Authority to Make Changes to an Insurance Policy – Part II

I have been informed that my post last week generated a comment on IIAG’s Facebook page.  That comment made a valid point that I neglected to make in my post, but also expressed an attitude that may be shared by many other agents, which attitude I think could cause problems for the agent in some situations.

The point made that I neglected to make was that, if the language of an insurance policy states who is authorized to make changes to it, then that language will control in the absence of any statute or regulation to the contrary.  The same principle applies to any questions that may arise about an insurance policy.  My post last week addressed the situation in which the policy does not contain any language about who is authorized to make changes to its coverages.

The person who posted the Facebook comment went on to say that agents should advise their customers to look out for themselves in the divorce situation that I used as an example in last week’s post.  Georgia law does presume that an insured has read their policy and therefore, understands what coverages and other rights they have under it.

However, as noted in an earlier blog post, an agent may well have a duty to an insured that goes beyond just obtaining the type of insurance coverage requested by the insured and leaving it up to the insured to take care of themselves after that.  An agent’s words, conduct, or both can give rise to duties to the insured that go beyond those of a mere order taker.  In the context of a family personal lines insurance policy, an agent who is trying to provide “added value” to the family can easily say or do things that would lead the husband and wife to reasonably believe that they both have control over what happens to that policy.

I think an agent will expose themselves to potential liability if they are aware of a divorce proceeding and do not at least ask the spouse requesting a change in the insurance policy if there has been an order entered in the proceeding that addresses what can be done with the policy in question.  In the absence of any attempt by the agent to make such a determination and the occurrence of a subsequent uninsured event involving the other spouse, the agent can expect to be sued for negligent performance of their duty to the other spouse, who was a named insured.  It will then be up to the agent to explain to a jury why it was unreasonable to expect them to make any effort to determine whether the requesting spouse had the authority to request the change in question.  The agent may win in the end, but at the cost of significant time and expense that could have been avoided by asking a simple question. 


Who Can Make Changes to an Insurance Policy?

The above question arose out of a call that I recently received on the Free Legal Service Program that I run for the IIAG.  The caller had been directed by one spouse who was involved in a contentious divorce proceeding to delete the other spouse and their child from a motor vehicle insurance policy on which the requesting spouse was the named insured.  I did not have to give my opinion on whether that could be done because an order had been entered in the divorce proceeding that prohibited any changes in existing insurance coverages pending the outcome of that proceeding. The question posed by the caller and my response will be the subject of a future blog post.

The above call caused me to start thinking about what an agent’s duty would be in the situation described above where no court order had been entered.  Given that almost half of all marriages end in divorce, agents are probably put in such situations on a regular basis.  A quick search of the Georgia Insurance Code and case law did not reveal any statute or appellate court decision that directly addressed the above question.  The closest statute I could find was the one that governs how an “insured” can cancel an insurance policy.

If the “insured” can cancel an insurance policy, it is logical to assume that they can ask that changes be made to it.  Unfortunately, that statute does contain any definition for the “insured.”  In practice, most agents (and I) would assume that the “insured” who can cancel the policy is the named insured on the policy.  Where there is more than one such named insured, the question arises whether all such named insureds must agree to any changes in the policy.  I don’t know the answer to that question, but I think it is clear that one named insured cannot do anything that would change the coverage available to the other named insured(s) without their consent.

This would be helpful in the context of spouses involved in divorce proceedings if they are both considered to be the named insured on the policy in question.  If not, I would advise that an agent refuse to make any changes requested by the named insured spouse, where the agent is aware of divorce proceedings having been commenced, without first finding out if any order has been entered in the proceeding that would prohibit such changes being made.  If no such order has been entered, the agent should document the steps taken to make that determination and that the changes requested were made only after those steps were taken.

I welcome comments from my readers about their experiences with the above situation and how they have handled similar requests.




Does an Insured Have a Right to Obtain Copies of the Documents in Their File?

