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.

 

 

 

 

Who Can Be The Owner Of An Insurance Agency?

Over the Holidays, I received a couple of calls on the Free Legal Service program I operate for the members of the Independent Insurance Agents of Georgia that were about some basic issues involved in conducting the business activities of a Georgia insurance agency.  I will address the issues raised by one caller’s question in this post and the issues raised by the other caller’s question in a later post.  The first caller asked whether a person had to have an insurance agent’s license to be the owner of an insurance agency.  The answer to that question is No.

In fact, it is possible under the Georgia Insurance Code that none of the owners of an insurance agency have an insurance agent’s license.  That Code only requires those persons associated with an insurance agency who “sell, solicit, or negotiate insurance contracts” to have such a license or that of a limited subagent or counselor.  As long as an owner of the agency does not take part in the sale, solicitation, or negotiation of an insurance contract, as those terms are defined in the Code, the owner is not required to be licensed in any way by the Insurance Commissioner’s Office.  However, such an owner’s name, date of birth, social security number, and residence address must be provided to that Office to obtain a license for the agency.  For some reason, the same information must also be provided for each officer and director of an agency who does not have a license issued by that Office.

Under the Georgia Insurance Code, the only prohibition on who can be an owner of an insurance agency involves a person who has had a license refused, revoked, or suspended by the Insurance Commissioner’s Office.  Even then, if the agency is a corporation, such a person could be an owner of the agency, as long as they did not own 10 percent or more of its issued and outstanding stock.  However, such a person could not be an officer or director of the agency under any circumstances.  This Code section does not refer to limited liability companies, so it is unclear whether a person who has had a license refused, revoked, or suspended by the Insurance Commissioner’s Office could be a less than 10 percent owner of an insurance agency that is organized as a limited liability company.

 

Holiday Wishes

This will be my last post of 2014, and I thought it would be a good time to  make some wishes for 2015.  First, I wish the Insurance Commissioner’s Office will address the issues that have arisen regarding insurance certificates since the passage of the statute and the issuance of its regulation.  There is still a lot of uncertainty among agents over what information can and cannot be included on a certificate and what law applies when a request for a certificate comes from outside Georgia.

A related wish is for insurance companies in Georgia to take more responsibility for the issuance of insurance certificates in their name.  They need to let their agents know what procedures should be followed and establish systems for making sure they are followed, so those agents who try to “play by the rules” are not put at a disadvantage by others who are not as concerned with doing so.

Nationally, I wish the new Congress will quickly pass the terrorism reinsurance bill (known as TRIA) and the agent reciprocal licensing bill (known as NARAB II).  Both bills had significant bipartisan support and were poised for passage in the recently completed lame duck session of Congress, but were derailed by Senator Coburn of Oklahoma.  Fortunately, he has retired and with the support of the IIABA, which has made quick passage of these two bills a top priority, this wish may actually come true.

I also wish that the economic recovery, which now seems to be reaching Main Street as well as Wall Street, continues its accelerated pace (5% in the third quarter) and that all the insurance agencies and other businesses in Georgia have a happy and prosperous New Year as a result.

If that happens, the job of the new executive director of IIAG, Michael T. Walsh, will be a little easier.  I wish him the best of luck in his new job.  He has some big shoes to fill, but he has a strong resume and a good staff, so the transition should go well.

Finally, I wish that the spirit of the Holiday Season, especially the peace on Earth and goodwill toward men (and women) part, will continue throughout 2015.  If everyone would just show a greater tolerance and respect for others who are different from them, I think that would go a long way toward achieving my last and most important wish.

Insurance Certificates – Another New Issue

Last week I wrote about an insurance certificate issue that was discussed at some length at IIAG’s Commercial Lines Committee meeting.  It concerned the scope of Georgia’s law and the regulation issued by the Insurance Commissioner on insurance certificates.  A related question was also briefly discussed.  Is an insurance agent required to sign an insurance certificate to make it valid?

Like most people, I had assumed that since the approved forms for insurance certificates contained a signature block for the “Authorized Representative”, that someone had to sign the certificate for it to be valid.  Since agents who have signed certificates that became the subject of litigation have been sued, whether an agent is required to sign the certificate to make it valid is an important question.  After reviewing Georgia’s statute and regulation, I am not sure what the answer to that question is under Georgia law.

