Ask Tim

Can An Unlicensed Employee Sign an Application?

Question from IIABNY member: Very often an application requires the client signature. However, it also asks for the agency name, address, tax ID # and sometimes the signature of an individual.  Does the person signing this have to be individually licensed, or can an unlicensed CSR sign as long as the agency is licensed?

Answer: The issue of who may sign applications is a contractual one between the insurer and the agency. New York law does not address it specifically. I think the legal definitions of “insurance agent” and “insurance broker” from N.Y. Insurance Law Sect. 2101 are relevant:

(a) In this article, " insurance agent " means any authorized or acknowledged agent of an insurer…and any sub-agent or other representative of such an agent, who acts as such in the solicitation of, negotiation for, or sale of, an insurance…contract, other than as a licensed insurance broker, except that such term shall not include:

(1) any regular salaried officer or employee of a…licensed insurance agent, who does not solicit or accept from the public, outside of an office of such …agent, applications or orders for any such contract, if such officer or employee does not receive a commission or other compensation for his services which commission or other compensation is directly dependent upon the amount of business done…  (emphasis added)

(c) In this article, "insurance broker " means any person, firm, association or corporation who or which for any compensation, commission or other thing of value acts or aids in any manner in soliciting, negotiating or selling, any insurance or annuity contract or in placing risks or taking out insurance, on behalf of an insured other than himself, herself or itself or on behalf of any licensed insurance broker, except that such term shall not include:…

(2) an officer, director or employee of a licensed insurance producer, provided that the officer, director or employee does not receive any commission on policies written or sold to insure risks residing, located or to be performed in this state and:

(A) the officer, director or employee's activities are executive, administrative, managerial, clerical or a combination of these, and are only indirectly related to the sale, solicitation or negotiation of insurance; or

(B) the officer, director or employee's function relates to underwriting, loss control, inspection or the processing, adjusting, investigating or settling of a claim on a contract of insurance; or

(C) the officer, director or employee is acting in the capacity of a special agent or agency supervisor assisting licensed insurance producers where the person's activities are limited to providing technical advice and assistance to licensed insurance producers and do not include the sale, solicitation or negotiation of insurance;…

Based on these definitions, I would say that an unlicensed employee of an agent may sign applications because the law excludes from the definition of “insurance agent” “any regular salaried…employee of a…licensed insurance agent, who does not solicit or accept from the public, outside of an office of such…agent, applications or orders for any such contract,…” However, the law makes no such exception for an unlicensed employee of a broker, so that person may not sign applications because authorities could construe that as directly related to the solicitation of insurance. What that means to you is that an unlicensed employee cannot sign apps for the State Insurance Fund, New York Property Insurance Underwriting Association, or applications your office submits to MGAs and wholesalers. An unlicensed employee may sign apps that your office submits to the carriers you represent, if the carriers do not prohibit them from doing it. The Insurance Department has said that, for agents, where the Insurance Law permits a certain activity by an unlicensed employee but the insurer does not, the insurer’s rules prevail.

Bottom line, check your agency-company contracts and/or with your marketing reps. If they don’t expressly prohibit this, then there should be no legal issue with unlicensed employees signing the apps.

Episode #12 - 8 Good Minutes With Jim Keidel

In this episode of Ask Tim, I sit down for a little chat with The Sage of All Things E&O, Jim Keidel of the law firm of Keidel, Weldon & Cunningham, LLP. We spent a few minutes discussing the change in New York law pertaining to late notice of claims, the change in the ACORD 25 Certificate of Liability Insurance, and whether or not producers should e-mail policies to their clients.

I won't lie; Jim had some concerns about appearing on the show with me. These concerns had less to do with being camera shy than they had to do with my reputation for throwing stage props. Once he saw an example of how good my aim is, he became convinced that I couldn't hit him with anything if I tried, and he joined in with enthusiasm.

This episode is brought to you by the IIABNY E&O Loss Control Seminars.

Download Ask Tim Episode #12

More on the Big "I" National Legislative Conference & Convention

Last month I wrote a post about why New York insurance producers should make the trip to Washington, D.C. at the end of April for the Big "I" National Legislative Conference and Convention. National Underwriter's Mark Ruquet published an article about the event in the online magazine's March 23 issue. He interviewed IIABA CEO Bob Rusbuldt, who laid out the stakes very clearly and starkly. Well worth the read if you've been on the fence about whether to attend.

