurer is not authorized to transact insurance in this state and has not been issued a Certificate of Authority. Excess and Surplus lines insurance for risks that are too high for the standard market can be placed through a non-admitted insurer, which is in the state's list of "approved nonadmitted insurers".

Continuing Education Requirements

An individual licensed as a life-only or accident and health agent and also licensed as a property or casualty broker-agent, or an individual licensed as a property or casualty broker/agent must complete a minimum of 24 hours of instruction (including 3 hours of Ethics) prior to renewal of the license every 2 years. The courses, programs of instruction, or seminars must be approved by the Commissioner for the types of licenses held. Agents who complete more than the minimum required hours will have excess hours rolled over to the next license term.

Blindness

An individual or group life, annuity, or disability insurer may not refuse to insure, continue to insure, limit coverage or charge a different rate for the same coverage based on blindness or partial blindness.

Physical or Mental Impairment

An individual or group life, annuity, or disability insurer may not refuse to insure, or refuse to continue to insure, or limit the amount, extent, or kind of coverage available to an individual, or charge a different rate for the same coverage solely because of a physical or mental impairment, except where the refusal, limitation or rate differential is based on sound actuarial principles or is related to actual and reasonably anticipated experience. "Physical or mental impairment" is any physical, sensory, or mental impairment which substantially limits one or more of that person's major life activities.

Insurance Claims Analysis Bureau

An insurance claims analysis bureau performs the following functions: -Collects and compiles information and data from members or subscribers concerning insurance claims. -Disseminates information to members or subscribers relating to insurance claims for the purpose of preventing and suppressing insurance fraud. -Promotes training and education to further insurer investigation, suppression, and prosecution of insurance fraud. -Provides to the Commissioner all California data and information contained in the records of the insurance claims analysis bureau to further the prevention and prosecution of insurance fraud.

Sexual Orientation and Underwriting

An insurer cannot consider sexual orientation in its underwriting criteria or use marital status, living arrangements, occupation, sex, beneficiary designation or Zip Code to determine whether to require a test for the presence of HIV.

Proof of Claim

Any evidence or documentation the insurer has obtained providing any evidence of the claim and reasonably supports the magnitude or the amount of the claimed loss.

Penalties

Any insurer who knowingly violates these practices will be assessed a civil penalty in the amount of $1,000-$5,000, plus any court costs.

Mailing as Proof of Notice

Any notice required to be given to an insured may be mailed, postage paid, and addressed to the policyowner, insured, claimant, or beneficiary to be notified at his/her last known address of record. The written notice may also be provided by electronic transmission if each party has agreed. The affidavit of the person who mails or transmits electronically the notice, stating the facts, is sufficient (prima facie) evidence that the notice was mailed. The policyowner is responsible for notifying the insurer of address changes including any change of email address.

Transacting Without a License

Any person who acts, offers to act, or assumes to act in a capacity for which a license is required without holding a license is guilty of a misdemeanor, punishable by a fine of up to $50,000 and/or 1 year in jail. A person cannot transact business in any class of insurance without first being admitted as an agent for that class.

Shall/May

As used in this Code the word "shall" is mandatory and the word "may" is permissive, unless otherwise apparent from the context.

Appointments

Before a licensed agent may transact insurance, the agent must first be appointed by an admitted insurer or a licensed agency which has a marketing agreement with one or more insurers. The insurer or authorized representative must file a Notice of Appointment with the Commissioner. The appointment becomes effective the date the notice is signed. A property or casualty broker or agent may file a Notice of Appointment on behalf of a solicitor.

Potential Consumer Consequences

Consumers should be aware of the following potential consequences of being issued a policy by a non-admitted insurer: -Non-admitted insurers are not subject to the financial solvency regulation and enforcement that applies to California licensed insurers. -Non-admitted insurers do not participate in any of the insurance guaranty funds created by California law, and therefore, these funds will not pay the insured's claims, or protect the insured's assets if the insurer becomes insolvent and is unable to make payments as promised.

