Chapter 15 Kentucky State Law

Independent Adjuster

An adjuster who acts solely on behalf of insurers.

Financial Institution

A bank, savings bank, savings and loan association, trust company, credit union, or any depository institution which is authorized to take deposits and make loans from a place of business in the state. A financial institution and the employees of a financial institution conducting insurance sales are required to obtain a producer's license.

Producer

A person or business entity required to be licensed under the laws of Kentucky to sell, solicit or negotiate insurance.

Incontestability

An individual life insurance policy is incontestable after it has been in force during the lifetime of the insured for 2 years from its date of issue except for nonpayment of premiums. Any monthly disability income rider shall also contain an incontestability clause which states that after 3 years, no misstatements, except fraudulent misstatements, may be used to void a policy or deny a claim

Agent

An individual or business entity that has been appointed by an insurer to sell or solicit applications for insurance or annuities or to negotiate insurance or annuities on its behalf.

Maintenance and Duration: Assumed/Fictitious Business Name

An insurance producer doing business under any name other than the producer's legal name is required to notify the Commissioner prior to using the assumed name. Further, business names should not use words, titles, degrees, designations, etc., that imply or purport that the licensee possesses a greater skill, knowledge, experience or qualification than is actually a fact. This does not prohibit the use of degrees or designations from institutions or associations having authority to award them.

Twisting

No person may make any misrepresentation for the purpose of inducing or tending to induce the lapse, forfeiture, exchange, conversion, or surrender of any insurance policy.

Unfair Insurance Trade Practices: Defamation

Making any false or maliciously critical statement regarding the financial condition of any person, with the intent to injure such person.

Unfair Insurance Trade Practices: Unfair Genetic Testing/Domestic Violence Discrimination

Restricting, modifying, limiting, reducing or excluding the amount of benefits payable on the basis of a genetic test for which symptoms have not manifested, or on the basis that the insured has requested or received genetic services. Coverage may also not be denied because an injury is the result of domestic violence or abuse. Domestic violence shall not be considered a preexisting condition.

Commissioner of Insurance

The Commissioner is the head of the Department of Insurance.

Individual Health Insurance Policy General Provisions: Mammogram Coverage

The benefit amount may be limited to $50 and the deductible/coinsurance factors must be as favorable as for other coverages.

Individual Health Insurance Policy General Provisions: Free Look

The free look period is 10 days.

Individual Health Insurance Policy General Provisions: Legal Actions

The period for legal actions is 3 years.

Fraud Offenses and Penalties: Class D Felony

A person commits a Class D felony if the total amount fraudulently claimed and/or received exceeds $500. This is punishable by at least 1, but no more than, 5 years imprisonment, a fine of not more than $10,000 per occurrence per individual or, per corporation, not more than the greater of $100,000 or twice the amount of fraudulent gain received, or both fine and imprisonment

Individual Health Insurance Policy General Provisions: Time Limit on Defenses

After a policy has been in force for 3 years from the issue date no misstatements, except fraudulent misstatements, made in the application may be used to void the policy or deny any claims. After a policy has been in for 2 years, a claim cannot be reduced or denied on the grounds that a disease or physical condition not specifically excluded from coverage, had existed before the policy's effective date of coverage.

Public Adjuster

An adjuster who acts sole on behalf of persons claiming benefits under insurance or annuity contracts.

Insurance Consultant

An individual who for a fee examines, reviews, evaluates, makes recommendations, or gives advice regarding any insurance policy. Consultants must meet the same application and financial requirements as do producers. In addition, consultants must have at least 5 years of actual experience as a licensed agent in the lines of insurance the consulting license will cover. In lieu of that, a consultant must have special experience, education or training sufficient to make the applicant competent for the responsibilities of a consultant

Fraud Offenses and Penalties: Class B Felony

Any person, with the purpose to establish or maintain a criminal syndicate, or to facilitate any of its activities, shall be guilty of engaging in organized crime, a Class B felony. A "syndicate" is 5 or more persons collaborating to commit insurance fraud. This is punishable by imprisonment for not less than 10 nor more than 20 years, a fine of not more than $10,000 per occurrence, per individual, or, per corporation, the greater of $100,000 or twice the amount of gain received, or both fine and imprisonment.

Unfair Insurance Trade Practices: Boycott, Coercion, Intimidation

Entering into action resulting in an unreasonable restraint of, or monopoly in, the business of insurance.

Unfair Insurance Trade Practices: Selection Rights

Restricting the choice of an insurer or agent when insurance coverage is required for a contract or other transaction

Limited License

The Commissioner may issue a limited license for the following lines of authority: a. Surety b. Travel c. Limited line credit d. Crop e. Other limited lines, as specified by the Commissioner.

