Does An Agency Have to Pay Its Employees If Its Offices Are Closed?

As I sit at home waiting for the ice to melt off the roads, I thought it would be a good idea to make my annual post on the above topic.  The fact that most of the school systems in the metro Atlanta area and North Georgia were closed yesterday and again today has created some difficult child care decisions for employees of agencies in those areas; stay home with the kids or find someone to watch them so mom or dad can go to work.

As noted in my past posts on this topic, the answer to the above question 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.  I addressed how to decide whether a particular employee is a nonexempt or exempt employee in posts in 2016 about the new overtime rule that had been proposed that year, but has since been permanently stayed by the federal courts.  Even though the new rule will not take effect, it is still essential for classification as an exempt employee that the employee be paid on a salary basis in an amount that equals at least $455.00 per week.  Payment on a salary basis means the amount of an employee’s pay cannot be reduced based on the quality or quantity of the work performed by the employee during any one work week. The other requirements that must be met to be an exempt employee are explained in my earlier posts.  Nonexempt employees 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.  The same rule applies if the agency’s offices are open and a nonexempt employee does not come in or do any work from home.  This is true regardless of whether the nonexempt employee is being paid a salary or on an hourly basis by the agency. As noted above, if a nonexempt employee performs any work from home on a day when the agency’s offices are closed, they must be paid for the time they actually worked.

Whether an exempt employee’s salary may be reduced depends on whether the agency’s offices were open.  An exempt employee’s salary may only be reduced if the agency’s offices are open, but the exempt employee does not come in due to any reason other than sickness or do any work from home.  Therefore, if an exempt employee decides to stay home to take care of children who are not in school or due to severe weather decides they just can’t get to work, their next paycheck may be reduced by an amount equal to the number of full days they did not perform any services for the agency, if the agency’s offices were open for business during that time period.  However, if the exempt employee performed any work from home on a day when the agency’s offices were open, they must be paid as if they worked the whole day.

If the agency’s offices were not open for business due to inclement weather or any other reason for one or more days during a work week and an exempt employee performs any work during that workweek whether in the office or from home, they are entitled to be paid their full salary for that week.  But the agency can require such an employee to use any accrued vacation or other leave time for the time when its offices were closed.  If its offices are closed for the full work week and an exempt employee did not perform any work from home during that week, the agency can reduce the exempt employee’s pay for the number of days of that work week.

Can An Employee Who Is Sick Be Required To Go Home?

The above question was posed to me by a participant in the Free Legal Service Program that I operate for the Independent Insurance Agents of Georgia.   In light of the beginning of flu season, which according to some reports may be a bad one, it is likely that many employers will have to deal with this situation.  The short answer to the above question is Yes.  An employer actually has a legal duty to provide a safe working environment for its employees.  Requiring a sick employee to go home and thereby, avoid the possibility that they will infect other employees would be consistent with that duty.

The only potential problem with an employer requiring a sick employee to go home arises if the employer is subject to the federal employment discrimination laws, i.e., has 15 or more employees.  If such an employer has not required other sick employees to go home in the past and the sick employee in question is protected by those laws, there could be a claim of unlawful discrimination, if requiring the sick employee to go home would have an adverse effect on the employee.  Such an effect would occur if the employee’s pay was affected by being sent home.

If the sick employee who is sent home is not exempt from the overtime pay requirements of the Fair Labor Standards Act (“FLSA”), the employer is only required to pay the employee for the time they actually worked.  Thus, a sick non-exempt employee would only be entitled to payment for the time they were at work.  They would lose pay for the time they would have been at work if the employer had not told them to go home.  Such an employee may have an unlawful discrimination claim if they were sent home and other sick employees were not.

If the sick employee is exempt from the FLSA’s overtime pay requirements, the employer cannot reduce their pay for the time they missed at work.  Such an exempt employee must be paid for a full day’s work regardless of how long they were at work.  However, if the employer has a practice or policy of granting paid leave for employees who are sick, the employer can require that the employee make use of such paid leave for any time they miss work due to illness or injury.

 

 

 

Happy New Year!

It’s been a while since my last post.  I have been busy working and traveling during the last two months of 2017.  I spent a week cruising around Cuba at the end of November and a week visiting England and Scotland at the end of December.  I highly recommend visiting both places.  The people and the scenery were great in both places.  So was the food and drink.

One of my New Year’s resolutions is to do a better job of making regular posts.  My first one of this year will appear tomorrow morning.  It concerns an issue that all employers have to deal with, especially during this time of year.  Look for it at 10 a.m. tomorrow.

I hope all my readers had a safe and enjoyable Holiday Season and best wishes to them for a happy and prosperous New Year.

