Chapter 15 - CA Ethics and Laws

Penalties

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.

Recordkeeping Requirements

Records must be kept by agents for at least 5 years following actual policy delivery, or 5 years from the date of application if no policy is issued. The records must include names, dates, amounts and policy numbers of each transaction.

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.

License Renewal

All licenses renew every 2 years on the last day of the month in which the license was originally issued. A licensee who has applied to renew a license will be entitled to continue operating under the existing license for 60 days after its specified expiration date, or until notified by the Department that the renewal application is deficient, whichever comes first.

Notice of Appointment with the Commissioner

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.

California Insurance Code

Premiums paid by the employer are tax deductible. Under a contributory plan, premiums paid by the employee are made with after tax dollars. Disability benefits received by the employee as a result of employer contributions are taxable as income to the employee based on the percentage of the premium paid by the employer.

Commissioner Requests

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.

Fraudulent Claims

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.

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 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.

False Financial Statements

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

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.

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.

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.

Active License Status

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.

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.

Bureau of Fraudulent Claims

Any insurer that believes that a fraudulent claim is being made shall report the fraudulent claim within 60 days of such discovery.

Errors and Omissions (E&O) Insurance

E&O insurance is used for the purpose of protecting an agent from this legal liability and provides coverage for legal defense and settlement costs up to a limit. Errors and Omissions insurance is usually offered with a minimum limit of liability of $1 million.

Boycott, Coercion or Intimidation

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

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. 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.

Summary Seizure

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.

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.

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.

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

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.