Covered Claims

Covered claims include the obligations of an insolvent insurer and are the benefits the association may become liable. The life and annuity payments from the association cannot exceed the lesser of: -80% of the contractual obligations for which the insurer is liable -$300,000 in life insurance benefits per life and not more than $100,000 in net cash surrender or withdrawal values -$250,000 in present value of an annuity per life including surrender or withdrawal values

Code and Ethics

Ethics is a code of conduct based upon an accepted standard of right and wrong. It specifies and explains what is and is not acceptable in regards to behaviors or practices. The California Insurance Code and the California Code of Regulations identify many illegal and unethical practices. However, these are NOT a complete guide to ethical behavior for all situations. Insurance agents have a responsibility to be aware of the insurance laws and requirements designed to protect consumers.

Autism

Every health insurance policy must provide coverage for behavioral health treatment for pervasive developmental disorder or autism. An insurer may not utilize any information regarding whether a beneficiary's psychiatric inpatient admission was made on a voluntary or involuntary basis for the purpose of determining eligibility for claim reimbursement.

Automobile Losses

Every insurer must report covered automobiles involved in theft and salvage total losses, including the vehicle identification number and any other information as may be required, to the National Automobile Theft Bureau or a similar central organization engaged in automobile loss prevention. Prior to the payment of total theft losses, insurers must comply with verification procedures in accordance with regulations adopted by the Commissioner.

File and Record Documentation

Every licensee's claim files are subject to examination by the Commissioner at all times. Claims files are required to contain all documents, notes and work papers, including copies of all correspondence, which reasonably pertain to each claim in such detail that pertinent events and the dates of the events can be reconstructed, and the licensee's actions pertaining to the claim can be determined. Insurers are required to maintain claim data so that it is accessible, legible, and retrievable for examination, and must be able to provide the claim number, line of coverage, date of loss, date of acceptance, date of payment, date of denial or closing without payment. This data must be available for all open and closed files for the current year, and the 4 preceding years. Licensees must also record the date the licensee received, transmitted, or mailed every material and relevant document in the file, or otherwise processed anything relevant to a claim.

False Financial Statements

Filing with any supervisory or other public official any false statement of financial condition of an insurer with intent to deceive.

Fraudulent Acts

Fraudulent acts include filing a false claim for loss or injury, filing the same claim for loss or injury with multiple insurers with the intent to defraud, and knowingly participating in an auto collision or other vehicular accident with the intent to present a false or fraudulent claim. The type of insurance fraud which is most prevalent in California concerns Workers' Compensation. Workers' Compensation fraud can arise from both the claims of employees and the acts of employers. Employees who misrepresent their injuries, their ability to work or perform activities of daily living, or recovery status commit fraud. Employers who misreport payroll, pay employees in unreported cash for their regular or overtime wages, privately pay for or discourage workers from seeking treatment following a legitimate injury, or deny employees treatment by threatening to terminate their employment also commit Workers' Compensation fraud.

Summary Seizure

If it appears to the Commissioner that irreparable loss and injury to the property and business of any person engaged in the insurance business has occurred or is about to occur unless acting immediately, the Commissioner will, without notice and before applying for a court order, take possession of the property, business, books, records and accounts and retain possession subject to the issuance of the court order. It is a misdemeanor to refuse to deliver books, records, or assets to the Commissioner after a seizure order has been issued in an insolvency proceeding. This is punishable by a fine of up to $1,000 and/or imprisonment for up to 1 year.

Liquidation

If it is not prudent to proceed as a conservator, the Commissioner may apply to the court and after a full hearing the court may order the winding up and liquidation of the insolvent insurer with the Commissioner as liquidator.

