Ask Tim

Who In the Agency Needs a License?

I've gotten a bunch of phone calls in the last day or so from members wanting to know what New York law allows employees who do not have insurance producer licenses to do. Some members are under the impression that only one person in the office needs a license, others think that unlicensed employees can have no customer contact, and some insist that everyone in the building get a license. Clearly, there's a lot of confusion on this topic. Take a deep breath -- I'm about to bludgeon you with legalese.

New York Insurance Law Section 2101 defines the terms "insurance agent," "insurance broker," and "insurance producer." The definitions are quite lengthy; the one for "insurance producer" is 897 words long. Most of that wording describes what a producer is not, thus carving out definitions of people who do not need a license. Here are the parts of the "insurance agent" definition that are most relevant to agencies:

(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;...

Therefore, a regular salaried employee of an agent who does not receive commissions or other sales-based compensation and solicits or accepts orders for insurance inside the agent's office is not an insurance agent; the law does not require such a person to have a license. The definition of "insurance broker" is somewhat different:

(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;...

Therefore, an officer, director or employee of an insurance producer who does not receive commissions and whose activities are indirectly related to insurance sales, or whose activities are in the underwriting, loss control, or claims areas, or whose activities involve giving technical assistance to producers is not an insurance broker. The law does not require this person to hold a license. The definition of "insurance producer" is similar to this one.

At the request of some members in the Binghamton area a few years ago, I asked the Insurance Department's Office of General Counsel for an advisory legal opinion on the permissible duties of unlicensed customer service representatives. In her opinion, the attorney wrote:

As a preliminary matter, agents and brokers may delegate certain activities to their officers or employees, provided that the insurer or other principal does not prohibit or restrict the delegation and the Insurance Law does not otherwise prohibit the activity. Subject to the above, in-office delegation is within the discretion of the licensee, who must exercise reasonable judgment based upon considerations such as:

1. the nature and complexity of the task being delegated

2. the education, training, experience and other personal qualifications of the officer or employee who will be performing the task and

3. the type and extent of supervision and internal controls that will be in place.

She went on to say that, even if the law permits an unlicensed employee of an agent to perform an activity, the insurer that the agent represents has the right to prohibit it:

Moreover, an insurer may restrict or prohibit the delegation of certain activities or duties to non-licensees, notwithstanding the statutory exemptions. Thus, an insurer may establish a list of non-delegable or unauthorized activities with respect to such insurer, even if the Insurance Law permits non-licensees to otherwise engage in such activities. A licensee that subsequently violates an insurer’s prohibition or restriction on delegation may be found by the Superintendent to be acting in an untrustworthy or incompetent manner.

Since the overwhelming majority of IIABNY members hold agent licenses, the focus should be on the definition of "insurance agent." An unlicensed employee can solicit or accept orders for insurance inside the agent's office only. That person cannot receive commissions or any other sales-based compensation, even small bonuses for selling additional coverage to existing clients. The insurers an agent represents can restrict the activities of unlicensed employees, so it's important to be aware of what the contract with the insurer says.

End of legalese. I hope to have a less complicated question for you tomorrow.

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Can an Insurer Non-Renew a Business That's in Chapter 11 Bankruptcy?

Question from an IIABNY member: We have a situation where one of our insurance companies is non-renewing a commercial middle market client due to bankruptcy / Chapter 11. One of our other carrier reps has informed us that this might be illegal; if the insured is in Chapter 11 bankruptcy and is working with the courts to have it remedied, the Bankruptcy Court can force the insurance company to renew the policy at the same/similar rate. If all the alternatives we were able to find were significantly more expensive (E&S or standard), our insured could claim that the insurance company is preventing them from reorganizing by forcing them to pay the more expensive premium with other carriers. If the insurance company had non-renewed because of the outstanding loss control or because of the significant losses, this may not be the case, but the non-renewal notices were for bankruptcy only. Do you have any information relating to this topic?

Answer: While the U.S. Bankruptcy Code is way outside my area of expertise, I found an article from the July 30, 2009 issue of the Insurance Journal, written by the president of NIP Specialty Brokerage, a wholesaler that has created a special Bankruptcy Facility to help risks in Chapter 11. He wrote in part:

Bankruptcy laws do not prevent an insurer from canceling or refusing to renew. Rather state laws or specific policy cancellation or non-renewal terms control whether the insurer may terminate coverage. Even in states with restrictive cancellation laws, a bankruptcy filing may be considered a material change in hazard, which many states recognize as a legitimate reason for mid-term policy termination with the proper advance notice.