Insurance Certificates – Use of Additional Remarks Schedule

A couple of weeks ago I wrote a blog post on the legality of agents issuing opinion letters about the coverages provided by their insured’s insurance policies.  The next week, I received an email from a participant in the Free Legal Service Program that I run for the Independent Insurance Agents of Georgia asking me to take a look at the language on an Additional Remarks Schedule that another agency had been routinely adding to the certificates of insurance it issued.  That schedule contained language that purported to revise the “cancellation clause” of ACORD form 25.  It stated that the agency that issued that document would “provide a 30 day notice of cancellation to the certificate holder” if any of the policies described on the ACORD form 25 were “cancelled prior to the expiration dates thereof but only as required by written contract.”

The addition of the above language to an ACORD form 25 is bad for the agency in question on two levels.  First, it provides a basis for the certificate holder to sue the agency if it does not do what it states it will do.  That could very well happen if there is a cancellation for non-payment of premium or the premium has been financed or the agency fails to effectively monitor the cancellation notices it receives.  Depending on the situation, the damages for a violation of this self-imposed duty could be significant.

The agency may be counting on the condition added at the end, “but only as required by written contract’, to limit its exposure.  However, it is unclear what “written contract” is being referred to.  If the reference is to the policy of insurance described on the ACORD form 25, it is entirely possible that what is in that policy of insurance is not consistent with the rest of the language on the Additional Remarks Schedule.  That would expose the agency to disciplinary action by the Insurance Commissioner’s Office, as the insurance certificate statute and the regulations adopted by that Office prohibit the preparation or issuance of a certificate of insurance “that contains any false or misleading information.”  If the reference is to another separate contract between the agency and the certificate holder, that would be a violation of the prohibition on making reference in an insurance certificate to any contract other than the contract of insurance identified in the certificate.

The attempt to revise the “cancellation clause” of the ACORD form 25 also runs afoul of the section of the statute that states, “A certificate holder shall have a legal right to notice of cancellation, nonrenewal, or any material change, or any similar notice concerning a policy of insurance only if the person is named within the policy or any endorsement and the policy or endorsement requires notice to be provided. The terms and conditions of the notice, including the required timing of the notice, are governed by the policy of insurance and cannot be altered by a certificate of insurance.”  By attempting to specify what notice of cancellation will be provided regardless of what the insurance policy in question states, the agency has violated this statutory requirement and put “false or misleading information” on the certificate.

Finally, the addition of the language in question may also result in the certificate of insurance being rendered useless, as the statute states any certificate of insurance “prepared, issued, or requested in violation of this Code section shall be null and void and of no force and effect.”  Such an outcome would provide another basis for the certificate holder, as well as the insured, to sue the agency.

I realize the competitive pressure to do what a prospective certificate holder wants done is great. However, the risk assumed by the agency and the agent involved in the issuance of the above Additional Remarks Schedule is greater.  They may lose a customer if they don’t issue such a document, but they would be exposed to potentially significant liability and may find their licenses suspended or revoked if they do.

 

Brokerage Fees – Revisited

A recent Bulletin from the Insurance Commissioner’s Office has caused me to reconsider a blog post from almost five years ago.  In the Bulletin, the Insurance Commissioner reminded brokers who handle excess and surplus lines policies that they cannot collect sums for those policies in excess of the “premiums and charges for insurance specified by the insurer in the insurance policy.”  This prohibition is found in the Unfair Trade Practices section of the Georgia Insurance Code.  That section contains a specific reference to excess and surplus lines policies and states “the premiums and charges for insurance. . . shall not be in excess of or less than those specified in the policy.”

In my previous blog post, I concluded that a broker who had no contact with the insured and was acting purely as an intermediary between the insurance company and another insurance agency or agent could charge whatever they wanted for their services.  That conclusion is now open to question if such a broker’s services are considered to be part of the process of obtaining insurance coverage, and thus, covered by the phrase “premiums and charges for insurance” found in the above code section.

That clearly appears to be the Insurance Commissioner’s conclusion with respect to the services performed by excess and surplus lines brokers.   According to the above Bulletin, they can only receive whatever compensation is included within the “premium” or other “charge” specified in a surplus lines insurance policy.  In another section of Georgia’s Insurance Code, “premium” is defined broadly to include “any assessment or any membership, policy, survey, inspection, service, or similar fee or charge in consideration for an insurance contract.”  Such fees or charges for the broker’s services are routinely included in the amount charged by the insurer for a surplus lines policy.