A client of mine recently asked a really good question to which I cannot give a very good answer.  His question was what right does an insured have to get copies of the documents in his agency’s file for the insured.  I am not aware of any law or regulation that specifically addresses this question, except with respect to any documents that may contain information covered by the Health Insurance Portability and Accountability Act, commonly known as HIPAA.  That Act imposes obligations on those who have such information in their files that are beyond the scope of this post.  Those of my readers who are members of IIAG and thus, members of IIABA, can go to the IIABA’s members only section and find more information on those obligations under Legal Advocacy, Memoranda and FAQs.   My other readers can find such information on a blog found here.

For all other documents found in an agency’s files for their insureds, we are left with the general principle that an agent is considered to be the agent of the insurance company first.  As such, he or she owes no duties to an insured, other than to obtain the policy requested by the insured and by extension, any documents created by the agent during the course of obtaining such policy would belong to the agent and/or insurance company that issued the policy.  This same rule would apply to any documents acquired by the agent during the course of obtaining the insurance policy requested, except for those documents that were supplied by the insured.

As noted in an earlier blog post, under Georgia law, by his or her words or conduct an agent can create duties to an insured that do not exist otherwise.  That same principle would apply to the documents in an insured’s file.  If the agent by words or conduct leads an insured to believe that the documents in the agent’s file for the insured belong to the insured or that the insured will be able to get a copy of any such documents upon their request, the agent would have created a duty to the insured to provide copies of all such documents upon the insured’s request.

This principle can also work the other way.  If the agent informs the insured at the beginning of the relationship that any documents created or obtained by the agent during the course of providing services for the insured will belong to the agent and that the insured has no right to obtain copies of them, that rule will govern the relationship.  In any event, there is nothing to prevent an agent from charging a reasonable fee for making copies of any documents requested by the insured that the insured either has a right to obtain or that an agent agrees to provide.

So the answer to the above question is that it depends on the type of document being requested and on whether the agent has established a policy about the provision of copies of the documents in their file for an insured, either one way or the other.  If not and the document requested was not one that had been provided by the insured initially, then the default rule would be that an agent has no obligation to provide an insured with copies of documents in their file for the insured.



Which Agency Employees Can Be Exempt Employees for Overtime Pay Purposes?

In last week’s post, I mentioned the concept of exempt and nonexempt employees and provided a brief description of what makes an employee exempt from the requirement under the Fair Labor Standards Act (“FLSA”) that employees be paid extra compensation for any work done in excess of 40 hours per week.  This subject is an important one, as the misclassification of an employee as being exempt when in fact they are not can be very costly to the employer, as explained later in this post.

A few weeks ago, I listened to a webinar that focused on whether certain employees of insurance agencies could be classified as exempt employees.  In particular, what it would take for customer service representatives, or account executives, and producers to be classified as exempt employees.  The presenter discussed in some detail the two main exempt categories that may apply to the former type of employees, known as the executive and administrative employee exemptions.  As noted in last week’s post, at this time, to qualify for either exemption an employee must be paid on a fixed salary basis in an amount that equals at least $455 per week ($23,660 per year) and that salary cannot be reduced based on the quality or quantity of the work performed by the employee during any one work week.

I say at this time because, at the direction of President Obama, the Department of Labor has been reviewing those and the other exemptions from the overtime pay requirement and is expected to release updated regulations for them sometime this Spring. Most knowledgeable commentators expect the minimum salary requirement for the administrative and executive exemptions to be increased significantly.

The most likely exemption for customer service representatives would be the administrative exemption, which requires that the employee’s primary duty be the performance of “office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers” and include the “exercise of discretion and independent judgment with respect to matters of significance” to the employer’s business.  Such employees can engage in some sales activity on behalf of the employer, but that activity cannot be their primary duty. (Click here for a more detailed explanation of the requirements of the administrative exemption.)