I also found a 2007 New York Insurance Department advisory legal opinion stating that New York law does not prohibit an insurer from non-renewing a policy due to the insured’s bankruptcy.

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Accepted a Gift From an Auto Glass Shop? Get Out Your Checkbook

Twice over the past summer, IIABNY reported that the New York Insurance Department has begun fining agencies for accepting referral gifts from auto glass repair shops, or for improperly supervising employees who accepted them. In the wake of the September disciplinary action report which listed another round of fines for this, the department has gone public. Newspapers and TV stations around the state picked up the story of insurance agents taking "kickbacks" for steering business to glass repair shops.

Now, I have a problem with the word "kickback" being applied to the act of accepting a mall gift card; "kickback" conjurs up images of cash passed in plain paper bags. I don't think a gift card is in the same league. Nevertheless, New York Insurance Law Sect. 322 makes it very clear that accepting any gifts from these shops is illegal; the department's pursuit of agencies that have done it should emphasize the point. While I would like to see the law amended so that it sets a dollar amount below which a gift is acceptable (should an agency be vulnerable to a fine for accepting donuts?), that's not what it says at this time. So, again, for the sake of your agency's balance sheet and its reputation, politely decline any proffered gifts from auto repair shops, and instruct your staffs to do likewise. Unless, that is, you too would like to see your agency's name in an Insurance Department press release.

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Does My License Apply on Indian Reservations?

One of the great things about this job is that, on a regular basis, I get asked a really interesting question that I never had to think about before. Today's question is one of them; when I think about it, I'm surprised I've never gotten it before.

Question from an IIABNY member: The account I'm working on is located on an Indian reservation in New York. Since reservations are sovereign territories, does my New York State agent's license allow me to write business there?

Answer: I found a 2003 New York Insurance Department opinion that answered the question, "Would a risk located on an Indian reservation physically within New York be considered to be inside New York State?" The questioner pertained to compliance with the laws governing excess lines placements, but I think the principle is the same. The attorney wrote:

The first source for guidance as to whether a risk is considered in or out-of-state is N.Y. State Law §§ 2, 3, 4, 5, 6, and 7,... which establishes the boundaries of New York State. Nothing in the State Law excludes Indian reservations from being included within New York State. Also, Indian reservations are considered municipalities within the state for certain purposes. See N.Y. Exec. Law § 412(4); N.Y. Gen. Mun. Law § 854(3). Moreover, the Indian Law specifically regulates activities pertaining to reservations in New York, which further evinces legislative intent that such reservations are considered within New York.

Accordingly, it is our opinion that the Indian reservation should, for these purposes, be considered an in-state risk...

Based on this, it appears to me that a New York agent's or broker's license gives the holder authority to write business on Indian reservations.

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Order in the Court: Independent Contractor or Employee; You Didn’t Tell Me You Moved

The Ask Tim blog has been on an extended hiatus for some time now. Hopefully, this is the first of many regular posts. If you got out of the habit of checking for new content, I hope you'll start coming back.

New York courts have weighed in on the difference between an independent contractor and an employee and acceptable reasons for late notice of a claim in the first few weeks of October.

• The City of Rome hired Michael Brown “to provide guidance to certain community organizations and to develop and implement various urban renewal initiatives.” When he filed a workers’ compensation claim after suffering an injury at work, the City sought to have his claim denied on the grounds that he was an independent contractor, not an employee. The New York Workers’ Compensation Board ruled in Brown’s favor in late 2007, and last week the state Supreme Court’s Appellate Division, Third Department agreed. Though his contract with the City labeled him as an independent contractor, the court noted that City employees supervised him and required him to work specific hours and attend department meetings; the City had authority to fire him; it provided him with equipment and supplies; and it required him to obtain its prior approval for his expenses. “In our view,” the court said, “these facts constitute substantial evidence supporting the Board’s determination, notwithstanding the presence of evidence that could support a contrary result.”
  
• The second case involved another man named Brown who had a 2002 car accident with Albertano Batista, whose auto insurance was provided by American Transit Insurance Co. (ATIC.) ATIC paid Brown’s property damage claim in early 2003. Days before the three-year statute of limitations for filing an injury claim expired, Brown filed a claim against Batista and sent copies of the suit to ATIC at the address shown on the company’s 2003 correspondence. However, ATIC moved to a new location in late 2003; by the time Brown’s attorney mailed the suit documents, the post office was no longer forwarding mail to the new address. When Batista failed to respond to the suit, a court awarded $81,000 to Brown, who then demanded payment from ATIC. The company promptly denied coverage because the demand for payment was its first notice of the suit, some 21 months after Brown took the action.
  
