AD Banker Ch.15 - Ethics and Law
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.
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.
Nonresident Agent
A person who does not reside in California but 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 and carries a gene that may be associated with a disability in that person's offspring, but which causes no adverse effects on the carrier. An insurer cannot insert a stipulation in a life or disability policy that the person who carries a gene that causes no adverse effects on the carrier to accept less than the full value of the policy. 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.
Financial Rating Services
Agents are responsible for placing business with insurers that are financially sound. Several independent financial rating services provide ratings available to the public. Five of the most popular services are A.M. Best, Standard's and Poor's, Moody Investment Services, Duff and Phelps Credit Rating, and the Weiss Insurance Ratings. Each service assigns rating Codes to show strengths and weaknesses of each company rated.
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. Life-Only and Accident and Health Agents may only receive credit for CE courses in the Life and Health category. Agents who are also licensed for Property or Casualty insurance may take any combination of courses in Life, Health, or Property and Casualty that total 24 hours or more (including any required courses).
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 at his/her last known address of record. The affidavit of the person who mails 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.
Claimant
Any person who asserts a right of recovery under a surety bond or insurance policy.
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
Annual Statement
Every insurer authorized to transact business in this state must file a financial report with the Commissioner annually.
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.
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.
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.
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 with the Commissioner as liquidator.
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.
It is unlawful to do any of the following:
Make a false or fraudulent material statement or representation for the purpose of obtaining or denying any compensation Present a false or fraudulent material statement (written or oral) in support of, or in opposition to, a claim for compensation for the purpose of obtaining or denying any compensation Knowingly assist, abet, conspire with, or solicit a person in an unlawful act of fraud Make a false or fraudulent statement with regard to entitlement to benefits with the intent to discourage an injured worker from claiming benefits or pursuing a claim Make a false or fraudulent material statement or representation for the purpose of obtaining or denying any benefits or reimbursement provided in the Return-to-Work Program
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.
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.
Examination of Insurers
The Commissioner conducts examinations on every domestic insurer in this state not less frequently than every 5 years.
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
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 $150,000 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.
Shall/May
As used in this Code the word "shall" is mandatory and the word "may" is permissive, unless otherwise apparent from the context.
Examination
Upon completing the required prelicensing education requirements, the applicant must pass a state licensing exam.
Property Licensee and Casualty Licensee
A person authorized to act as an insurance agent, broker, or solicitor. A property/casualty broker-agent is authorized to transact insurance coverage.
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.
Resident Agent
A person who resides in California and is licensed to represent an admitted insurer in this state.
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.
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.
Boycott, Coercion or Intimidation
Entering into any agreement that would result in an unreasonable restraint of, or monopoly in the business of insurance.
Covered claims include the obligations of an insolvent insurer, including the obligation for unearned premiums that satisfy all the following requirements:
Imposed by law and within the coverage of an insurance policy of an insolvent insurer Claims unpaid by an insolvent insurer Claim for which the claimant or insured is a resident of this state at the time of the insured occurrence or the property from which the claim arises is permanently located in this state Claim for which the assets of the insolvent insurer are insufficient to discharge in full
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.
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.
The California Insurance Code
The Insurance Code is the set of statutes enacted by the state legislature that 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.
Insurer Insolvency
The law requires insurers to be sufficiently capitalized. 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.
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.
Exemption
A licensee will not be required to comply with the CE requirements if the licensee submits proof satisfactory to the Commissioner that the licensee has been in good standing for 30 continuous years in California and is 70 years of age or older. In addition to the continuing education requirements, a licensee may also need to complete specified product training requirements.
Natural Person
A living human being (as opposed to a business entity).
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.
The Insurance Department's Fraud Division
enforces the provisions prohibiting fraudulent claims. Every admitted insurer must maintain a Fraud Unit for the purpose of detecting and investigating fraudulent claims. Insurers are required to notify the Fraud Division within 60 days of uncovering an incident of actual or suspected fraud.
Representations
A representation may be altered or withdrawn before the insurance is effected, but not afterwards. An applicant for insurance must 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.
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.
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
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.
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. 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.
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.
Person
Any person (individual or natural person), association, organization, partnership, business trust, limited liability company, or corporation.