For producers, the most likely exemption is one for outside sales persons for the reasons discussed in a 2009 opinion by the Wage and Hour Division of the Department of Labor that focused on life insurance producers, but the language of which would apply equally to property and casualty or health insurance producers.  That exemption requires the employee’s primary duty to be the making of sales or the obtaining of orders for services and they must “customarily and regularly” perform that duty outside of the employer’s place of business, which for this purpose means at the home or office of the customer or potential customer. (Click here for a more detailed explanation of the outside sales person exemption.)

If an agency’s producers don’t meet the second part of the outside sales person exemption, it is possible that they can meet what is known as the commissioned sales person exemption.  That exemption requires that the employee be paid at a rate in excess of the overtime pay rate (at this time $10.88) for every hour worked and that more than half of their total compensation be from commissions. (Click here for a more detailed explanation of the commissioned sales person exemption.)

An employee who was not paid overtime compensation when they should have been has the right to sue the employer in federal court to recover the extra compensation they should have been paid for up to three years before the lawsuit is filed.  In addition, if the employee convinces the court that the employer willfully violated the FLSA, they can receive liquidated damages up to double the amount of extra compensation they should have been paid.  Finally, a successful employee is entitled to an award for the attorney fees and other litigation expenses incurred by them, which award can sometimes be far higher than the amount of extra compensation the employee recovers.  Last year, an employee in Georgia who was awarded a little over $6,500 in extra compensation, also received an attorney fees award of over $173,000.00.  It is easy to see why lawsuits for unpaid overtime compensation are the most frequently filed employment related lawsuits in Georgia and elsewhere.

Must An Employer Pay Its Employees If Its Offices Are Closed?

With ice and snow falling on the Atlanta area and most of North Georgia and more such weather predicted for tomorrow, I thought it would be a good idea to remind my readers of what an agency’s obligations are with respect to the payment of its employees when the office is closed due to severe weather or any other reason.  This issue was the subject of an article that I wrote for the Summer 2011 issue of the Dec Page Quarterly, a magazine published by the Independent Agents of Georgia.  At that time, parts of Georgia were experiencing significant flooding problems.  Now it’s ice and snow, but the principles remain the same.

The answer to the question posed in the title of this post depends for the most part on whether an employee is classified as an exempt or nonexempt employee for purposes of the Fair Labor Standards Act and then on whether the agency’s offices are closed for a full day or only part of a day.  An exempt employee is one who does not have to be paid extra if they work more than 40 hours in any one work week.   A nonexempt employee is one that must be paid at a higher rate for any time worked in excess of 40 hours in any one work week.  How you decide whether a particular employee is a nonexempt or exempt employee is beyond the scope of this post, but generally speaking exempt employees must have some management responsibility or the ability to exercise discretion in making significant decisions related to the conduct of the employer’s business.  In addition, an exempt employee must be paid on a fixed salary basis in an amount that equals at least $455.00 per week and that salary cannot be reduced based on the quality or quantity of the work performed by the employee during any one work week.   All other employees are considered nonexempt employees, who must be paid at least the minimum wage, but only for the time they actually perform services on behalf of the employer.

Thus, if an agency’s offices are closed for any reason and a nonexempt employee does not perform any services for the agency from home, such an employee need not be paid for the time period the offices are closed.  This is true regardless of whether the nonexempt employee is being paid a salary or on an hourly basis by the agency.  If the agency’s offices are closed for a full day for any reason and an exempt employee does not perform any services on behalf of the agency from home on that day, such an employee’s salary may be reduced by the equivalent of one day’s pay.  If either type of employee performs any services on behalf of the agency on a day that its offices are closed for any reason, they must be paid.  The nonexempt employee need only be paid for the time they actually performed services, but the exempt employee must be paid for a full day.  This is true even if they have been told not to do any work.

For those in the northern part of Georgia, stay warm and drive safely these next couple of days.