Penalties: if the charges are justified

If the charges are justified, a civil penalty not to exceed $5,000 for each act will be assessed. If the violation is willful, the maximum penalty is $10,000 for each act. A cease and desist order will be placed requiring the individual to refrain from engaging in the prohibited acts. Violation of a cease and desist order imposes a penalty of up to $5,000 per violation or a maximum penalty of $55,000 if the violation is willful. Subsequent violations will lead to suspension or revocation of a license.

Agent

In an insurance transaction, an agent represents the insurance company.

Duties Upon Receipt of Communication

Insurers (and other licensees) must respond in writing to an insured's or claimant's notice of loss within 15 days of receiving that notice orally or in writing. Agents who receive the first notice of a loss from an insured or claimant must immediately forward that information to the insurer. Upon receiving notice of claim, every insurer must immediately acknowledge the receipt of notice, provide necessary forms to the claimant and begin any necessary investigation. As long as a claim remains in process, and until it has been resolved by denying or affirming the claim, the insurer must communicate with the claimant no less often than every 30 days.

Misrepresentation

Making, issuing, or circulating any estimate, illustration, circular, or statement misrepresenting the terms of any policy issued; using any name or title misrepresenting the true nature of any policy or class of policies; misrepresenting the financial condition of any insurer; or making any misrepresentation to a policyholder insured by any company for the purpose of inducing the policyholder to lapse, forfeit, or surrender a policy.

Disclosure of Genetic Test Results

It is a violation to negligently disclose results without written authorization of a test for a genetic characteristic to any third party that provides identifying characteristics of the person to whom the test results apply. Such negligent disclosure results in a civil penalty up to $1,000 with a maximum $5,000 for willful disclosure. Negligent willful disclosure that results in economic, bodily, or emotional harm is a misdemeanor punishable by a $10,000 fine.

Standards for Prompt, Fair, and Equitable Settlements

It is an unfair practice for any insurer to discriminate in the investigation or settlement of a claim on the basis of a person's age, race, gender, income, religion, language, sexual orientation, ancestry, national origin, physical disability, or upon the territory of the property or person. Unless the insurer requires additional information to determine liability for a loss, the insurer is generally expected to either affirm or deny a claim within 40 days of notice of the loss. This time limit does not apply to disability income or health insurance. When a claim cannot be resolved within 40 days, the claimant must be notified of this fact and, as discussed previously, the insurer must continue to communicate the status of the claim no less often than every 30 days. When the insurer approves the claim, in whole or in part, and when necessary, upon receipt of a properly executed release, the insurer is required to make payment to the claimant or an assignee, or take action to perform its claim obligation within 30 days. Disability income insurance claims payments must be made at least once every 30 days until the insurer's obligation to pay claims has ended.

False Entries

Making any false entry in any book, report, or statement of any insurer with intent to deceive any public official to whom the insurer is required by law to report, or who has authority by law to examine its condition or into any of its affairs, or omitting to make a true entry of any material fact pertaining to the business of the insurer in any book, report, or statement of the insurer.

Defamation

Making or disseminating before the public in any newspaper, publication, or advertising device, any statement containing any assertion, representation, or statement with respect to the business of insurance, or with respect to any person in the conduct of insurance business, which is untrue, deceptive, or misleading.

Advertising of California Insurance Guarantee Association

Making or disseminating in any publication or other advertising device a statement that a named insured or specified insurers are members of the California Insurance Guarantee Association and are insured against insolvency. All admitted insurers are required to be covered under the association, therefore, advertising membership is not permitted.

Unfair Discrimination

Making or permitting any unfair discrimination between individuals of the same class and equal expectation of life in the rates charged for any contract of life insurance or life annuity, in the dividends or other benefits payable, or in any other of the terms and conditions of the contract.

Notice of Legal Action

Notice of an action begun against the insurer with respect to a claim, or against the insured by the insurer, or against the principal under a bond, and includes any proceeding arbitration.

Concealment

Neglecting to communicate information that a party knows and ought to communicate, whether intentional or not.

