A.D. Banker Chapter 15 California Ethics and Laws
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- A representation may be altered or withdrawn before the insurance is effected, but not afterwards.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.
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.
In California, upon receiving any communication from a claimant, regarding a claim, that reasonably suggests that a response is expected, every licensee shall immediately, but in no event more than _____ calendar days after receipt of the communication, furnish the claimant with a complete response based upon the facts as known.
15 calendar days Such response is due no more than 15 calendar days after receipt of the communication.
Under California law, a Life Settlement Broker must be a licensed Life-Only agent for more than 1 year or have completed a _____ hour course in life settlements.
15 hour: Under California law, a 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.
An agent whose license is suspended for more than ___ years will need to retake the prelicensing course and pass the qualifying exam.
2 years: A license suspended for more than 2 years will require the agent to retake the prelicensing course and pass the qualifying exam.
Upon receiving a request for records, insurers and/or agents must deliver the records to the Commissioner within ____ days.
30 days: 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.
After expiration or cancellation, agents and brokers must keep records of every insurance transaction for at least ___ years.
5 years: Records of insurance transactions must be kept on file for at least 5 years after the expiration or cancellation date.
The California Insurance Code 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 which producers must retain a copy of in their files for a minimum of ______ years.
5 years: The California Insurance Code 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 which producers must retain a copy of in their files for a minimum of 5 years.
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.
Continuing Education Requirements 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.
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).
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.
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.
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.
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. 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.
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.
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 and required courses). In addition to the continuing education requirements, a licensee may also need to complete specified product training requirements.
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.
Penalities
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.
Claimant
Any person who asserts a right of recovery under a surety bond or insurance policy.
Shall/May
As used in this Code the word "shall" is mandatory and the word "may" is permissive, unless otherwise apparent from the context.
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.
Boycott, Coercion, or Intimidation
Entering into any agreement that would result in an unreasonable restraint of, or monopoly in the business of insurance.
False Financial Statements
Filing with any supervisory or other public official any false statement of financial condition of an insurer with intent to deceive.
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.
agent
In an insurance transaction, an agent represents the insurance company.
Life Licensee
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. A Life-Only Agent who is not also licensed as an Accident and Health Agent may transact certain disability benefits as riders to life or annuity contracts, such as disability income or long-term care, subject to any specific continuing education requirements.
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.
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.
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.
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.
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.
Application: License Qualifications and Requirements
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.
Prelicensing Education (License Qualifications and Requirements)
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.
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.
Recordkeeping and Examination of Records
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.
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
Agent vs. Broker vs. Solicitor
The duties and responsibilities of a licensee will vary depending on the type of license held. The following requirements apply: - 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.
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.
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 (License Qualifications and Requirements)
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.
Which of the following is not an example of an unfair trade practice? a) Advertising on the internet b) False entry c) Discriminating between persons of the same class that have essentially the same hazard d) Misrepresenting the benefits of an insurance policy
a) Advertising on the Internet is not an unfair trade practice.
Entering into an agreement that would result in an unreasonable restraint of, or monopoly in the business of insurance is considered: a) Boycott, Coercion, or Intimidation b) Defamation c) Deceptive Advertising d) Discrimination
a) Boycott, Coercion, or Intimidation Entering into any agreement that would result in an unreasonable restraint of, or monopoly in the business of insurance is known as Boycott, Coercion, or Intimidation.
Every licensee must file with the Commissioner in writing the true name of the individual or organization and all _______ names under which business will be conducted. a) Fictitious b) Marketing c) Trade d) Brand
a) Fictitious: Under the California Insurance Code, every individual and organization licensee and every applicant for a license must file with the Commissioner in writing the true name of the individual or organization and all fictitious names under which business will be conducted and, after licensing, must file with the Commissioner any change in or discontinuance of such names.
Which statement is false regarding the operation of nonadmitted insurers in California? a) These insurers are subject to the financial solvency regulation and enforcement that applies to California licensed insurers b) These insurers do not participate in any of the insurance guarantee funds created by California law c) It is a misdemeanor for any agent or broker to solicit insurance with a nonadmitted insurer except by and through a Surplus Lines Broker d) Surplus Lines Brokers are required to report to the Commissioner all business they place with nonadmitted insurers and to pay premium taxes on all business that they place with nonadmitted insurers
a) These insurers are subject to the financial solvency regulation and enforcement that applies to California licensed insurers Nonadmitted insurers are not subject to the financial solvency regulation and enforcement that applies to California licensed insurers.
An agent's license remains in active status as long as all of the following conditions are met, except: a) Renewal fees are paid b) Commission income equals or exceeds $25,000 c) Continuing education requirements have been met d) At least one active Notice of Appointment is on file with the Commissioner
b) Commission income equals or exceeds $25,000. Under the California Insurance Code, an agent's license remains in active status as long as renewal fees are paid, continuing education requirements have been met, and at least one active Notice of Appointment is on file with the Commissioner.