Prohibited Interest/Rewards

The Commissioner or any deputy, examiner, actuary, assistant or employee of the Department, cannot have any financial interest in any insurer, agency, broker or insurance transaction (except as a policyholder). a. This does not prohibit the Commissioner from employing or retaining insurance actuaries, examiners, accountants, attorneys, or other technicians who are independently practicing their profession. b. No person may pay or give to the Commissioner or any authorized representative any financial consideration in addition to his authorized salary and expenses. Neither the Commissioner nor any authorized representative may accept such financial consideration.

Two-Tiered Annuities

These were developed to recover marketing costs and to encourage purchasers to keep the annuity by imposing longer surrender periods. They use two different interest rates and the one paid depends on the owner's chosen distribution option. If the annuity is converted to a lump sum during its surrender period and after, a lower interest rate will be paid. A higher interest rate (the second tier) is used if the owner chooses to receive a series of payouts over a set period of time, once the maturity date is reached.

Doctrine of Economic Benefit

This doctrine is used in determining taxation of 'economic benefits' enjoyed by employees. Such benefits include gross income that is unconditionally and irrevocably transferred into a fund for the employee's dole benefit and in which the employee has a nonforfeitable vested interest. This entails retirement/compensation plans that are funded by life insurance. Under this doctrine, the employee will pay taxes on once he/she begins receiving economic benefits of the insurance-funded plan. However, this doctrine excludes death benefit proceeds paid to a beneficiary.

Administrator -

This is an individual or business entity who collects monies and adjusts or settles claims in connection with life/health insurance, health service contracts, and annuities. Remember, whereas applicants for other types of licenses must be at least age 18, applicant for an administrator's license must be at least age 21.

Maintenance and Duration: Duration

Unless suspended, revoked or refused renewal, an insurance agent license will remain in effect as long as educational requirements are met. Licensees will be notified of renewal requirements at least 30 days before they are due.

Industrial Life Insurance

1. Industrial Life Insurance is written with a face amount of $3,000 or less and is issued on the basis of an industrial mortality table. Premiums are payable at least monthly but can be more often. 2. Wholesale Life Insurance is individual policies issued to any employer that covers at least 4 employees at the date of issue. Premiums are paid either totally by the employer or by both the employer and employees. This type of insurance does not include salary savings life insurance, pension trust insurance, or annuities. 3. College Life Insurance is sold to college students and the initial premiums are financed by a promissory note.

Credit Health Insurance

Insurance on a debtor to provide indemnity for payments becoming due on a specific loan or other credit transaction while the debtor is disabled.

Unfair Insurance Trade Practices: Illegal Inducements

Providing, as an inducement to insurance or in connection with any insurance transaction, the following: a. Any employment. b. Any shares of stock or other securities issued or at any time to be issued. c. Any advisory board contract, or any similar contract, agreement or understanding, offering, providing for or promising any special profits. d. Any prizes, goods, wares, merchandise or tangible property of an aggregate value of more than $10. e. Free Insurance - Insurance for which no identifiable or additional charge is made to the purchaser or lessee of consumer goods or for services connected with those goods.

Orders and Notices

The Commissioner's orders and notices shall be effective only when in writing signed by the Commissioner or by his authority. Every order shall state its effective date and shall concisely state: a. Its intent or purpose. b. The grounds on which it is based. c. The Code provisions under which action is taken or proposed to be taken; and d. All other matters required by law.

Individual Health Insurance Policy General Provisions: Grace Period

The grace period is at least 7 days for weekly premiums, 10 days for monthly premiums; and 31 days for all other modes of payment. If the insurer decides not to renew the policy, insureds must be given at least 5 days' advance notice before the premium due date.

Unfair Claim Settlement Practices

1. Misrepresenting to claimants pertinent facts or provisions in the insurance policy that relate to any coverage at issue. 2. Failing to promptly acknowledge communications pertinent to a claim. 3. Failing to use reasonable standards in the prompt investigation of claims. 4. Failing to attempt to promptly and fairly settle claims in which liability is clear. 5. Compelling an insured to file suit by offering substantially less than what a lawsuit would award. 6. Refusing to pay claims without conducting a reasonable investigation. 7. Failing to affirm or deny coverage on a claim within a reasonable time after receiving a proof of loss. 8. 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 accompanying the application. 9. Attempting to settle a claim based on an application that was altered by the agent or company without notice to, or consent of, the insured. 10. Making claim payments that are not accompanied by statements indicating the coverage under which payments are being made. 11. Delaying the investigation or payment of a claim by requiring the claimant to submit both a formal proof of loss form and subsequent verification when both submissions contain the same information. 12. Failing to promptly explain the denial of a claim or an offer of compromise in relation to the facts and applicable law. 13. Making known to claimants a policy of appealing arbitration awards that favor claimants, for the purpose of compelling them to accept a lesser settlement than that awarded. 14. Failing to promptly settle claims (where liability is clear) under one section of the policy coverage in order to influence settlements under other sections. 15. Failing to comply with the decision of an independent review entity to provide coverage for a covered person as a result of an external review.