The Insurance Services Office (ISO) develops the standard insurance forms used in California. This organization serves insurers by providing research and documented information on which insurers may base its coverages. Among the services it provides are:
Data to help insurers make independent decisions about pricing Statistical and actuarial services Insurance policy language Information about specific properties and communities Claims data and other information for underwriting Tools for identifying and preventing insurance fraud Criminal records and other public information Tools to help insurers identify and correct rating errors
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. 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 which 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. For the purpose of computing paid-in capital or capital paid-in, shares of stock are not taken as liabilities.
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
It is unfair for an insurer to discriminate on risks located in this state (except Automobile and Workers' Compensation insurance) concerning the following:
Loss of or damage to real property used mainly for residential purposes Loss for damage to personal property in which a person has an insurable interest Legal liability of a person for loss of or injury to a person or property
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.
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.
Concealment
Neglecting to communicate information that a party knows and ought to communicate, whether intentional or not.
California Long-term Care Continuing Education
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).
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.
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 that 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.
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
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 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.
Property and Casualty
Workers' Compensation claims are payable in full and without limitations. All other claims are payable up to the limits allowed under the Code (claims other than Workers' Compensation payable by the CIGA are generally limited to the policy's limit of liability or $500,000, whichever is less).
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. While investigating suspected fraud claims, insurers and agents will have access to all relevant public records required to be open for inspection. 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." In the case of a claim arising from the theft of an insured vehicle, the insurer must secure all of the following from the insured prior to the settlement of the claim:
A warning that false representations made on a signed claim form by the insured subject the insured to a penalty of perjury A detailed description of the vehicle including any interior, exterior and special equipment The name of the seller and purchase date and location of the insured vehicle A detailed statement of the circumstances surrounding the theft The insured's current driver's license number The insured must sign the claim form under penalty of perjury in the presence of the agent, broker, adjuster or claims representative who will verify the driver's license number. The signature must be notarized. The insurer must retain copies of all auto theft settlement checks, the original claim form, and a legible copy of the police report for 3 years.
These risks may only be placed by a special lines surplus lines broker. A special lines surplus lines broker is subject to the same fees and requirements. If a person is licensed as both an insurance broker and special lines surplus broker, only one fee can be collected. Except when performed by a surplus line broker, the following acts are misdemeanors in California:
Acting as agent for a non-admitted insurer in the transaction of insurance business In any manner advertising a non-admitted insurer In any other manner aiding a non-admitted insurer to transact insurance business in this state In addition to any penalty assessed for the commission of misdemeanors, a person violating these provisions may be fined $500, together with $100 for each month the violation is continued. A licensed surplus line broker may accept business from any other originating licensee duly licensed for the type(s) of insurance involved, and may compensate those licensees.
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 that substantially limits one or more of that person's major life activities.
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 seize 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.
Investments
Insurance regulations require that all investments be approved by the insurer's Board of Directors. The Commissioner regulates the investment activities of insurers and determines the amount of capital, surplus, and reserves an insurer must have. The Code specifies the types of investments made by domestic incorporated insurers.
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. 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.
The Department of Insurance regulates all insurers doing business in this state. Its major concern is providing protection against the insolvency of an insurer. The Department provides protection through the use of the following reports and regulations:
Investments Annual Statement Examination of Insurers Rehabilitation and Liquidation
A surplus lines broker may not:
Issue a binder or any other evidence of coverage without the prior written approval of the insurer Place auto insurance with a non-admitted insurer unless the applicant has first been rejected by the standard market and the California Automobile Assigned Risk Plan (CAARP) Each surplus lines broker must ensure that a diligent search is made among admitted insurers actually writing the particular type of insurance in this state before procuring the coverage from a non-admitted insurer. Within 60 days of placing the coverage with a non-admitted insurer, the broker must file a report with the Commissioner detailing the efforts made in trying to place the coverage with an admitted insurer.
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.
Knowingly committing any of the following acts is a violation of the Unfair Claim Settlement Practices:
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 use 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, therefore forcing the insured to sue 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 claims 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 Failing to settle claims promptly, where liability has become apparent, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance 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
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
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. In addition, a Purchasing Group that obtains liability insurance from a non-admitted insurer or risk retention group must inform each of the members of the group located in this state that the risk is not protected by an insurance insolvency guaranty fund and that the risk retention group or insurer may not be subject to all insurance laws and regulations in this state.