However, in other types of policies such additional fees are not usually included as part of the “premium” that is to be paid for them.  If the Insurance Commissioner believes that the services provided by a broker who has no contact with the insured are part of the process of obtaining any type of insurance coverage, not just excess and surplus lines coverage, then such a broker cannot charge a fee for their services, except to the extent such a charge is included in the “premium” specified for the insurance coverage in question.  In the absence of anything about such a charge in the stated “premium”, the broker would be limited to sharing in the commissions payable for such coverage as compensation for their services.

Until there is clarification on this point from the Insurance Commissioner’s Office, to be safe, a person acting as a broker for any insurance coverage should not charge a separate fee for their services, unless provided for in the stated “premium” for the policy in question.  They should just receive a share of the commission paid for that policy.

Insurance Certificates and Opinion Letters

My last post about insurance certificates was almost two years ago.  At that time, the consensus seemed to be that issues regarding them were declining as all the interested parties became more familiar with Georgia’s law and regulations.  However, I learned from a recent participant in the Free Legal Service program that I run for members of the Independent Insurance Agents of Georgia that six years after they were enacted some people have still not gotten the message.

The agent contacted me about requests that he received “all the time” to provide a letter stating that his agency’s customer “has or can provide the required types and amounts of insurance coverage” specified in a contract to which the customer either was already or would become a party.  The agent was concerned that providing such a letter called for an opinion outside of the scope of his knowledge or duties and thus, could create a potential E&O exposure.  He was correct to be concerned about the potential liability exposure he would create by providing such a letter.  It could be the basis for a claim by the entity to which it was sent if what was said in the letter was not completely accurate.

Avoiding such a potential liability exposure is one reason not to send such a letter, but an even better reason is that it would be illegal to do so and could subject the agent to disciplinary action by the Insurance Commissioner’s Office.   O.C.G.A. Section 34-24-19.1, specifically prohibits anyone from preparing, issuing, or requesting “either in addition to or in lieu of a certificate of insurance, an opinion letter or other document or correspondence that is inconsistent with this Code section.” That law goes on to state that “No certificate of insurance shall contain references to contracts, including construction or service contracts, other than the referenced contract of insurance.”

This prohibition was clarified in the regulations subsequently issued by the Insurance Commissioner’s Office.  Those regulations prohibit the reference in an insurance certificate “to any language or contents in the construction or service contracts.” The only thing that can be referred to in the insurance certificate is “a reference or contract number from the construction or service contract for identification purposes only.” The regulations also flatly state that “Neither an insurer nor a producer shall be required to issue an opinion letter or other document in addition to or in lieu of a certificate of insurance.” Instead, “Insurers and producers may provide the certificate holder with the certificate and an actual copy of the policy, insurance binder or relevant policy provision to demonstrate contractual compliance.”

If an agent can’t refer to contracts other than contracts of insurance in an insurance certificate, then as the regulations make clear, an agent can’t refer to other contracts in an opinion letter or other document that is requested by the certificate holder or anyone else.  If the person requesting such a letter insists on it being provided, the agent should point out to that person that the above law prohibits requesting such a letter or other document, as well as providing it, and that a fine of up to $5,000 can be imposed for its violation.

Severe Weather Issues for Insurance Agencies

Given the likelihood that Hurricane Irma will have a significant impact on the Georgia coast and potentially other areas of the state, I thought it would be a good idea to remind agency owners of the rules regarding payment of their employees if their offices are closed.  My blog post in January of this year explains those rules in some detail.

Another issue concerns the steps that should be taken to protect an agency’s data and technology.  The best advice I have seen on that subject was from a company that offers consulting services on the operation of law firms, but it applies equally to insurance agencies.  It is as follows:

1. Contact your IT team today to verify what is being backed up and that your backup is functioning properly. Ask them to run a test backup and restore to confirm proper operation.
2. Verify where your backups are being kept (local, online) and how you can access backed up data.
3. Verify who to contact after the storm to restore data if necessary.
4. Set up a call list with your attorneys and staff to ensure everyone is safe. Include cell and landline numbers on the list.
5. Pick up computers and all electronic or electric equipment from the floor and consider moving them to interior offices. Unplug anything that does not need to be plugged-in to protect from power surges often associated with storms.
6. Remove all loose papers off your desks and floor so they don’t end up on the street if windows break.
7. Bring all insurance paperwork with you when you leave the office.
8. Make working copies of essential data and documents needed to meet upcoming deadlines in the event you lose access to your server or online storage. Either print what you need or copy files to an encrypted USB drive.
9. Note the exact versions of all of your critical software. You will need this information if you need to reinstall software or restore from backup. You can do this two ways.
o In each program, go to Help, About. Take a screen shot of the entire window and print it or save it to a secure location.
o Download, install, and run Belarc Advisor. Belarc will run a report in your web browser with all of your hardware and software details. Print it or save it to a secure location.