Direct-response Solicitation

If an application is initiated as a result of a direct-response solicitation, the insurer shall require a statement asking whether the applicant intends to replace, discontinue, or change an existing policy or contract.

Credit Life Insurance

Insurance on a debtor or debtors, pursuant to a specific loan or other credit transaction, to provide for satisfaction of a debt upon the death of an insured debtor.

Unfair Insurance Trade Practices: Rebating

Offering any rebate of premiums payable, any special favor in dividends or other benefits, or any valuable consideration or inducement not specified in the policy. The following does not constitute rebating are therefore not prohibited: a. Paying bonuses to policyholders or abating their premiums out of surplus funds accumulated from nonparticipating insurance, as long as such bonuses are fair and equitable to policyholders and in the company's best interest. b. For industrial policies, making some kind of allowance to policyholders who regularly send premium payments to the insurer's office, thereby saving collection expenses. c. Adjusting a group policy's premiums based on loss experience at the end of a policy year, retroactive for that policy year. d. An insurer waiving, in whole or in part, a policyholder's deductible for food spoilage in a county declared to be a federal disaster area.

Maintenance and Duration: Reporting of Criminal/Administrative Actions

Within 30 days of occurrence, a licensed agent must report any disciplinary action by the insurance regulatory agency of any other state or territory of the United States: a. Each disciplinary action on an occupational license held by the licensee. b. Each judgment or injunction entered against the licensee involving fraud, deceit, misrepresentation, or violation of any insurance law. c. Such information is confidential by law and is privileged.

Producer Appointment

1. A producer may not act as an agent unless he/she is appointed as an agent by the insurer. 2. An insurer must file a notice of appointment within 15 days after the contract is executed or the first application for insurance is submitted. 3. An insurer must pay an appointment fee and remit an annual renewal fee for each appointed producer. 4. An insurer who terminates an appointment, employment or other relationship of a producer must notify the Commissioner within 30 days after the effective date of the termination. 5. Within 15 days after notifying the Commissioner of termination of appointment, the insurer must mail a copy of the notification to the producer. 6. After termination of an appointment and subject to agreement between the agent and the insurer, the agent may continue to service, and receive commissions relative to, business written during the existence of the appointment, provided the agent continues to be licensed.

Standard Provisions

1. A group life policy must contain a provision specifying the conditions, if any, under which the insurer may require evidence of insurability. 2. A group life policy must contain a provision that the insurer will issue individual certificates to the policyholder for delivery to each insured. 3. Information to Debtor - A policy issued to a creditor to insure debtors will furnish to the policyholder for delivery to each insured debtor, a form containing a statement that the debtor's life is insured under the policy and that any death benefit paid shall be applied to reduce or extinguish the indebtedness. 4. Application of Dividends/Rate Reductions - If a policy dividend is declared or a rate is reduced for the first or any subsequent policy year, the excess of the aggregate dividends or rate reductions over the aggregate expenditures shall be applied by the policyholder for the sole benefit of insured employees or members.

Reinstatement

1. In Kentucky, a policy may be reinstated within 3 years (2 years for industrial policies) after it has been lapsed or terminated for premium default, and not been surrendered for cash value or the cash value has not been exhausted. 2. The insured must apply in writing for reinstatement, provide evidence of insurability, and pay all premiums in arrears or any other indebtedness with interest at the rate specified.

Maintenance and Duration: Change of Address/Place of Business

Each agent must notify the Department of Insurance within 30 days of a change in residence or business address.

Adjuster

Any person who for compensation, adjusts, investigates or negotiates settlement of claims on behalf of either the insurer or the insured.

Types of Eligible Groups

1. An employer or trustees of a fund established by an employer for the benefit of employees. 2. An association, other than an association of public employees, or trustees of a fund established by one or more associations for the benefit of association members. The members are to be in the same industry, occupation or profession. The association must be in active existence for at least 2 years and must have at least 100 members at policy issue. 3. The trustees of a fund established by 2 or more employers in the same or related industry, or by one or more labor unions. 4. A creditor to insure debtors of the creditor concerning their indebtedness. 5. A credit union to insure members of the credit union for the benefit of persons other than the credit union, trustee, agent or any of their officials. 6. A group of public employees for the benefit of persons other than the government department or agency to whom the policy is issued.