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. If the applicant meets all requirements, the Commissioner will issue a certificate of convenience until the examination requirements are satisfied and a permanent license is issued.
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.
It is a misdemeanor for any person licensed or certificated under the California Insurance Code (CIC) or exempted from regulation under the CIC to recommend to an employer the purchase of aggregate excess or aggregate stop-loss Workers' Compensation insurance from a non-admitted insurer, or to provide the names of non-admitted insurers from whom such insurance may be purchased. (This does not apply to self-insured public entity employers.) Some risks can be placed only with non-admitted insurers. Such risks include:
Shipowner interest, international maritime transportation Marine builder's risks, drydocks Aircraft or spacecraft insurance Property or operations of railroads engaged in interstate commerce
Recordkeeping and Examination of Records by the Commissioner
The Commissioner has the 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. 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.
List of Approved Surplus Lines Insurers (LASLI)
The Department of Insurance maintains a List of Approved Surplus Lines Insurers (LASLI), which contains the names of pre-approved surplus lines insurers. Inclusion on the list is voluntary and may not include all eligible surplus lines carriers. The list is available on the California Department of Insurance website at www.insurance.ca.gov.
California Code of Regulations
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 that are not explicitly cited in the Code. The various Regulations enacted by the Commissioner are found in the California Code of Regulations (CCRs). 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.
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.
California Insurance Guarantee Association
The purpose of the association is to provide insolvency insurance for each member insurer. Insolvency insurance includes insurance to protect against a loss arising from the failure of an insurer to pay claims under its insurance policies. Member insurers are considered policyholders and pay assessments to cover the payment of claims. All insurers, including reciprocal insurers, admitted to transact insurance in this state are considered member insurers and must participate in the California Guarantee Association. Non-admitted insurers are not covered under the association.
Broker
A broker is someone who for compensation transacts insurance on behalf of another person, but not an insurers 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.
Agent
An insurance agent is a person authorized on behalf on an insurer to transact all classes of insurance other than life, disability, and health insurance. This is considered a property and casualty insurance agent. An agent represents the insurance company.
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
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:
Concealment An intentional and fraudulent omission of matters proving the falsity of a warranty Material misrepresentation Violation of a warranty
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.
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.
Homeowners Valuation Training
Property and Casualty and Personle Lines agent-brokers who intend to transact Homeowners insurance must complete a mandatory 3-hour Homeowners valuation course before transacting this insurance. Note: Mandatory training courses are not in addition to the regular CE requirements.
Unfair Trade Practices
The Unfair Trade Practices (Public Law 15) defines unfair and deceptive acts and unfair methods of competition. These practices apply to reciprocal insurers, Lloyd's insurers, fraternal benefit societies, life agents, broker-agents, surplus line brokers and special lines surplus line brokers as well as all other persons engaged in the business of insurance.
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 A penalty of $500 along with a fine of $100 per month for each month the violation continues will be assessed those found in violation.
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. An Excess and Surplus lines insurer writes standard coverage in a state where the insurer is unlicensed.
The Insurance Commissioner is elected by
the people and may serve up to two 4-year terms. The Commissioner's term runs concurrently with that of the Governor, and in the event a Commissioner does not complete a term of office, the Governor is authorized to appoint a new Commissioner (with legislative confirmation) to serve the remainder of the term.
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.
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
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.
Insurance Commissioner's Duties and Responsibilities
File and keep all books and papers as required by law Issue Certificates of Authority to companies that meet the requirements of state law Issue, refuse, revoke, or suspend licenses or Certificates of Authority Regulate the internal affairs of the Department of Insurance Aid in the interpretation of any state insurance law Make sure that insurer rates are adequate, not excessive, or unfairly discriminatory - but the Commissioner does not set rates Structure and control insolvency procedures Inquire into all violations of insurance laws in this state Subpoena witnesses/documents for testimony on any insurance-related matter The Commissioner does have the authority to revise or create rules and regulations (after public notice and hearings) as necessary to help carry out the intent of the Code.
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.
Admitted insurer
is one that has complied with the laws of this state to become authorized to transact insurance. An admitted insurer has been issued a Certificate of Authority from the State of California. 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 must be covered by other types of policies, such as surplus lines or assigned risk.
