IIAG Education Program Receives Award

Congratulations are due the Independent Insurance Agents of Georgia.  At last week’s Education Convocation of the Independent Insurance Agents and Brokers of America,  the IIAG’s education program was recognized as one of the best education programs in the nation.  It received a Diamond level Excellence in Insurance Education Award, which is the highest level awarded.  IIAG was one of only 14 state associations to receive this top honor for its education program and one of only five such associations from the Southeast.

The award recognizes “state associations and staff who have made significant contributions to education for their members and the industry in the key area of class offerings, continuing education (CE), professionalism, designation offerings, industry collaboration, planning goals, marketing, resources and more” according to the IIABA press release announcing the award winners.  I am sure that IIAG’s cutting edge use of webinars under the MyCeTube program and its up to date classroom facilities at its offices in Doraville, as well as its use of satellite classroom facilities around the state to provide greater access to its members, all contributed to its earning this important award.  The fact that IIAG’s Executive Director, Aubie Knight, is one of the regular instructors for its education program adds a unique twist to it.

The IIAG won this award two years ago (click here for blog post).  It’s nice to know that its education program has maintained a level of excellence.  The next time you see or otherwise communicate with Andrew McElhannon, who is the Member Services Coordinator for IIAG, please remember to thank him for his great work in overseeing the IIAG’s award-winning education program.

Insurance Certificates – What’s New

The proper issuance of insurance certificates appears to be an issue that just will not go away.  I continue to receive calls and e-mails under the Free Legal Service Program that I run for the IIAG about this issue and in particular, requests made by certificate holders for specific language they want included in the Description of Operations box on the ACORD 25 form.

As many of my readers are probably aware, the Insurance Commissioner’s Office has created a website devoted solely to explaining the requirements of the law on insurance certificates that was passed in 2011.  As pointed out in my blog post in April of this year, that website contained conflicting information about what could be put in the Description of Operations box of the ACORD 25 form.  That conflict has now been resolved.  A revised website recently went live.

After input from representatives of IIAG, the language of the website has been changed to make it clear that the prohibition against including a “summary of a policy provision,” the language of which “varies from the precise and complete language” of that provision applies to the Description of Operations box of the ACORD 25 form.  The list of improper actions with respect to the use and completion of an insurance certificate now includes a specific reference to what can be put in that box.  It is improper to include language that summarizes a policy provision in that box, as well as anywhere else on the certificate.  Instead, references to specific policy provisions or endorsements by “exact title, form number, and edition date” can be included in the Description of Operations box and copies of the documents referred to can be attached to the certificate.

The other major change made to the Insurance Commissioner’s insurance certificate website is the addition of a section that explains to whom the provisions of the insurance certificate law apply.  As readers of my blog already know, that law applies to certificate holders and those who request certificates, as well as to insureds, insurance agents, and insurance companies.  It also applies regardless of where any such persons may be physically located, if the property, operations, or risks to be covered by the insurance policy that is the subject of the certificate are located in Georgia.   Agents now have an authoritative source to which they can direct out-of-state contractors or others requesting insurance certificates for proof that the law applies to them.  Agents should also point out that the website refers to the fact that violations of that law can be punished by fines of up to $5,000.00.

The new website still has an e-mail link that can be used to report suspected violations of the law and an explanation of the information needed to do so.  I urge my readers to make use of the e-mail link, as the Insurance Commissioner can’t take action against those persons who violate the law unless he knows about them.

Are You a Responsible Person?

Most everyone considers themselves to be a responsible person.  Ordinarily, that would be a good thing.  However, there is one context in which being a responsible person can expose a person to unwanted liability. It involves the payment of taxes by a business.

A “responsible person” under the tax laws can be held individually liable for any taxes that are owed by a business, but not paid.  For this purpose, a “responsible person” is anyone who controls the funds of a business and thus, could pay any taxes (e.g., sales, income, excise) owed by that business.  Usually, this would include anyone who has the ability to sign checks on behalf of a business, whether or not it is normally their duty to see that all taxes owed are paid.  Most, if not all, agency owners would fit within this description.

A recent Georgia Court of Appeals decision illustrates just how far the liability of a “responsible person” can extend.  In that case, the majority owner of a corporation first paid sales and use taxes owed by the corporation and then petitioned for a refund of part of the taxes paid.  Richard Moore, who was an officer of the corporation with the ability to sign checks on its behalf, was not notified of the refund action by the majority owner.  The majority owner’s petition for a partial refund of the taxes he had previously paid on behalf of the corporation was granted.