California Long-term Care Education Requirements

Newly licensed agents who intend to market Long-Term Care insurance must complete an 8-hour course in Long-Term Care insurance in each of their first 4 years of licensing (two terms). After 4 years of licensing, the 8-hour LTCI course must only be completed once each license term prior to license renewal. Agents who intend to market California Partnership LTC policies must complete an additional 8-hour course in Partnership LTC each license term (the first course must be completed before marketing any Partnership policies). Long-term care training is also required when an agent is transacting accelerated death benefits or riders that require services to the chronically ill insured, such as a long-term care rider.

Failure or Refusal to Accept an Application

No admitted insurer can fail to accept an application or cancel insurance under conditions less favorable to the insured, except for reasons that apply to all persons of the same marital status, gender, race, color, religion, national origin or sexual orientation.

Domestic Violence

No admitted insurer licensed to issue life insurance may refuse to accept an application for insurance, refuse to issue or renew a policy, cancel a policy, or deny coverage under a policy because the applicant for insurance or any person who is or would be insured is, or has been, a victim of domestic violence.

Alteration of Disability Application

No alteration of a written application for a disability policy can be made by any person other than the applicant without written consent. Any alteration made without consent by an officer or employee of the insurer is considered an act by the insurer and is a misdemeanor.

Identification of Applicant's Race or Birthplace

No application for insurance used in determining the insurability of the applicant can require the applicant's race, color, national origin, ancestry or sexual orientation. The applicant's birthplace can be used only for purposes of identifying the applicant and not to discriminate against the applicant.

Free Insurance

No insurer or agent may participate in any plan to offer or effect any kind of insurance or annuities in this state as an inducement to the purchase or rental by the public of any property, real or personal or mixed, or services, without any separate charge to the insured for such insurance, nor can any agent, broker, or solicitor arrange the sale of any such insurance. The Commissioner may suspend or revoke a license or certificate of authority of anyone willfully violating this provision not to exceed 1 year.

Insurance in Connection with Sales or Loans

No person engaged in the business of financing the purchase of real or personal property may require the purchaser of that property to obtain insurance for that property through a particular agent or broker. A lender cannot refuse to accept insurance provided by an acceptable insurer on the grounds that the insurance provides more coverage than is required. No person making a loan on the security of real property is allowed to use information contained in a fire or casualty policy for the purpose of soliciting such coverage if the borrower has filed a signed statement with the lender that such information may not be used. The Commissioner, after a hearing, may issue a Cease and Desist Order to any person who has, in more than one transaction, violated this section. The violation of the Cease and Desist Order is a misdemeanor.

Application

Once an application for license is filed, the Commissioner may make an investigation and require the filing of supplementary documents necessary to determine whether the prerequisites for licensing have been met. The application for a license may not be submitted prior to successfully passing the required exam(s), and is only submitted electronically through the Department of Insurance website.

Cease and Desist Orders

Persons who transact insurance without being appropriately licensed may be issued a cease and desist order, carrying administrative penalties of up to $5,000 per day for each day a violation occurred, as well as a fine of up to 5 times the amount of money received by the unlicensed person for acting in a capacity which requires a license. The Commissioner also has authority to issue cease and desist orders relative to unfair acts and practices enumerated in the Code. Committing any act considered an unfair method of competition or an unfair act or practice recognized by the Code may result in an administrative fine of $5,000 for each such act, up to $10,000 per act when determined to be a "willful" violation or committed with such frequency that it may be considered a "general business practice" of the person. If a person is issued a cease and desist order, failure to cease the prohibited act may result in a $5,000 fine, or up to $55,000 for willful violation.

Pretext Interviews

Pretext interviews are prohibited in the transaction of all forms of insurance (but not in the investigation of a claim). A pretext interview involves an attempt to obtain personal, non-public information through deception, leading the person to believe the "interviewer" is someone other than a licensed agent or insurance company representative acting in an authorized capacity.