Cyber Liability Insurance – A Great Opportunity For Agents

Two major events last week made clear the dangers faced by any business that stores important personal information about its customers, as well as its own employees, on a computer system.  Late last week Anthem Insurance disclosed that its computer system had been hacked and the names, addresses, birth dates, social security numbers, and other information of over 80 million customers and employees had been obtained by the hackers.  Since Anthem Insurance owns Blue Cross and Blue Shield of Georgia, it is probable that many Georgia residents were included in the group of people whose personal information was obtained by the hackers. (Click here for a news release published today by the Insurance Commissioner’s Office that provides more information on the situation and recommends actions that Georgia residents can take to protect themselves.)

Although it appears that no credit card or health related information of those persons was obtained, what hackers can do with the personal information that was obtained was demonstrated by Intuit’s announcement the next day that it was suspending the electronic filing of state income tax returns by users of its Turbo Tax software.  The suspension was done in response to reports of many fraudulent tax returns being filed electronically by persons who had obtained the name, address, and social security number of legitimate taxpayers.  The Georgia Department of Revenue has confirmed its receipt of such returns and announced that it will increase its scrutiny of tax returns filed using Turbo Tax’s software, which will lead to a delay in their acceptance.

All businesses are at risk of a cyber attack and the increasing frequency of reports of successful attacks has led many industry observers to state that cyber liability insurance will be one of the hottest growth areas in 2015.  The recent announcements by Nationwide Insurance that it will begin offering endorsements for cyber liability risks and Liberty Mutual Insurance that it will begin offering cyber liability coverage for small businesses is evidence of that fact.  When cyber liability insurance first became available, I checked into it for my law firm, but the conditions that had to be met before a policy would be issued were such that it was not economically feasible for my firm.  Those conditions have now been relaxed considerably, to the point that businesses with no more than a firewall and anti-virus software can obtain coverage.  Of course, the premium charged for such businesses will be higher, but based on my conversations with company representatives at a recent insurance industry event I attended the premium would still make sense for a small business given the protection provided.

The increased awareness of the need for some protection in the event of a data breach should make many business owners more receptive to a solicitation from agents for such coverage.  That awareness also gives agents an opportunity to “add value” to their services by providing advice about what can be done to reduce the possibility of a data breach and what to do if one occurs.  Click here for an article that discusses ten tips to help businesses both prevent and prepare for such an event.  There are many other sources for such information that can be easily found on the internet (click here for one).  Don’t miss out on this opportunity to round out your commercial business accounts and give your customers, old and new, one more reason to consider you a trusted advisor.



UGA Risk Management Program Ranked #1

I have always heard how well-regarded the University of Georgia’s risk management program is.  That it is not just talk by UGA boosters and graduates of the program has been confirmed by U.S. News & World Reports.  Its latest rankings of the top undergraduate programs in insurance and risk management have UGA’s Terry College Risk Management-Insurance Program as the number 1 such program in the country.  According to the College’s website, it is also the largest such program in the country.  In attaining this ranking, UGA beat out such outstanding schools as the University of Pennsylvania’s Wharton School, the University of Wisconsin, Temple, and New York University.

The most surprising college in the top 10, at least to me, was Georgia State University.  It’s Department of Risk Management and Insurance was ranked number 5 in the country.  According to the Department’s website, this is nothing new for Georgia State, as it has been ranked in the top 10 undergraduate insurance and risk management programs every year since 1999.  One reason for that consistency is the existence of two research centers on campus: the Center for Risk Management and Insurance Research and the Center for Economic Analysis.  Their existence has led to Georgia State having one of the largest full-time research faculties in the world for the study of insurance issues.