The instructions to ACORD’s insurance certificate form state that the signature block is for the “authorized representative” of the insurance company whose policy or policies are the subject of the certificate, but they acknowledge that such a signature is not required by the law of every state.  The comment was made at the Commercial Lines Committee meeting that ACORD intended to change its instructions to make clear that no signature was required unless the applicable law said one was necessary.  Georgia’s statute and regulation both define an insurance certificate as a document that “is prepared or issued” by an insurance company or agent.  Nothing is said about whether anyone has to sign that document to make it valid.

In the absence of any specific language in Georgia’s law or regulation, whether an agent must sign a certificate of insurance to make it valid would be governed by the rules of the insurance company whose policy or policies are the subject of the certificate.  Georgia’s regulation requires all insurance companies to “provide to their producers written instructions clearly outlining the insurer’s procedures and each party’s responsibilities for issuing and servicing certificates.”  Those procedures should address whether an agent’s signature on the certificate is required to make it valid.  If not, it becomes an open question whether such a signature is required for an insurance certificate issued for property, operations, or risks located in Georgia.  As noted in last week’s blog, for property, operations, or risks located in another state, the agent would have to look to the law of that state for an answer to this question.

Based on the comments made at the Commercial Lines Committee meeting, it seems there will be an effort made to make some changes to Georgia’s regulation on insurance certificates in 2015.  This subject should be added to the ones discussed at that meeting.

On another note, the Commercial Lines Committee was told that 83 complaints have been made to the Insurance Commissioner’s Office using the e-mail address that is found on its website devoted to insurance certificates.  Of those, five have been referred to the fraud division for investigation.  Not bad numbers for roughly one year of operation. For anyone who may be concerned about the repercussions of making a complaint using that e-mail address, the committee was assured that the identity of all the people who make complaints is kept confidential.

Insurance Certificates – New Issue

As proof that questions about insurance certificates remain and are still a hot topic among insurance agents, the first item discussed at yesterday’s meeting of IIAG’s Commercial Lines committee was insurance certificates.  A new issue that I had not heard before concerned what should a Georgia insurance agency do when one of its insureds is performing work in another state and the person or entity for which the work is being performed asks for a certificate of insurance that contains language which would not be permissible under Georgia law.  The concern was expressed that the issuance of such a certificate by the Georgia agency would subject the agency to the penalties imposed by that law, because it was issued in Georgia.

Although not crystal clear, the Georgia insurance certificate statute does contain language that addresses the above situation.  In pertinent part, it states that its provisions “shall apply to all . . . certificate of insurance forms issued as evidence of insurance coverages on property, operations, or risks located in this state, regardless of where the certificate holder, policyholder, insurer, or insurance producer is located.”  Its that last clause about the location of the persons involved with a certificate that seems to have created some confusion in the minds of Georgia insurance agents.  The first part of the above language tells me that the requirements imposed by Georgia law only apply to certificates of insurance that are issued for things located, or activities taking place, in this state.  If the thing or activity for which the insurance certificate is issued is not in Georgia, Georgia law does not apply to that certificate, even though it is issued by a Georgia insurance agency or agent. Conversely, the last clause of the above language tells me that if that thing or activity is in Georgia, Georgia law applies to the certificate issued for it regardless of the location of the person issuing the certificate, the holder of the insurance policy that is the subject of the certificate, or the person to whom the certificate is issued.

The above application of Georgia’s insurance certificate law is consistent with the constitutional principle that a state government’s laws can only apply to persons, places, or things that are located, or activities that occur, within the borders of that state.  Thus, for agencies that have insureds who engage in business activities in other states, it is important to know what the laws of those states say about the issuance of insurance certificates.  Fortunately, the IIABA has compiled a list of such laws for every state.  That list was last updated in May of this year and can be found by clicking here.

There was some discussion at the Commercial Lines committee meeting about making changes to the regulation that has been issued by the Insurance Commissioner to clarify the scope of Georgia’s insurance certificate law.  Stay tuned for further developments.

 

 

 

 

 

What’s New with Obamacare?