Finally, although it may be a little late, this blog post from three years ago deals with the preparation of disaster recovery plans and the resources available to assist agency owners in creating one.  If nothing else, those resources explain ways to stay in touch with an agency’s employees and customers during and after a severe weather event or other disaster that can be implemented now.

Best of luck to those of you in the path of Hurricane Irma.  It’s never too late to take action to protect your homes, families, and businesses.  Hopefully, this post will give you some direction on what to do.

 

Is An Agency Required To Obtain A License When Its Agent Must Obtain a Non-Resident License?

My last blog post dealt with the question of when an insurance agent must obtain a non-resident license if they are placing insurance coverage for a risk located in another state.  This post will explore the related question of whether the agent’s insurance agency must also obtain a license from the insurance department of the other state.  As with the first post, it will be limited to the laws of the states adjacent to Georgia.  It will also discuss when an agency must obtain a certificate of authority from the business entity regulator of those states.

With one exception, all the states adjacent to Georgia require a business entity that sells, solicits, or negotiates insurance within their state to obtain a license.  The exception is Tennessee, whose law only states that such an entity may obtain a license as an insurance producer.  Unfortunately, unlike individual insurance producers, the law of all these states does not contain any reference to licenses for non-resident business entities.  That can lead to two possible approaches by the insurance departments in those states.  First, the literal interpretation would be that any business entity no matter where its principal offices are located must obtain a license if it sells insurance coverage for a risk located in that state.  On the other hand, the lack of any reference to licenses for non-resident business entities could be interpreted to mean those entities do not have to obtain a license, since the law does not mention them as it does with individual agents.

If you don’t want to expend the time and effort to contact the insurance department in each state to find out how they interpret their state’s law on this question, the safest course of action would be to obtain an agency license in any state where one or more of the agency’s producers have had to obtain a non-resident agent’s license.  If an agent doesn’t have to obtain such a license, it would make no sense for his or her agency to have to obtain one.  But a good argument can be made that if an agent has to obtain a non-resident license, then his or her agency should obtain one, as well, since the agent is a representative of their agency.

A separate, but related question, is whether an agency must obtain a certificate of authority to transact business in a state if it sells an insurance coverage for a risk located in that state.  Such certificates are obtained from the government agency that regulates all business entities in a state, not the state’s insurance department.  This is a very gray area and each state will have it own interpretation of when such a certificate must be obtained.  However, with one exception, all the states adjacent to Georgia have statutes that specifically exempt from the certificate requirement a business entity that sells its products or services in the state through independent contractors or that solicits or obtains orders for goods or services in the state if those orders must be accepted by an entity located outside the state before they become a binding contract.  The exception here is Alabama, which requires any legal entity that would have to obtain a certificate from its Secretary of State if it were created in Alabama to obtain such a certificate.

A good argument can be made that an insurance policy or bond fits within the exemption for orders solicited or obtained that require acceptance outside the state to become binding contracts.  An insurance application must be accepted by the insurance company before a policy or bond will be issued.  As long as the person making the decision to accept the application is not located in the state where the risk to be covered is found, there is no need to obtain a certificate of authority from that state’s business entity regulatory agency.

When Are You Required to Obtain a Non-Resident License?

Unlike most summers, this one has been very busy for my law practice.  I have been involved in the sale of three of my insurance agency clients in the past couple of months, which is one reason I haven’t been as diligent as I should have in making blog posts.  This post concerns an issue that has arisen in each of those sale transactions and about which I sometimes get a question in the Free Legal Service Program I operate for the Independent Insurance Agents of Georgia.  When are you required, as a Georgia resident insurance agent, to get a non-resident agent’s license?  I will address  the related question, are you also required to obtain a license and/or certificate of authority for your agency at the same time in my next post.

Both the above questions are important issues in the context of the sale of an insurance agency, because the buyer will routinely want the selling agency to represent and warrant that it has obtained all the licenses and other governmental approvals required to conduct its business activities.  If those activities involve the issuance of insurance policies covering risks located in other states, which is often the case, the question arises do you, as the agent, need to obtain a non-resident license from the other state’s insurance department, and if you do, what about your agency.  The failure to obtain such a license or licenses when required will not only have a negative impact on the sale of an insurance agency. It can create significant problems for the individual agent and agency with the insurance departments in both their home state and the other state involved.