One Limit, Two Named Insureds, One Big Umbrella Problem

Question from IIABNY member: We write a HO-6 policy with $300,000 liability limits and two different name insureds: Bob Smith and John Jones, who co-own the condo and rent it out to others. Both insureds have separate umbrella policies, since they live in separate primary residences and are not related. In the event of a liability claim, my understanding is that the $300,000 liability limit will be the maximum available. If this is the case, it seems that neither insured will meet the requirement under the umbrella to have $300,000 underlying limits because they will have to split the $300,000 (they will really only have $150,000 each). Is my thinking correct? A solution may be to have them add the rental condo to each of their primary homeowner policies for liability coverage. This, however, can get messy since the condo is really a partnership. Also, if they have different limits on their primary policies, it would be interesting to see how the companies would respond. Do you have any thoughts on this?

Answer: I think you’re correct. As you pointed out, the HO-6’s Personal Liability Coverage section states,

“Our total liability under Coverage E for all damages resulting from any one ‘occurrence’ will not be more than the Coverage E limit of liability shown in the Declarations. This limit is the same regardless of the number of ‘insureds’…”

Consequently, if a court held both partners equally liable for a loss, the policy would pay $150,000 on behalf of each. I agree, adding coverage to the individual homeowners policies would be problematic for the reasons you described.

The simplest solution to this would be to increase the Coverage E limit on the HO-6 to at least $600,000. I don’t know whether the insurer would be willing to offer a limit that high; the increased limit table in the ISO Personal Lines Manual only goes up to $500,000. The next best option would be to purchase additional CPL coverage to act as a buffer between the HO-6 and the Umbrellas. There are wholesalers who offer this.

Disciplinary Actions Report: Lay Off Those ‘High Pressure Tactics’

The New York Insurance Department issued its periodic report of disciplinary actions against companies, agents, brokers and adjusters on March 3. Here are some of the transgressions for which various licensees have received penalties:

• Cancellation notices, part 1: If you’re going to issue cancellation notices for non-payment of auto insurance premiums, get the facts straight. One insurer paid a $10,000 fine for displaying “incorrect information with respect to the amounts of the civil penalties that can be paid to avoid suspension of an insured’s motor vehicle registration.”
• Cancellation notices, part 2: The law says you have to give the insured 15 days’ notice when cancelling for non-payment. One insurer can give you 10,000 reasons why you shouldn’t forget to do that.
• Cancellation notices, part 3: The law allows insurers to cancel new auto policies for any reason during the first 60 days. However, they do have to give at least one reason why they’re doing it. The price tag for not giving a reason: $25,000.
• What can you say to an insurer that paid a $119,500 fine, except: Don’t violate your rate filings; don’t violate your form filings; document your underwriting files; give reasons for your actions when you send conditional renewal notices; advise your insureds that they’re entitled to loss information when you send conditional renewal and non-renewal notices; hire a new compliance officer…
• When you hire a producer, make sure that person’s license hasn’t been revoked. $750 lesson learned.
• A life agent paid a $500 fine for signing a life insurance policy payment request form as a witness to the signing of the form by the client, when he did not actually witness the signing.
• Several health agents wrote checks to the department for engaging in “high pressure tactics” in the door-to-door sale of Medicare supplemental policies. The fines ranged from $500 to $1,000.
• Finally, a Florida agent did New York business after her New York license expired, then she left that detail off her relicensing application. Telling partial truths cost $500.

N.Y. Insurance Dept. Issues Anti- Rebating Guidelines

Responding to a slew of questions from insurance producers in recent years, the New York Insurance Department on March 3 issued guidance as to what activities it would consider illegal rebates. The circular, titled “Permissible services of insurance agents and brokers; rebating and inducements,” sought to “provide guidance and clarification to licensed insurance agents and brokers…as to what kinds of services (often referred to as “value-added” services) may be provided to insureds or potential insureds without running afoul of the rebating and inducement provisions set forth in the New York Insurance Law.” Writing for the department, Assistant Deputy Superintendent and Counsel Paul A. Zuckerman added, “The purpose of New York’s rebating and inducement provisions is to require an insurer or licensed insurance producer to provide insurance in a nondiscriminatory manner to like insureds or potential insureds, and to prohibit such an insurer or insurance producer from providing an insured or potential insured with any special benefit not afforded to other insureds or potential insureds.”