It’s been awhile since I wrote anything about the Affordable Care Act, commonly known as Obamacare.  That’s mainly because the rules keep changing, especially for that provision of the law known as “play or pay”, which applies to employers and requires them to either provide “affordable” and  “minimum essential” insurance coverage to their employees or pay a penalty for not doing so.  What constitutes “affordable” and “minimum essential” insurance coverage has not changed, but whether an employer will be subject to a penalty for not offering such coverage in 2015 has changed.

Last year the “play or pay” penalty was delayed for all employers until January 1, 2015. This year the “play or pay” penalty has been delayed until January 1, 2016 for those employers who have 50-99 full-time employees or their equivalents, if they meet certain requirements, and has been watered down for those employers with 100 or more full-time employees or their equivalents.  As I explained in a earlier post, employers with 30 or fewer full-time employees (those who are normally expected to work an average of 30 or more hours a week), do not have to worry about the “play or pay” penalty in 2015 and beyond, because in calculating the amount of the penalty, the first 30 such employees are not counted.  For employers with 100 or more full-time employees or their equivalents, the exemption from the “play or pay” penalty for 2015 has been increased to the first 80 full-time employees.  So, if such an employer has 80 or fewer full-time employees during 2015, it will not pay a penalty if it does not offer insurance coverage at all or even if it offers such coverage that is not “affordable” and “minimum essential.”

For employers with 100 or more full-time employees or their equivalents who offer insurance coverage under non-calendar year plans, there are other ways they can escape the “play or pay penalty” without having to offer “affordable” and “minimum essential” coverage to 95% of their full-time employees, which is what Obamacare initially required. For an explanation of these other ways and the changes made in the “play or pay” penalty for 2015 in general, click here.

In order for employers with 50-99 full-time employees or their equivalents to escape the “play or pay” penalty for 2015, they must continue to do what they have been doing since February 9, 2014.  If they have not offered insurance coverage to their employees since that date, they do not have to offer such coverage during 2015.  If they have offered such coverage on or after that date, they must continue to offer the same coverage to the same employees and contribute the same amount toward the premium for employee only coverage during 2015, but that coverage does not have to be “affordable” or “minimum essential.”

The open enrollment period for 2015 individual insurance coverage runs from November 15, 2014 through February 15, 2015.  Insurance agents and brokers who want to be able to assist individuals in obtaining coverage through the federal insurance exchanges and the Small Business Health Options Program, more commonly known as SHOP, must register or re-register with Centers for Medicare and Medicaid Services (“CMS”).  For a copy of the slides from a recent seminar on that subject that explains the requirements for insurance agents to take part in those programs, click here.

One new benefit for registering with CMS is that an agent’s name and contact information will be accessible from the home page of the healthcare.gov website under “Find Local Help.”  For an article about this new benefit and how an agent can change their contact information, click here.

My Thanks to You

There is a time-honored tradition in many households on Thanksgiving for everyone at the dinner table to tell one thing about which they are particularly thankful.  I wanted to take this opportunity to thank my readers for their interest in my blog posts.  I have made over 130 posts since starting this blog in June 2012.  Hopefully, most of them have been of interest and helpful to my readers.

As noted on my Feedback/Suggestions page, this blog is an ongoing process and if you have any suggestions for topics of interest that you would like me to discuss or any constructive criticism that you would like to make about Georgia Agency Resource, please feel free to use the Comment box below to let me know what you think.  So far, I have not received very many such comments.  In the spirit of the season, I have chosen to believe that is because I have discussed topics of interest to Georgia insurance agents in a way that provides value to them in running their agencies.  If that is not so, please let me know what I need to do to make that true.

BEST WISHES FOR A HAPPY THANKSGIVING FOR YOU AND YOUR FAMILY. 

I Have Decided to Fire An Employee – What Next?

Last week I wrote about the laws that govern the firing of an employee and what steps an employer should take to protect itself from claims by a fired employee under the federal employment discrimination laws.  Please see that post to determine whether your company is subject to those federal laws.  If so, once you have decided to fire an employee, you should meet with him or her in private and have another management level person present to act as a witness.  The meeting should be kept as short as possible and the employer should avoid getting into a discussion with the employee over the validity of the reason for their firing.  After the meeting, what was said and done by the participants should be documented in a memo to the employee’s personnel file.