  Brown sued and lost in trial court, but the Appellate Division’s First Department overturned the verdict, saying that Brown, “demonstrated a valid excuse for forwarding the summons and complaint to ATIC’s former address in that he was never notified of its change of address.” Two members of the five-judge panel disagreed. Associate Justice James M. Catterson wrote, “In my opinion, the majority has placed the burden on the wrong party. There is no legal obligation on ATIC to establish what sufficient efforts it made, if any, to notify a potential plaintiff of a change of address. Certainly, there is no legal authority whatsoever for the majority's demand that ATIC should have sent a specific notification to the counsel of a plaintiff whose property claim had been settled almost a year prior to ATIC's move to a new location…In the absence of any legal authority for such a position, it appears the majority is willing to accept an attorney's lack of diligence in failing to spend three-tenths of a second to verify an address on the Internet as a valid excuse for the failure to satisfy an insurer's notice requirement.”

Thanks once again to Roy Mura for posting about the American Transit case on his Coverage Counsel blog.

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Episode #15 -- 'Can They Do That?'

Autumn is approaching, and you know what that means...my colleagues here at IIABNY headquarters have reached their limit of me and are kicking me out on the road. Starting in Buffalo on Sept. 16, I'll be teaching a continuing education class titled Can They Do That? I gave it that title because it seems to be the underlying question in most of the research queries I get. New York Insurance Law and regulations can be complicated; hopefully, attendees will understand a bit better after three hours of listening to me talk.

Episode 15 of Ask Tim gives a sneak preview of the course. In a few short minutes, I discuss the requirements for cancellation, non-renewal and conditional renewal of commercial lines policies in New York. We even dusted off an old pro-rata wheel for the occasion. Actually, I think someone in the office swiped it from a museum...

Notice: The post-production software fracked out on us, so you'll only get sound from one speaker. We apologize for the problem.

Update: Sound problems have been resolved.

Have follow up questions? Drop 'em in the comments and I'll do my best to give you an intelligent answer.

Download Ask Tim Episode #15 -- 'Can They Do That '

 

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Everyone Who Drives and Owns a Cell Phone Should Watch These Videos

Roy Mura of the Coverage Counsel blog posted the two videos embedded below on his Web site yesterday. Ordinarily, I would simply link to someone else's blog and let the reader make the effort to access the content. However, these videos are too important. Do you drive? Own a cell phone? Both? Do you know and love someone who does both? Make sure you watch these and make sure your friends watch them, too. They drive home the point like nothing I've seen before: It only takes a second to ruin the lives of dozens of people. Please note, the first video is You Tube rated for viewers 18 and older, due to very graphic content. Both videos are heartbreaking.

Let's be careful out there, folks.

Update: YouTube pulled the first video off its site the day after I originally posted this, apparently believing that it is too shocking. It's incredibly shocking and disturbing, and for that reason all drivers should see it. Roy Mura sent me an alternative link which appears to work. I heard from at least one IIABNY member that the second video was also not working. I've updated the code, and it too seems to be working now.

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Can the Insurer Cancel the Policy Because of a Backyard Shooting Range?

Question from an IIABNY member: Can a carrier cancel a HO policy midterm because the insured has a shooting range out back? The carrier has been on them for 10+years. The company was surprised to see he had a shooting range, even though the insured has 20+ guns listed on his insurance schedule!

IIABNY answer: Of course the guy would own 20 guns just for display. Who’d have thought he might actually want to fire them? ;)

Here’s what the law (N.Y. Insurance Law Sect. 3425) says about midterm cancellation of a homeowners policy:

(c) After a covered policy has been in effect for sixty days, or upon the effective date if the policy is a renewal, no notice of cancellation shall be issued to become effective…unless it is based on one or more of the following:…

(2) With respect to personal lines insurance policies:

(A) nonpayment of premium, provided, however, that a notice of cancellation on this ground shall inform the insured of the amount due;

(B) conviction of a crime arising out of acts increasing the hazard insured against;

(C) discovery of fraud or material misrepresentation in obtaining the policy or in the presentation of a claim thereunder;

(D) discovery of willful or reckless acts or omissions increasing the hazard insured against;

(E) physical changes in the property insured occurring after issuance or last annual anniversary date of the policy which result in the property becoming uninsurable in accordance with the insurer's objective, uniformly applied underwriting standards in effect at the time the policy was issued or last voluntarily renewed; or

(F) a determination by the superintendent that the continuation of the policy would violate or would place the insurer in violation of this chapter.