You probably know by now where this is headed.  The Georgia Department of Revenue decided that it had made a mistake in granting the refund petition.  But instead of suing the majority owner to get the money back, it sued Mr. Moore.  Understandably, Mr. Moore wondered how he could be held personally liable for the Department’s mistaken refund of taxes that he knew nothing about.

The Georgia Court of Appeals, acting on the Georgia Supreme Court’s holding that “responsible persons” are jointly and severally liable for the payment of all required taxes, held that Mr. Moore did not have to be involved in the refund action in order to be liable for the improper refund of taxes.  Joint and several liability means that a person can be sued individually for a debt owed by more than one person and required to pay the full amount of the debt.  It’s then up to the person sued to go after the other persons who are liable to pay their share of the debt owed.

Mr. Moore’s story should be a warning to all “responsible persons” to make sure that you know what the other “responsible persons” in your business are doing with respect to all the taxes owed by that business.  More fundamentally, all business owners should carefully consider who they rely on to pay the taxes owed by their business and establish procedures to make sure such taxes are paid as and when due.

Must a Retired Agent Maintain a License to Receive Payments From Former Agency?

The Free Legal Service Program I run for the IIAG has provided me with yet another topic for a blog post.  The above question was recently asked of me by a caller to that program.  You would think that there would be clear answer to this question, as it is a situation that has occurred often in the past and with the average age of agency owners continuing its climb toward 60, this situation will most certainly occur even more often in the future.

Unfortunately, there is no clear answer to that question, although I think I know what the Insurance Commissioner’s Office would say.  The applicable statute is O.C.G.A. Section 33-23-4.  On the one hand, paragraph (e) of that statute states that the “the payment or receipt of renewal or deferred commissions” by “any agency or a person” who has “ceased to be” an agent will not be prevented by the earlier provisions of the statute, which state that commissions generated by the sale of an insurance product can only be paid to a licensed agent, limited subagent, or counselor.  If the payments to be made to a retired agent can be characterized as renewal or deferred commissions, which in many instances will be the case, it appears that the agent does not have to maintain a license to be eligible to receive them.

I say appears because the language of that section of the statute also refers to the payments being made to a “licensee” who has “ceased to be an agent, limited subagent, or counselor.”  The use of the word “licensee” after having referred to “any agency or a person” implies that the person to whom the payment of renewal or deferred commissions is being made must still have a license of some sort issued by the Insurance Commissioner’s Office.  This conclusion is supported by the next paragraph of the statute, which exempts an agent who has been licensed for 10 or more consecutive years from the requirement that they be appointed by a least one insurance company, as long as they are not performing the duties of an insurance agent “other than receipt of deferred or renewal commissions.”

Similar language is also found in the section of the Georgia Insurance Code that governs the continuing education requirements for licensed insurance agents.  Agents who meet the same criteria stated above are not required to satisfy any continuing education requirements.  There would be no reason for the above statutory sections if a person who was no longer performing the duties of an insurance agent could receive renewal or deferred commissions without having to maintain a license of any kind.

One may ask what kind of license must such a person maintain if they are not required to be appointed by an insurance company or to satisfy any continuing education requirements.  The answer is found in a regulation first adopted by the Insurance Commissioner’s Office in 1996 and then readopted in 2003.  It describes the requirements for the issuance of a “nonactive license.”   Such a license must be renewed and “all renewal fees” paid annually.   So it appears a retired agent must continue to pay the Insurance Commissioner’s Office an annual fee for the privilege of receiving “deferred or renewal commissions.”

If such an agent doesn’t want to have to pay a fee for that privilege and run the risk of losing that privilege if their nonactive license is revoked or suspended, which presumably it can be for the same reasons as the license of an active agent, it would be better if whatever payments are to be received from their former agency as a result of their retirement be structured so they cannot be characterized as “deferred or renewal commissions.”

Relationships With Business Groups & Other Potential Sources of Customers – What Can Be Done?

I recently received a call on the IIAG Free Legal Service Program that I operate from an agent who was considering establishing a relationship with a business association, for whose members the agent was interested in writing insurance.  The agent had developed a special expertise regarding the insurance needs of the business association’s members and wanted to gain access to them through their association.

The business association on the other hand was interested in receiving compensation beyond a mere referral fee for assisting the agent in gaining access to its members.   In exchange for that compensation, the association was willing to provide assistance to the agent beyond just giving the agent contact information for its members.  Establishing such a relationship with a business group can be a very effective way for an agent or agency to significantly increase its customer base.