In deciding what reasons to give, the employer should keep in mind that it may be required to prove them if the employee decides to file a complaint with the Equal Employment Opportunity Commission.  One reason is enough and it should be the most important and easily provable (i.e., best documented) one, but the employer should make it clear that other reasons also exist so as not to be limited to the reason given in its defense of any claim the employee may make.  In order to avoid the possibility of a lawsuit by terminated employees, many employers offer to pay severance benefits in exchange for the employee signing a general release of all claims against the employer.  To be enforceable, the employee must be given something of value that they are not otherwise entitled to receive and for the release of age discrimination claims, certain specific language must be included in the release document.

As noted in last week’s post, even those employers who are not subject to the federal employment discrimination laws would do well to follow the above employment termination procedure.   If possible, before the employee leaves the employer’s premises, all employers should make sure that the terminated employee has returned all property belonging to the employer and the employer should take whatever steps are necessary to make sure that the employee no longer has access to its computer system and the ability to post items on its website or social media platforms.

At the termination meeting or as soon afterwards as possible, the employee should be given a completed and signed Separation Notice on the form required by the Georgia Department of Labor.  That form requires the employer to, among other things, state the reason for the termination of the employee.  That reason should be consistent with what the employee was told.  In order for the employee to be denied the right to receive unemployment compensation, the reason on the form must be the knowing and intentional violation of an employer’s rule, order, or instruction and the employee must have known ahead of time that such a violation could result in the termination of their employment.  This is a very heavy burden to meet and is made all the more difficult by the presumption in favor of granting unemployment benefits wherever possible.

Even if the employer has no objection to the terminated employee receiving unemployment benefits, it should respond to any written requests from the Georgia Department of Labor for information related to the employee’s claim for such benefits.  Under a federal law that became effective in October 2013, if an employer fails to adequately and timely respond to such an information request for three separate unemployment benefit claims during any calendar year, they will be automatically charged for any subsequent benefit claims paid during that year, even if the payment of such claims is later reversed on appeal or an overpayment of benefits occurs.

What All Georgia Employers Should Know About Firing Employees

I have gotten some calls recently on the Free Legal Service Program that I run for the Independent Insurance Agents of Georgia about how an employer should approach the firing of an employee.  Many of my readers are probably aware that Georgia is an “at will” employment state.  What this means is that, absent any agreement to the contrary, an employer is free to fire an employee at any time for any or no reason and an employee is free to quit his or her job at any time for any or no reason.

The above rule applies almost without qualification (there are limited state statutory exceptions to the rule and termination of employment for the assertion of rights under the Fair Labor Standards Act, the National Labor Relations Act, and the Occupational Safety and Health Act is prohibited for all employers subject to those acts) to any employer who has less than 15 employees of any kind (full-time, part-time, temporary, or seasonal) for 33 or more weeks out of the current and immediately preceding calendar years.  If an employer has 15 or more employees for 20 or more calendar weeks in either the current or immediately preceding calendar year, they are  covered by the federal employment discrimination laws.  Those laws prohibit the taking of “adverse employment actions” based on race, color, sex, religion, national origin, pregnancy, and disability.  Employers with 20 or more employees during either of the above time periods are also prohibited from taking such action based on the age of an employee.

For those employers who are subject to the federal employment discrimination laws, it is essential that there be a reason unrelated to the characteristics protected by federal law for their termination of an employee.  Otherwise, the employee will be free to claim that they were fired because of such a characteristic.  In addition to having a reason, the existence of that reason must be documented.  Otherwise, it becomes a swearing contest between the employer and employee over why the termination occurred.  This means that the employer should note in the employee’s personnel file any instances of improper conduct or failure to satisfactorily perform duties and should have and document meetings with the employee to discuss those problems and tell the employee what must be done to correct them.  At these meetings, the employee should be informed of the consequences of their failure to satisfactorily correct the problems discussed, especially if one of those consequences is the termination of their employment.

By creating the above paper trail, an employer will be well-positioned to defend against any claim by the employee that they were fired for an illegal reason under the federal employment discrimination laws.  Even employers who do not have to worry about those laws should follow the above procedure in terminating employees because it demonstrates fairness and a commitment on the part of the employer to do what it can to help its employees succeed in their jobs.  That in turn should lead to increased employee morale and productivity.