In late October 2000, the National Association of Insurance Commissioners proposed a model act for the licensing of insurance agents.  This act has largely been adopted by Georgia and the states surrounding it, with one exception noted below.  Under it, the solicitation, sale, or negotiation of insurance coverage by a person in a state is illegal unless that person has the appropriate license for the type of coverage in question, which license has been issued by the insurance department of that state.  The model act contains several exceptions to this requirement.  Unfortunately, only one of them is relevant for the purpose of this post.  It exempts from the license requirement a non-resident insurance agent who sells a commercial lines policy that covers risks located in the state and in other states, as long as the agent is properly licensed by the state in which the insured’s principal place of business is located and the policy covers risks located in that state.

The above exemption is a relatively narrow one, and it is not recognized by Florida.  In Florida, the sale of insurance coverage for any risk located there requires a license that has been issued by its insurance department.  The law of the other surrounding states, Alabama, Tennessee, North Carolina, and South Carolina, will not permit the sale of an insurance policy that covers a Georgia insured’s out of state vacation home or any other personal lines risk located out of state without a license issued by their state’s insurance department.  The same thing is true for any commercial lines risks of a Georgia insured that do not fit within the above exemption.

Fortunately, it is not difficult to obtain a non-resident agent’s license in the states that surround Georgia.  All those states permit the issuance of a non-resident license for any type of insurance for which the non-resident is properly licensed in their home state upon the submission of the required paperwork and license fee, as long as the agent’s home state grants the same privilege to agents who are licensed in the other state, which Georgia does.  When the National Association of Registered Agents and Brokers Reform Act is fully implemented this process will be even easier.  That Act was passed in early 2015 and set a two year time frame for full implementation.  Unfortunately, it seems to have gotten lost in the shuffle of the current political activity in Washington, so its anyone’s guess when it will be fully implemented.

Uninsured Motorist Coverage – Traps for the Unwary

In May of this year, the Georgia Court of Appeals issued two decisions involving uninsured motorist coverage that all agents should be aware of, as both of them create potential E&O exposure.  In the first case, the Court of Appeals held that the insureds had uninsured motorist coverage in the amount of their liability coverage, not the statutory minimum of $25,000, even though the declarations page for their policy stated that was the amount of uninsured motorist coverage.  Under a law that took effect in 2002, an insured who did not affirmatively reject uninsured motorist coverage had such coverage for the same amount as their liability coverage, unless the insured affirmatively elected a lesser amount of coverage.

In this case, the insureds had previously rejected uninsured motorist coverage for a policy that had been continuously renewed since 1986.  However, in 2003, the insureds changed their minds and requested that uninsured motorist coverage be added to their policy.  Unfortunately, for the insurance company, it was not able to produce any documentation of that request, as it had been made over the telephone or possibly, the internet.  Since the law required the insurance company to prove that the insureds had affirmatively elected an amount of uninsured motorist coverage less than their liability limit, the absence of any such documentation proved to be fatal to its case.  The fact that the declarations page for the policy had continuously shown a limit of $25,000 for such coverage from the time it was requested in 2003 until the loss event nine years later was not sufficient proof of an affirmative election by the insureds in the opinion of the court.

A similar lack of documentation also proved to be fatal to the insurance company in the second opinion issued by the Court of Appeals.  In that case, the Court held that the uninsured motorist coverage under the insureds’ umbrella insurance policy had not been properly cancelled.  The major issued decided by the Court was that the cancellation and non-renewal requirements imposed by O.C.G.A. Section 33-24-45 on personal lines motor vehicle insurance policies also applied to umbrella policies that include such coverage.  Thus, those portions of umbrella policies can only be cancelled or non-renewed for the reasons and in the manner specified by that statute.

O.C.G.A. Section 33-24-45 requires that a notice of cancellation or non-renewal be delivered to the insured either in person or by first class mail that is evidenced by a receipt provided by the U.S. Postal Service or such other proof of mailing as would be accepted by the Postal Service.  In this case, the insurance company claimed it had sent the insureds a notice of cancellation of the uninsured motorist provision of their umbrella policy two years before the loss event.  As in the previous case, the declarations pages for the policy issued during that two year period showed their was no uninsured motorist coverage under it.  And like the previous case, the Court held that was not sufficient to overcome the insureds’ denial that they had received any notice of cancellation from the insurance company.  Since the company could not produce a receipt issued by or acceptable to the U.S. Postal Service for the mailing of that notice, the uninsured motorist coverage was still in effect at the time of the loss event.

The lesson of the above two cases for insurance agents is clear.  It is essential in dealing with uninsured motorist coverages that the letter of the applicable law be followed, as the courts will not make exceptions based on the duty of an insured to read their policies.  An agent who does not properly document everything that is done with respect to such coverages is leaving himself or herself open for an E&O claim.