The creation of a relationship with a person or entity that is not licensed by the Georgia Insurance Commissioner’s Office raises two significant issues under the Georgia Insurance Code that must be successfully dealt with.  First, there is the prohibition on the sharing of commissions with a person or entity that does not have the proper license from the Insurance Commissioner’s Office.  Second, there is the prohibition on engaging in activities that constitute the sale, solicitation, or negotiation of an insurance product without the proper license from the Insurance Commissioner’s Office.

The first issue can be resolved by entering into a payment arrangement with the unlicensed business group that is not tied in any way to the amount of commissions received by the agent or agency on insurance business written for the group’s members or even to whether any insurance business is written at all.  The agreed on compensation for the performance of services by the business group should be paid regardless of those two factors.

Some people may think that having an employee of the business group get the proper insurance agent’s license and then paying an agreed on share of the commissions received directly to that employee will resolve the first issue.  That would work if the employee was going to keep all the commissions paid to him or her.  However, that is not likely to the case, and if the agent or agency was or should have been aware that the employee would turn over all or any part of such compensation to their employer, then they may well be in trouble with the Insurance Commissioner’s Office.

However, having an employee of the business group get such a license would resolve the other issue raised by the agent or agency’s relationship with that group.  What duties constitute the sale, solicitation, or negotiation of insurance is a gray area and has been the subject of a couple of my earlier blog posts.  Having a properly licensed insurance producer, who is employed by the business group, handle all the insurance related duties that the business group is to perform in exchange for its compensation would avoid any potential problem with the Insurance Commissioner’s Office over that issue.  In the absence of such a employee, the agent or agency would be exposed to potential liability if the Insurance Commissioner’s Office were to determine that one or more of the duties being performed by the business group could only be performed by a properly licensed insurance agent.

Hartford AARP Program Change – An Update

A month or so ago, I wrote a blog post about a proposed change in the agreement for those agencies that participated in the program that the Hartford Insurance Companies have for members of the American Association of Retired Persons (AARP”).  That change would have exposed those agencies to the possibility of being terminated from the program and losing all the policies placed through it without receiving any compensation for that lost business.

I have recently learned that, in response to inquiries by concerned agencies, the Hartford Insurance Companies have stated that the intent of the change in the agreement for the AARP program was not to take away existing business from agencies whose participation in that program was terminated.  Instead, such agencies would be allowed to continue servicing their existing business in the program, they just could not write any new business for it.  Of course, if the general agency agreement with the Hartford Companies was terminated, then the agency would have to move the program business, as well as all its other business with those Companies, to another insurance company or it would lose that business with no further compensation being paid.

The above approach is a reasonable one.  Unfortunately, it was not accompanied by any change in the language of the new agreement for the AARP program.  That language still reads, “Notwithstanding the preceding [agent is entitled to keep expirations if no breach of agency agreement], any [AARP] Member policies not placed with another carrier prior to the expiration of the contractual and/or applicable statutory renewal period of such Member policy shall be renewed with Hartford and immediately transferred to an internal Hartford code upon such renewal.”  There is no exception in that language for the situation where the agency remains appointed by the Hartford Companies.

Agencies should be reluctant to rely on a statement from the Hartford Companies about what they intend to do in the event their participation in the AARP program is terminated, which can happen at any time and for any or no reason, in the absence of any change to the actual language of the program agreement.  In addition, allowing agencies whose participation in the AARP program has been terminated to continue servicing their existing policies in that program raises interesting questions about the various ethical, training, and other requirements imposed on agencies by that program that do not exist under the general agency agreement.

Must the agency still abide by all the ethical, training, and other requirements contained in the AARP program agreement in order to be able to continue to service policies that are covered by it?  Also, how will the agency be able to continue servicing those policies if all its records concerning them must be either destroyed or returned to the Hartford Companies, as required by paragraph 14(b) of the new agreement?  These questions should be addressed up front to avoid any disputes in the future.

The Hartford Companies have made a good start on dealing with the issues raised by the new agreement for its AARP program, but there are still many unanswered questions that need to be addressed before agencies can feel comfortable with their obligations under it.

What’s Next After E-Delivery of Policies and Notices?