The circular stated that a producer may provide value-added services not specified in a policy if:

• The service directly relates to the sale or servicing of the policy or provides general information about insurance or risk reduction, and

• The producer provides the service in a fair and nondiscriminatory manner to like insureds or potential insureds.

The circular listed several examples of permissible services, such as risk assessments, insurance consulting services, insurance-related regulatory and legislative updates, preparation of claim forms, and others. Examples of impermissible services included legal services, advice regarding compliance with human resource laws not related to insurance, development of employee handbooks and training not related to insurance, and payroll services.

The letter concluded by saying that it is a work in progress and that the department intends periodically to update the list of permissible services.

The letter does not appear to present a radical new interpretation of the insurance law. If many agents are providing the types of services listed as impermissible, they are not calling me about them. My guess is that they are not widespread practices. I also think the department's explanation of the purpose of the anti-rebating laws is helpful. In all the Insurance Department Office of General Counsel opinions I've read on this topic, I've never seen them explain it so clearly and in a way with which most producers would agree. Mr. Zuckerman did specifically say that these lists are not all-emcompassing; there are surely other examples not on either list. However, the examples should help producers figure out what the law does and does not allow them to do.

All in all, I think this circular is a useful guideline. What do you folks think about it? Post your thoughts in the comments.

Is That Injury Covered by Workers' Comp?

I got an interesting question yesterday that I was unable to answer. Hopefully, you're still reading; I'll go on. The IIABNY member who called me has a client who fell and suffered an injury while on her lunch break. She works in one space in a large complex. On the day of the accident, she "punched out" for lunch and was walking elsewhere in the complex when she tripped on an uneven walking surface. When she presented the claim for her injuries, the building owner denied payment. Because she was injured during the work day, the owner argued that her employer's Workers' Compensation coverage should apply. This raised the question of whether an employee is covered by Workers' Comp while on her lunch break.

The answer, as with so much in life, is, "It depends." Specifically, it depends on the circumstances surrounding the injury and the what was customary for the job. A good illustration is a case decided by the New York Supreme Court's Appellate Division, Third Department last May. An electrician reported to work at 7:55 A.M., discussed the week's work plans with his partner, loaded his truck with materials and supplies, and headed for a job site. On the way, he stopped at a drive-through restaurant for coffee and a muffin. When he reached into his back pocket for his wallet, he felt a pop in his back; he eventually underwent surgery to repair herniated disks. Unable to work for nine months, he submitted a claim for Workers' Comp benefits. The insurer disputed the claim and the case went to a Workers' Compensation Law judge, who sided with the claimant. The insurer appealed and the Workers' Compensation Board reversed the judge's decision, finding that the stop for coffee deviated from the claimant's employment and the injury therefore did not arise out of that employment. The claimant then appealed to the Third Department.

The court cited a 1999 decision that stated, "Activities which are purely personal pursuits are not within the scope of employment and are not compensable under the Workers' Compensation Law, with the test being whether the activities are both reasonable and sufficiently work related under the circumstances." (emphasis added) It also cited earlier decisions to the effect that momentary deviations from the work routine for a customary and accepted purpose, such as coffee breaks, do not render a claimant ineligible for benefits. Noting that the claimant's undisputed testimony that his stop at the drive-through for coffee was a brief one on his direct route to the job site, and that he routinely did this because his office lacked a coffee maker, the court held that the stop was a "momentary and customary break which did not interrupt his employment and which can only be classified as reasonable and work-related under the circumstances..." It reinstated the claimant's benefits.

What does that mean for the IIABNY member's client? Without more details about the accident, it's impossible to say. Did the accident happen in area where she walks every day? Did she have to walk through that area in order to go to lunch? Was this area near her office, or was she in a location on the opposite side of the complex? Ultimately, the Workers' Compensation Board may have to weigh the facts and make a determination. There is no cut-and-dried answer. And that's the lesson for employers, employees and insurance agents alike: Don't assume that an injury is not compensable just because it appears that it wasn't work-related. Report the incident to the Workers' Compensation insurer and let the investigation proceed.