501(c)(9) Trusts

1. These trusts exempt from federal income tax, voluntary employees' beneficiary associations (VEDAs) that provide payment for life, sickness, accident, or other benefits to their members and their members' dependents or designated beneficiaries. The exemption applies as long as no part of the association's net earnings is used to benefit any private shareholder or individual, other than through such coverage payments. 2. Contributions can be made to the trust and can be deducted for federal income tax purposes at that time, just as if the trust were an insurance company. Appreciation in the value of the trust assets or investment income earned on the trust assets is also free of taxation. This type of trust is best suited for an employer who wishes to establish either a fund for claims that have been incurred but not paid or a fund for possible claim fluctuations. If such a fund is not established with a 501(c)(9), contributions cannot be deducted until they are paid in the form of benefits to employees. In addition, earnings on these funds are subject to taxation.

Controlled Business

1. Using a license chiefly to procure insurance on the life or property of one's own self, one's spouse, or one's employees or employer is controlled business. 2. An agent is deemed to be writing controlled business if the aggregate premiums from such business exceed the aggregate premiums for other business in any 12-month period. 3. A person may not be licensed solely for the purpose of controlled business. 4. This restriction does not apply to: a. Insurance covering a motor vehicle sales or financing agent's interest in a motor vehicle sold or financed by it. b. Insurance covering of real property mortgagee's interest in the mortgaged property, except title insurance. c. Limited line credit insurance; and d. Rental vehicle insurance.

Delayed Disability

A delayed disability is one that does not occur immediately after an accident but develops days or weeks later. Generally, disability income policies allow a stated specified time during which the insured will still be eligible for benefits. The most common time allowed for a compensable disability to reveal itself after an accident or injury is 30, 60, or 90 days.

Fraud Offenses and Penalties: Misdemeanor

A person convicted of a fraud violation shall be guilty of a misdemeanor if the total amount fraudulently claimed/received is less than $500. This is punishable by no more than 1 year imprisonment, or a fine of no more than $1,000 per individual or, per corporation, the greater of $5,000 or twice the amount of fraudulent gain received, or both fine and imprisonment.

Limited Line Credit Insurance Producer

A person who sells, solicits, or negotiates 1 or more of the following forms of limited line credit insurance: a. Credit life and disability insurance. b. Credit property insurance. c. Credit unemployment insurance. d. Involuntary unemployment insurance. e. Mortgage life, disability and guaranty insurance. f. Guaranteed automobile protection gap insurance. g. Any other line of insurance that the Commissioner considers necessary to recognize as limited line credit insurance.

Individual Health Insurance Policy General Provisions: Coverage For Newborn Children

All individual health policies issued in Kentucky must offer the option to purchase coverage for up to 5 days of hospital nursery care for a well newborn child.

Individual Health Insurance Policy General Provisions: Jaw Disorders

All individual health policies that provide coverage on an expense-incurred basis for surgical or nonsurgical treatment of skeletal disorders shall provide coverage for medically necessary treatment of temporomandibular joint disorders and craniomandibular jaw disorders.

Business Entities

Any corporation, association, partnership, limited liability company, limited liability partnership or other legal entity.

Individual Health Insurance Policy General Provisions: Reinstatement

Any past due premiums paid with a reinstatement may not cover more than 60 days prior to the reinstatement date.

Managing General Agent

Any person or business entity that is licensed in property and casualty lines of authority or as a surplus lines broker and: a. Negotiates insurance contracts on behalf of an insurer. b. Solicits applications from agents for insurance contracts. c. Effectuate and countersign insurance contracts for an insurer.

Unfair Insurance Trade Practices: Unfair Sex/Race Discrimination

Denying availability of any insurance contract on the basis of sex or marital status of the insured. Restricting, modifying, limiting, reducing or excluding the amount of benefits payable on the basis of sex or marital status of the insured except to the extent the amount of benefits, term, conditions, or type of coverage vary as a result of the application of rate differentials. Basing eligibility for insurance on the applicant's age, sex, race, creed, national origin or marital status.

Maintenance and Duration

Duration Change of Address/Place of Business Reporting of Criminal /Administrative actions Assumed /Fictitious Business name

Complaints

Each written and signed complaint received by the Department of Insurance shall be recorded, to include its subsequent disposition, and maintained for at least 5 years. The records of such complaints shall be indexed whenever applicable by the name of the insurer and the name of the producer or employee. The Commissioner shall consider such complaints before issuing or renewing any Certificate of Authority or license.