Now that the electronic delivery of insurance policies and notices about them has been clearly authorized by the Georgia General Assembly (click here for an earlier post on this subject), the next step for agents who want to continue to work toward a truly paper free office and realize the savings in time and money that result is the use of electronic signatures for documents that, in the past, had to be physically signed by the insured (e.g., an application for or waiver of coverage).  As with the electronic delivery of policies and other documents, there are both legal and practical issues associated with using electronic signatures on documents.  ACORD has published an analysis by a well known law firm of these issues, which was the subject of an article by Jeff Yates of the Agents Council on Technology.

For those of you who have followed my blog posts and articles in the Dec Page magazine on the electronic delivery of insurance policies and other documents, the legal requirements for the use of electronic signatures will be familiar.  They are essentially the same as for the electronic delivery of such documents.  The consent of the customer to the use of electronic signatures must be obtained and that consent is subject to the same disclosure requirements in consumer transactions as for the electronic delivery of documents.  However, the burden of proving the electronic signature of a customer involves much more than proving the electronic delivery of a document.

While it may be enough under Georgia law to prove that a document was delivered electronically by obtaining a receipt of delivery from the recipient’s internet service provider, proving the validity of an electronic signature requires much more.  You must be able to prove not only that an electronic signature was obtained, but also the identity of the person who gave that signature and that the document to which it relates has not been changed since the date of the signature.  The analysis published by ACORD contains guidelines for developing procedures to accomplish these requirements.

There are several technology providers who offer products that they claim will fulfill all the legal requirements.  One of those providers is DocuSign, which has been endorsed by the IIABA and offers a discount to IIABA members.  Another is Silanis, which has recently published a marketing brochure that explains how its product addresses the legal requirements discussed in the ACORD analysis.  That brochure provides a good summation of those requirements and is worth reading for that reason alone.

If any of my readers have begun using electronic signatures in their agencies, I would appreciate hearing about your experience.

Should the Insurer be Sent a Copy of an Insurance Certificate?

A recent edition of IA News & Views asked this question.  My first thought was why bother, since under Georgia law an insurance certificate is “not a policy of insurance and does not affirmatively or negatively amend, extend, or alter the coverage afforded by the policy to which the certificate of insurance makes reference” and does “not confer to a certificate holder new or additional rights beyond what the referenced policy of insurance expressly provides.”  However, a review of the materials on the IIABA website page that is devoted to issues involving insurance certificates convinced me otherwise.

It turns out that the language of some insurance policies may be interpreted to provide coverage based on the contents of an insurance certificate issued by an agent regarding the policy.  If that is the case, then the failure of the agent to give a copy of the insurance certificate to the insurance company could be a basis for the insurance company to escape responsibility for providing coverage, leaving the agent with that liability exposure.  To make sure an agent or agency does not fall into any such traps for the unwary, I agree with the conclusion expressed on IIABA’s website page that copies of all insurance certificates issued should be sent to the insurance company involved regardless of what that company has said about the subject, unless the company is willing to indemnify and hold harmless an agent or agency for any claims that may arise based on the issuance of an insurance certificate.

In addition to the above practical reason for providing a copy of all insurance certificates issued to the insurance company involved, a regulation adopted by the Georgia Insurance Commissioner’s Office could be interpreted to require that to be done.  That regulation, 120-2-103-.06, requires an insurance company to “provide to their producers written instructions clearly outlining the insurer’s procedures and each party’s responsibilities for issuing and servicing certificates”, which procedures are to include  a method to “monitor certificates to ensure they have been issued in compliance with the insurer’s procedures, applicable statute and this regulation.”  Another part of the regulation permits copies of certificates to be provided “electronically.”

How can an insurance company fulfill the above obligation without requiring the submission to it of copies of the insurance certificates issued by its “producers”, i.e., agencies and agents?  I would be interested to know what, if anything, insurance companies licensed in Georgia have done in response to the above regulation.  If any of my readers could send me a copy of any such written instructions they have received, I would appreciate it.

Must an Agent Report His or Her Own Wrongdoing to the Insurance Commissioner?

Several months ago, I wrote a blog post on the legal duty of an agent to report wrongdoing by others to the Insurance Commissioner’s office.  As explained in that post, under certain circumstances, such a legal duty does exist.  But what about the wrongdoing of the agent himself or herself?   Does an agent have the duty to report such wrongdoing to the Insurance Commissioner’s office, too?