It sounds like the company is relying on (D), “discovery of willful or reckless acts…increasing the hazard insured against.” However, if the insured has had this range for some length of time, and the company has provided coverage for 10 years, you have to wonder why the company never “discovered” this before. I didn’t find any court cases on what exactly a “willful or reckless act or omission” is, but I found an Insurance Department opinion that discusses it. The attorney said that the addition of a swimming pool or trampoline is not a reckless act because they “are fairly common household additions.” I’m not sure they would have the same opinion of a shooting range, which is far less common. The department might side with the insurer on this one, though I still think the insurer has led the insured to believe that it approved of the risk by writing coverage all these years.

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Insurance Dept. Opinions: Late Notice of Claims, No-Fault Insurance

The New York Insurance Department’s Office of General Counsel issued the following advisory legal opinions in May and June:

• When an injured insured is unable to return to work due to injuries arising from an automobile accident; the insured’s employer hires another person to fill the insured’s vacant position during the insured’s period of disability; and the insured cannot immediately resume her employment when she is medically cleared to return to work, the insured may recover lost wages for the period after she is medically cleared but before she actually resumes work.
• An entity need not obtain an independent adjuster’s license in New York if it only issues checks to providers on behalf of an insurer when the insurer funds the checking account and makes all decisions on the underlying claims.
• The changes to New York law with regard to late notice of claims apply to policies issued in New York but delivered outside the state and to claims-made policies. The law applies only to liability insurance policies, but insurers may include the prejudice rules in other types of policies. 
• An employee of an insurer that is adjusting a claimant’s first-party no-fault claim may not share non-public personal health information about that claimant with an employee of an affiliate insurer that is adjusting the claimant’s third-party BI claim.
• New York Insurance Law and regulations do not permit an insurer to require a corporate assignee of no-fault benefits to designate an individual of the insurer’s choice to submit to an examination under oath.

The OGC issued two other opinions pertaining to the legality of a proposed annuity contract and the applicability of a specific regulation to health care providers and accident and health insurers. All opinions issued since 2000 are available for download from the department’s Web site.

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Insurance Dept. Opinions: E-Mailed Cancellation Notices, Service Fees, Fire Ins. Fee

The New York Insurance Department’s Office of General Counsel posted 10 new advisory legal opinions on its Web site last week.

• An insurer may send an electronic notice of cancellation to an insured by means of e-mail if the insured has consented to receiving electronic documents. A reliable, accurate and verifiable electronic record that insurer sent the cancellation notice to the e-mail address for the insured on record with the insurer will suffice as proof of delivery.
• A health services provider may not bill a patient and/or the patient’s health insurer for treatment of injuries arising out of the use of a motor vehicle at the provider’s standard rates when the patient’s no-fault insurer has denied the medical provider’s claim because available coverage for basic economic loss has been exhausted. The provider also may not bill a patient and/or the patient’s health insurer treatment of injuries arising out of the use of a motor vehicle at the provider’s standard rates when the patient’s no-fault insurer has denied the medical provider’s claim because of a policy exclusion, such as driving while intoxicated.
• The life insurance guaranty fund protects a New York resident who resides in Florida each winter, and who purchases a variable annuity contract in Florida, from a New York authorized insurer, that has a death benefit rider not available in New York.
• A university would not commit insurance fraud if it were to waive psychiatric office visit fees of more than twenty dollars for which its students are personally responsible, and notify its students’ insurers of the waivers.
• A service fee agreement that details the service to be provided and at what price, and specifies that the agent will keep any commission earned by the agency on the sale of insurance to the client satisfies the requirements of the Insurance Law.
• After acceptance by all necessary parties of a lump-sum waiver agreement under the New York Workers’ Compensation Law, an insured’s health insurance plan is not obligated to pay future medical expenses arising from the insured’s original injury.
• The method for calculating the fire insurance fee for a businessowners policy that has separate, divisible premiums for the property and liability coverages is to multiply 100 percent of the property premium by 1.25 percent. If the property premium is divisible and there are portions that do not include the peril of fire, then the fire insurance fee is not levied on that portion of the property premium. However, if the property premium is not divisible, then the fire insurance fee is levied on the whole property premium. If inland marine coverage is included in a businessowners policy and the premium is divisible, it is not subject to the fire insurance fee.

The OGC declined to express an opinion on a Medicare question; it also posted opinions pertaining to insurance company investments and the legality of a specific discount medical plan. Visit the department’s Web site to download any opinion issued since 2000.

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