Unfair Insurance Trade Practices: False Financial Statements

Filing a false financial statement with public officials, or presenting it to someone with the intent to deceive. No person shall make any false entry in any document relating to an insurance transaction with intent to deceive, or omit a true entry of any material fact with like intent to deceive.

Individual Health Insurance Policy General Provisions: Loss Payment to Minors/Other Relatives

If the only beneficiary is the insured's estate or a minor, the insurer may pay up to $5,000 to any relative by blood or marriage of the insured or beneficiary whom the insurer deems entitled to it.

Free Look

In Kentucky, an insured has 10 days to examine a policy and, if dissatisfied for any reason, may return it for a full refund of any premiums paid. This does not apply to policies of credit life insurance or policies issued under tax-qualified pension plans.

Individual Health Insurance Policy General Provisions: Relation of Earnings to Insurance

In Kentucky, the minimum loss-of-time benefit amount is $300.

Fraud Offenses and Penalties: Restitution

In addition to a fine, imprisonment, or both, the guilty person may be ordered to make restitution to any victim who suffered a monetary loss due to the illegal actions and to the Department for the cost of any investigation. The amount of restitution shall be the greater of the monetary value of the actual loss or twice the amount of gain received as a result of the violation.

Individual Health Insurance Policy General Provisions: Ambulatory Surgical Center Coverage

Individual health insurance policies issued in Kentucky, which provide coverage on an expense incurred basis, shall provide coverage for health care treatment or services rendered by ambulatory surgical centers. Such centers must be approved by the Kentucky Health Facilities and Health Services Certificate of Need and Licensure Board. The coverage shall be on the same basis as when the treatment or services is rendered by a hospital.

Individual Health Insurance Policy General Provisions: Proof of Loss/Payment of Claim

Once proof of loss is received, the claim must be paid within 30 days. If the claim will be paid in periodic payments, such payments must be made at least monthly.

Unfair Insurance Trade Practices: Unfair Discrimination

Permitting individuals of the same class and equal life expectancy to be charged different rates for life insurance or annuities. Permitting individuals of the same class and essentially the same hazard to be charged different rates for accident or health insurance. Refusing to insure or charging a different rate to an individual based solely on blindness or partial blindness.

Unfair Insurance Trade Practices: False Information and Advertising

Publishing or disseminating in any fashion, or through any media, any untrue, deceptive, or misleading statement about the business of insurance or, with respect to any person, in the conduct of such person's insurance business, or misrepresents the identity of the insurer.

Temporary License

The Commissioner of Insurance may issue a temporary insurance agent license for a period not exceeding 180 days, without requiring an examination, in the following circumstances: The surviving spouse or court-appointed personal representative of a licensed insurance agent who dies or becomes mentally or physically disabled b. Any member or employee of a business entity licensed as an insurance agent, upon the death or disability of an individual, designated in such business entity's application or the insurance agent's license. c. The designee of an individual licensed as an insurance agent who is entering active service in the armed forces of the United States. d. Any other circumstance where the Commissioner deems that issuing a temporary license will best serve the public interest. e. The Commissioner may require the temporary licensee to have a licensed agent or insurer as a suitable sponsor who assumes responsibility for all temporary licensee's acts. The Commissioner may also impose other similar requirements and the temporary license may be revoked if the insured's or public's interest is endangered. A temporary license shall not continue after the owner or the personal representative disposes of the business. f. The temporary license may cover only the same kinds of insurance for which the replaced agent and the licensee may represent all insurers last represented by the replaced agent, without new appointments. However, the licensee shall not receive any additional appointments under the temporary license.

Individual Health Insurance Policy General Provisions: Notice of Claim

Written notice of claim must be given to the insurer within 60 days after the occurrence or commencement of any loss covered by the policy, or as soon as is reasonably possible. The notice may be given to any authorized agent of the insurer; it doesn't have to be mailed to the insurer's main office.

Individual Health Insurance Policy General Provisions: Reimbursement For Services

a. An insured may be reimbursed for optometrist, podiatrist and chiropractic services, regardless of whether the services were performed by a licensed physician or osteopath rather than an optometrist, podiatrist or chiropractor. b. Dental - A dental policy must cover and reimburse the insured for dental services even if they are performed by a licensed physician rather than a licensed dentist. c. Psychologist/Clinical Social Worker Coverage - An insured must be reimbursed for the cost of psychological or clinical social worker services, not in excess of the coverage limits, regardless of provider's profession.