It turns out that such a duty does exist for (i) any type of criminal prosecution involving the agent, (ii) the conviction or sentencing of the agent for certain types of crimes, (iii) any suspension, revocation, or annulment of a business or professional license of any kind held by the agent, and (iv) any suspension, revocation, or refusal of an insurance license held by the agent.  In addition, there is a duty to notify the Insurance Commissioner’s office in the event any “other disciplinary action” is taken by a “lawful authority” with respect to an insurance or other business or professional license.  The source of this duty is found in the section of Georgia’s Insurance Code that deals with the grounds for suspending, revoking, or refusing to issue a license of any kind under that Code.

That code section makes the failure to report to the Insurance Commissioner’s office (i) a criminal prosecution of any kind within 30 days after the date of arrest, (ii) the conviction or sentencing for a felony or any crime involving “moral turpitude” within 60 days after it occurs, or (iii) the taking of a disciplinary action against an insurance or other business or professional license within 60 days after the action is taken a ground for suspending, revoking, or refusing to issue an insurance license of any kind.  This reporting duty exists with respect to any of the above actions whether they occur within or outside of Georgia and even if they occur in a foreign country.

Thus, if there is “disciplinary action” taken with respect to an agent’s non-resident license anywhere in the United States, that action must be reported to the Georgia Insurance Commissioner’s office.  It is also likely that other states have laws similar to Georgia’s, so there may well be a duty to report any such “disciplinary action” to every other state in which the agent holds a resident or non-resident’s license.

There is no definition of what constitutes “other disciplinary action”, but it is likely the Insurance Commissioner’s office would interpret that phrase to include any type of sanction levied by a regulatory body, no matter how small the fine or other penalty imposed.  Another interesting question is whether the above reporting duty also applies to actions taken against agencies, instead of individual agents.  The opening language of the code section refers to the “applicant for or holder of” a license of any kind, other than a probationary license, but the language of the parts of that code section that deal with “other disciplinary action” refer to such action “taken against him or her.”  While this use of individual pronouns may provide a basis for arguing those parts of the code section don’t apply to agencies, it is also likely the Insurance Commissioner’s office would not agree with such an argument.

Change in Hartford AARP Program

I received a call last week on the free legal service program that I run for the Independent Insurance Agents of Georgia from an agent who had recently received a new addendum for the program that the Hartford Insurance Companies have for members of the American Association of Retired Persons (“AARP”).  This new addendum made some changes to the program, but the one that most concerned this agent had to do with what happens to the policies that are in force under the program in the event the addendum was terminated.

As my readers know, what happens to the policies that are in force with an insurance company upon the termination of the relationship between an agency and the company is a crucial question in all agency agreements.  That is especially true for Hartford’s AARP program because it offers guaranteed renewability for the insureds who participate in it.  Ordinarily, as long as the agency has not violated any provisions of the agreement with the insurance company, the agency is given the ability to move the policies to another company.  But that is not likely to happen with the policies that are in force under Hartford’s AARP program given their guaranteed renewability feature.  Most likely, the insureds under those policies will want to stay with Hartford’ s program.

Recognizing this fact, the previous addendum for Hartford’s AARP program required Hartford to notify the insureds under it of the termination of the agency’s participation in the program and to ask each insured to decide whether they wanted to stay in the program with another agent or obtain new coverage through their existing agent.  If the insured chose the stay in the program with another agent, Hartford was required to pay the existing agent 1.5 times the most recent annual commission for the insured’s policy.

Under the new addendum for the AARP program, Hartford is not required to give any notice to the insureds of the agency’s termination from the program and more importantly, is not required to pay the agency anything for the policies that it is not able to move to another company by the their next renewal date.  Instead, all such policies will be “renewed with Hartford and immediately transferred to an internal Hartford code upon such renewal” and “no commission or other compensation will be due to” the agency for any such policy.

Since under the new addendum Hartford can terminate an agency’s participation in the AARP program immediately for any or no reason, if an agency elects to continue to participate in the program under the new addendum, it runs the risk of losing its right to participate in the program at any time and will not receive any compensation for the policies it placed with the program that it cannot move to another company by their next renewal date.  If an agency elects not to continue to participate in the program under the new addendum, it will have the right to receive the compensation described above for the policies that it cannot move to another insurance company.   Of course, it will run the risk that Hartford will choose to terminate its general agency agreement in light of the agency’s unwillingness to accept the new addendum to the AARP program.

Agencies that participate in Hartford’s AARP program have a decision to make.  Continue under the program and lose the right to compensation for policies it cannot move to another company if its participation in the program is terminated or opt out of the program and obtain compensation for those policies, but run the risk that Hartford will terminate its general agency agreement.  What to do will require some serious cost benefit analysis by the affected agencies.