With these two highly rated insurance and risk management undergraduate programs, Georgia agencies should have a steady stream of qualified candidates to fill positions for years to come.  However, according to the most recent Best Practices Study done by Reagan Consulting, while having a regular presence on college campuses and providing internships to prospective employees were very important predictors of a successful producer hire, having a degree in risk management turned out to be not so important.  I tend to think that, if the study focused on just graduates from the insurance and risk management programs at UGA and GSU, the results would be quite different.  For a complete analysis of the best practices for producer recruitment and development click here for the report released last Fall by Reagan Consulting.



Georgia’s YAC – Another Great Year

Last week, I took the time to listen to a webinar involving Georgia’s Young Agents Committee.  The Immediate Past Chair, Kelli Dean, the Chair, Jarrett Bridges, the Vice Chair, Robbie Moore, and the Secretary-Treasurer, Jimbo Floyd, participated in the webinar, which was broadcast nationwide by the IIABA.  They described all the activities of Georgia’s YAC during 2014 that lead to it being named the Outstanding Young Agent’s Committee of the year during the Young Agents Leadership Institute at the IIABA Fall Conference last September. (Click here for my blog post about the award.)

In the 2013-2014 year, the Georgia YAC departed from precedent and used an overnight retreat of its board members to set their goals for that year, instead of having the Chair determine them.  This lead to increased “buy-in” by the board members for those goals, which was evidenced by the fact that every one of them was not only achieved, but surpassed.  The Board decided to focus on three areas, raising awareness of InsurPac, increasing their registered membership by 35%, and increasing attendance at the annual Sales and Leadership Conference by 10%.

Using the slogan “Commit to the I”, the committee encouraged its members to sign up for a recurring monthly contribution to InsurPac, instead of a one time contribution, and was able to get 24 members to do so.  Those members, along with others who contributed, including 100% of the Board members, enabled Georgia’s YAC to surpass its annual goal for InsurPac by over 70% within the first 45 days of 2014.  They had similar success with increasing the registered membership.  Sixty-five new members were added for an increase of 59%.  They weren’t quite as successful with attendance at the Sale and Leadership Conference, but 15 first time attendees were among the 102 agents and company partners who did come.

The key to the committee’s success was focusing on creating relationships among the Board members, in particular, and the membership in general.  They did not look at each other as competitors, but as friends working to achieve a common goal, while having fun.  As they have done in the past, the committee made extensive use of social media to communicate with their members and encourage participation in their events.  If you are interested in the details on how this was done, click here for a link to the webinar. (It’s toward the bottom of the page.)

As I said in my post back in September, the future of the Big I is in good hands with these outstanding young agents and its strong Young Agents Committee in general.

Is an Agent Required to Maintain a Trust Account?

This is the second of the two questions referred to in my first post of 2015 that I was asked by a caller to the Free Legal Service Program that I run for IIAG.  The short answer to it is No, but it is not an unqualified No.

The statute that governs this subject is O.C.G.A. Section 33-23-35.  On the one hand, it states that “all funds representing premiums received or return premiums due the insured by any agent or subagent . . . shall not be commingled with the licensee’s personal funds.”  From this statement, it would seem that the portion of premium payments that do not represent commission due the agent cannot be deposited into the bank account used by him or her to pay their other bills.  But the very next sentence of the statute says, “Nothing contained in this Code section shall be deemed to require any agent or subagent to maintain a separate bank deposit for the funds of each principal, if the funds so held for each principal are reasonably ascertainable from the books of accounts and records of the agent or subagent.”

So it is permissible for an agent to commingle their funds with funds belonging to an insurance company or insured, but only if their accounting methods will allow the amount due to each such company or insured to be “reasonably ascertainable.”  What that phrase means  would be up to the Insurance Commissioner’s Office to decide, as there have not been any court cases that addressed that question and there are no regulations that define it.  However, its meaning would likely be influenced by the duty of an agent and subagent to “promptly” account for and pay to the insurance company or insured the money owed them.