Rehabilitation and Liquidation

Regardless of the regulations and controls, a few insurers find themselves in financial difficulty. When this happens, the Commissioner will step in and attempt to help the insurer become solvent again.

Rescission

Rescission is the termination of a contract from the beginning as if it had never existed. An insurer is entitled by law to rescind a policy in the case of: -Intentional or unintentional concealment of information material to the risk being insured -An intentional and fraudulent omission of matters proving the falsity of a warranty -Material misrepresentation -Violation of a warranty

Rebating

Returning a portion of the agent's commission or anything of value to an insured as an inducement to buy insurance. It is illegal for life and health insurance agents to rebate.

Arson Reporting Database

The Arson Information Reporting System permits insurers, law enforcement agencies, fire investigative agencies, and district attorneys to deposit arson case information in a common database within the Department of Justice. The purpose of the database is to identify patterns by claimants engaged in arson and to prevent insurance fraud by arson.

Recordkeeping and Examination of Records by the Commissioner

The Commissioner has authority to conduct examinations of an agent or insurer's books and records at any time. Upon receiving a request for records, insurers and/or agents must deliver the records to the Commissioner within 30 days. If the requested files cannot be immediately furnished, on request the agent will be given an additional 60 days to provide the information. Failure to maintain the required files may result in administrative sanctions including fines and suspension or revocation of a person's license. Most administrative sanctions can only be issued following a public hearing into the conduct of the agent. A notice of hearing must be provided to the agent not less than 45 days in advance of the scheduled hearing, and must be accompanied by a pleading that informs the agent of the violations alleged, as well as the possible sanctions that may be applied. There are also civil penalties enumerated for persons who furnish false information to the Commissioner not to exceed $100,000 per violation, as well as a $5,000 penalty for every 30-day period during which the person fails to comply with a request, or up to $10,000 if the person willfully refuses to deliver requested information, up to a maximum of $100,000.

Penalties

The Commissioner has the power to investigate the affairs of any person engaged in the business of insurance to determine whether such person has been or is engaged in any unfair method of competition or unfair or deceptive act or prohibited practice. If it is believed the person has violated a trade practice, the Commissioner will issue a statement of charges, a statement of potential liability for civil penalties, a show cause order as to why a cease and desist should not be issued, and a 30-day notice of a hearing.

Commissioner's regulations

The Commissioner's regulations are first proposed and published in draft form, then undergo a series of public hearings, and following final adoption, are reviewed by the Office of Administrative Law (OAL). After passing review by the OAL, the regulations are passed on to the Secretary of State, who is responsible for maintaining the CCRs. The Commissioner has authority to enact Emergency Regulations without having to follow the normal public hearing process, subject to OAL review and judicial appeal by any person directly impacted by such emergency regulations after they have become effective.

Fraudulent Claims

The Fraudulent Claims section of the Code enables the Commissioner and Department of Insurance to more effectively investigate and discover insurance fraud and to halt fraudulent activities. Insurance fraud is particularly problematic in automobile, workers' compensation and health insurance. Any insurer who provides a form to file a claim against it must include the following statement on the form: "For your protection, California law requires the following to appear on this form: Any person who knowingly presents a false or fraudulent claim for the payment of a loss is guilty of a crime and may be subject to fines and confinement in state prison." If an insured signs a false claim form, the insured may be guilty of perjury.

Insurance Code Cont.

The Insurance Code does not always define how the laws are enforced. The Commissioner enforces the Code by writing and adopting Regulations that specify the manner of enforcement or provide details on how the code is to be administered. The various Regulations enacted by the Commissioner are found in the California Code of Regulations (CCRs).

The California Insurance Code

The Insurance Code is the set of statutes enacted by the state legislature which regulate the business of insurance in California. The Commissioner does not have the authority to change the Insurance Code; only the state legislature has the authority to write or amend the Insurance Code.