The Commissioner must approve which of the following agency names: a) One which implies that the licensee is an underwriter b) A bona fide natural name of an individual c) One already filed by another licensee d) One which infers the licensee will engage in activities not permitted under the license
b) The Commissioner may disapprove of the use of true or fictitious names that are misleading, but not a bona fide natural name of an individual.
Funds controlled by the Guarantee Association are used to: a) Subsidize state premium taxes b) Pay claims of insolvent insurers c) Subsidize investment income losses d) Subsidize insurer reserves
b) The Guarantee Association pays claims to the insureds of insolvent admitted insurers.
Before a regulation proposed by the Insurance Commissioner takes effect, all of the following must occur, except: a) Proposed regulations must be published for public comment b) The state legislature must enact the regulation after the OAL has approved it c) The Office of Administrative Law must review the regulation for conformity with other state laws d) A public hearing is held to receive comment on the proposed regulation
b) The state legislature must enact the regulation after the OAL has approved it The legislature is not involved in the process of creating regulations.
An agent's license will remain active as long as all of the following requirements have been met, except: a) Continuing education b) Renewal fees are paid c) Insurer sales quota d) A Notice of Appointment is on file with the Commissioner
c) Insurer sales quota As long as the agent pays renewal fees, has a notice of Appointment on file with the Commissioner and the continuing education hours have been met, the license will remain active. A minimum number of sales is not a licensing requirement.
Which of the following is not a responsibility of the Insurance Commissioner? a) Order rates for Workers' Compensation insurance reduced b) Order rates for Workers' Compensation insurance increased c) Set the rates for Workers' Compensation insurance d) Reject a requested rate increase for Workers' Compensation insurance
c) Set the rates for Workers' Compensation insurance: The Commissioner has broad authority to reject rate increases for most lines of insurance, or to order rates increased or reduced when necessary, but the Commissioner does not have authority to set specific rates.
Which statement is false of the California Life and Health Guarantee Association? a) The Association establishes a mechanism to pay claims that are unpaid as a result of the insolvency of a member insurer b) Annuity benefits cannot exceed $250,000 in present value c) The maximum amount that will be paid to a covered person on behalf of an admitted insolvent insurer is $500,000 per life d) Member insurers are those that are admitted to transact insurance in California and are required to participate
c) The maximum amount that will be paid to a covered person on behalf of an admitted insolvent insurer is $500,000 per life The maximum amount payable for a life insurance death benefit per life is $300,000.
Which statement is false regarding fraudulent claims in California? a) While investigating suspected fraud claims, insurers and agents will have access to all relevant public records required to be open for inspection b) Each admitted insurer must maintain a unit to investigate possible fraudulent claims by insureds c) If an insured signs a fraudulent claim form, he/she may be guilty of perjury d) Any insurer that believes that a fraudulent claim is being made shall report the fraudulent claim to the Bureau of Fraudulent claims within 30 days of such discovery
d) CORRECTION: Any insurer that believes that a fraudulent claim is being made shall report the fraudulent claim to the Bureau of Fraudulent claims within 60 days of such discovery.
Which of the following is not an unfair discriminatory practice: a) Determining insurability using an applicant's sexual orientation b) Determining insurability using an applicant's race c) Refusing to accept an application due to an applicant's marital status d) Using an applicant's birthplace for purposes of identifying the applicant
d) The applicant's birthplace can be used only for purposes of identifying the applicant and not to discriminate against the applicant.
The purpose of a Certificate of Authority is to: a) Give a producer authority to represent a certain insurer b) Permit a deceased producer's relative to act for the producer c) Allow producers to transact business d) Permit an insurance company to transact business
d) A Certificate of Authority permits an insurance company to transact business.
An article that includes false statements about the financial condition of an insurer is an example of: a) False publishing b) Coercion c) False advertising d) Defamation
d) Defamation: Defamation is a maliciously critical statement about an insurance company's financial condition.
Engaging in an unfair method of competition unwillingly subjects an agent to a civil penalty up to _______ per violation. a) $50,000 b) $1,500 c) $500 d) $5,000
d) Engaging in unsuitable insurance transactions also subjects the agent to administrative penalties imposed by the Commissioner. A first violation invites a fine of up to $5,000.
A producer may be guilty of misrepresentation if he/she: a) Requested timely written notice of loss for all claims b) Issued a settlement check that totally releases the insurer c) Denied a claim for failure of the policyholder to prove damages d) Misstated the terms of a policy for the purpose of inducing a policyholder to lapse a policy
d) Misstated the terms of a policy for the purpose of inducing a policyholder to lapse a policy Misrepresentation includes 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.
Which of the following is not a duty of the California Insurance Commissioner? a) To issue Certificates of Authority to companies that meet the requirements of state law b) To make sure that insurer rates are adequate, not excessive, or unfairly discriminatory c) To subpoena witnesses/documents for testimony on any insurance-related matter d) To prosecute violators of insurance law
d) To prosecute violators of insurance law The Commissioner does not prosecute lawbreakers, though he/she may issue cease and desist orders for committing unfair practices.