To be safe, an agent that does not maintain a separate account for premium payments should be able to tell from their accounting records at any time how much of the money in their operating account or accounts belongs to each insurance company and insured with whom they deal.  Given the complexity of the accounts current calculations that must be done for each such insurance company, being able to satisfy the statutory duty will require a sophisticated accounting system or software program.

The importance of being able to satisfy that duty is made clear by the last paragraph of the above code section.  The first sentence states, “Any violation of this Code section shall constitute grounds or cause for action by the Commissioner, including, but not limited to, probation, suspension, or revocation of the license.”  The Commissioner is also given the authority to impose fines and other penalties for such violations and a willful violation of the code section that involves an amount greater than $500 is declared to be a felony.

Although the commingling of premium payments due an insurance company or insured with an agent’s personal funds is permissible under the Georgia Insurance Code, the better practice would be to maintain a separate account for such payments.  Doing so will eliminate the possibility of inadvertently using such payments to pay other bills, which could expose the agent to disciplinary action by the Commissioner’s Office, and will make keeping track of how much is owed each insurance company or insured easier.

A Holiday Wish Come True

My readers may remember that in my last post of 2014, I made some Holiday wishes.  To my surprise, one of those wishes came true at the end of last week.  In two days, the Congress enacted a bill that renewed the terrorism reinsurance program and created a mechanism for the nonresident licensing of agents and agencies without having to go through the insurance commissioner’s offices of each state.  If Congress could act as quickly to deal with other problems facing our nation, 2015 may turn out to be a very good year.

The Terrorism Risk Insurance Program Reauthorization Act of 2015 made some changes to the previous program.  The federal government’s share of any losses related to terrorist acts will gradually decrease to 80%, the trigger for the program will gradually rise to $200 million in such losses, and the amount that insurance companies must pay back to the federal government will gradually rise to $37.5 million, which amount will then increase every year based on a formula in the Act.  Other more technical changes were also made in the program.  The IIABA has prepared a summary of the Act’s provisions which can be read by clicking here.

As you might suspect from the name, the National Association of Registered Agents and Brokers Reform Act authorizes the creation of an entity known as the National Association of Registered Agents and Brokers (“NARAB”).  Membership in this entity will enable an agent or agency to conduct business in states other than their home states without having to obtain a non-resident license from the insurance commissioners of those other states or a certificate of authority from their secretaries of state.  Instead, the agent or agency will just pay NARAB the licensing fee required by those other states and it will notify the insurance commissioners of those states that the agent or agency is now authorized to conduct insurance business in them.  The insurance commissioners of those states do have the ability to contest the fact that an agent or agency has satisfied the NARAB’s membership criteria, but they cannot object to the conduct of business in their states by the agent or agency on the grounds that their licensing criteria have not been satisfied.

The best way to think of NARAB is as a nationwide Insurance Commissioner for licensing, except that membership in it is voluntary.  NARAB will establish its own criteria for membership, which must at least meet the standards for personal qualifications, education, training, and experience that are found in the National Association of Insurance Commissioner’s (“NAIC”) Producer Licensing Model Act and will require, at a minimum, that the agent or agency’s license in their home state be in good standing.  There will, of course, be a fee to join NARAB and membership will have to be renewed every two years.  NARAB will have the authority to discipline its members for violations of its rules, and its members will also be subject to the disciplinary powers of the insurance commissioners of each state in which they are authorized to do business for the violation of their rules.  Those agents and agencies that don’t want to deal with the NARAB’s rules will still be free to get non-resident licenses directly from the insurance commissioners of each state.

Unfortunately, it will take some time before agents and agencies can apply for membership in the NARAB (the Act calls for NARAB to be operational two years after its actual creation which is still some months away).  Perhaps the most significant hurdle for the NARAB will be the necessity to raise the funds required to set it up, as the Act prohibits the use of federal funds for this purpose.  Stay tuned for further developments.  In the meantime, IIABA has created a summary of the Act’s provisions and a member guide that explains those provisions in more detail for those who are interested.