Statutory Definitions

The Insurance Code provides specific definitions for various persons, organizations, and the activities they conduct.

Fraud Protection

The Insurance Department's Fraud Division enforces the provisions prohibiting fraudulent claims. Every admitted insurer must maintain a Special Investigations Unit for the purpose of detecting and investigating fraudulent claims. Insurers are required to notify the local district attorney's office and Fraud Division within 60 days if they have knowledge of actual or suspected fraud.

Covered Contracts

The association provides coverage for: -Individual direct nongroup life, health, annuity, and supplemental policies or contracts -Group direct life, health, annuity, and supplemental policies or contracts

Aiding a Non-Admitted Insurer to Transact

The following are considered misdemeanors with regard to a non-admitted insurer, except when performed by a surplus lines broker: -Transacting insurance business in the state as an agent for a non-admitted insurer -Advertising as a non-admitted insurer in this state -Assisting a non-admitted insurer to transact business in this state

Exemption from Insurance Licensing Requirements

The following are exempt from insurance licensing requirements: -Full-time salaried employees of a title insurer -Salaried solicitors or agents of a mortgage insurer who receives no commission -An officer of an insurer

health insurance payments

The health insurance payments from the association cannot exceed the lesser of the contractual obligations for which the insurer is liable or $200,000 in health care benefits. Coverage includes long-term care and other disability and disability income insurance, and accidental death and dismemberment policies.

Insurer Insolvency

The law requires insurers to be sufficiently capitalized and all insurers transacting in California must file quarterly annual reports and the annual NAIC financial report not later than March 1 of the following calendar year. Insolvency means any impairment of minimum "paid-in capital" or "capital paid-in" required of an insurer for the classes of insurance, which it transacts. This means that there is an inability for a company to meet its financial obligations when they are due. An insurer cannot escape the condition of insolvency just by being able to provide for its liabilities and reinsure outstanding risks. An insurer must not only provide for all its liabilities, but must also possess minimum paid-in capital requirements.

Insurer/Insured

The person who undertakes to indemnify another by insurance is the insurer, and the person indemnified is the insured. -Any person capable of making a contract may be an insurer, subject to the restrictions imposed by this Code. -Any person, except a public enemy, may be insured.

California Life and Health Guarantee Association

The purpose of the association is to protect covered persons against failure in the performance of contractual obligations under life, health and annuity contracts due to the impairment or insolvency of the member insurer that issued the policies or contracts. To provide this protection, an association was created to pay benefits and continue coverage. Member insurers are subject to assessments to provide funds to carry out the purpose of the association. All insurers, including reciprocal insurers, admitted to transact insurance in this state are considered member insurers and must participate in the Association. Non-admitted insurers are not covered under the association. The California Life and Health Guarantee Association is a nonprofit organization and maintains three separate accounts: life, annuity, and health.

Note

There is no such license as "Life Solicitor or Health Solicitor" Only life licensees may transact life and disability insurance, according to their individual licensing.

Life Settlement Broker

Under California law, a Life Settlement Broker is exclusively the representative of the policyowner who seeks to sell his interest in the policy. The Life Settlement Broker must be a licensed Life-Only agent for more than 1 year or have completed a 15-hour course in life settlements. A Life Settlement Broker must file an application and post a $10,000 surety bond. As a fiduciary, the Broker must disclose all purchase offers received to the policyowner.

Examination

Upon completing the required prelicensing education requirements, the applicant must pass a state licensing exam. The license exam must be passed within 12 months of the date of completion of the applicable prelicensing course.

Receipt of Inquiry

Upon receiving any written or oral inquiry from the Department of Insurance concerning a claim, every licensee must respond to the Commissioner immediately within 21 calendar days of the receipt of the inquiry, furnishing a complete written response based on the facts as then known to the licensee. If additional time is required to provide the information requested, the initial response must indicate how much additional time is required.