Can An Agency Limit The Types Of Insurance Policies It Will Issue?

The answer to the above question seems obvious. The right of a business to choose what types of products and/or services it will provide is fundamental to the successful operation of a free enterprise economy. If every insurance agency had to offer the same types of insurance policies and/or services, competition among them would be limited to price only. That would result in a race to the bottom and would be disastrous for everyone concerned.
Fortunately, for the most part, insurance agencies are free to choose what types of insurance policies and/or services they will offer to the public. However, there does exist a trap for the unwary with respect to personal lines motor vehicle policies and to a lesser extent, homeowner’s policies. This trap arises from the prohibition on “the fictitious grouping of risks” found in the Georgia Insurance Code.
In a regulation issued by the Georgia Insurance Commissioner’s Office, a “fictitious grouping of risks” can arise when an “insurer, broker or agent” makes a determination on the issuance or renewal of an insurance policy based on the “lack of, lack of potential for or failure of [an] applicant or insured to agree to a writing of additional business, which includes but is not limited to any additional coverages or increased liability limits on an automobile which are not compulsory according to O.C.G.A. § 40-9-37.” The statute referred to is the one that requires minimum liability limits of $25,000/$50,000/$25,000. Thus, an agent cannot condition the acceptance of an application for a motor vehicle insurance policy on the insured applying for any coverages or liability limits that are not required by law. An agent cannot, for example, require an applicant to apply for liability limits in excess of the statutory minimum amounts or to accept uninsured motorist coverage before the agent will accept an application for motor vehicle insurance. The same thing is true for the number of vehicles insured. An agent cannot refuse to accept an application for an insurance policy that covers only one motor vehicle or that covers more than one motor vehicle. The regulation contains eight other examples of prohibited criteria for the issuance or renewal of motor vehicle insurance policies.
As with everything in the law, there are exceptions to the use of the ten criteria in the above regulation. The use of those criteria is permitted if they are actuarially supported, relevant to risk, and based on one or more of the reasonable considerations specified in O.C.G.A. § 33-9-4(7)(size, expense, management, individual experience, location or dispersion of hazard, or any other reasonable considerations). Unless the use of one or more of the specified criteria meets all three of those tests, it is illegal to use that criteria in deciding whether to accept an application for a motor vehicle insurance policy.
There is a similar regulation regarding the issuance and renewal of homeowner’s insurance policies. That regulation specifies seven criteria that cannot be used in determining whether to issue or renew such a policy, unless the above three tests are satisfied. The most pertinent of those criteria for the purposes of this post is the conditioning of the issuance or renewal of such a policy on the “failure of applicant or insured to agree to purchase an additional policy which is not requested by the insured or applicant.” Thus, an agent cannot refuse to accept an application for a stand-alone homeowner’s policy.

Use of Text Messages by Insurance Agents

All the marketing articles I have seen recently advise insurance agencies and other businesses to be accessible to their customers and potential customers using every means of communication available.  One of those means is sending text messages to a mobile telephone number.  The IIABA recently published a memorandum on the legal requirements that must be met by insurance agencies and agents who choose to communicate with customers and potential customers using text messages.  The memorandum includes sample forms for use in complying with those requirements.

The legal requirements are based on the Telephone Consumer Protection Act (“TCPA”).  The passage of the TCPA in 1991 was in response to the growing number of unwanted calls from telemarketers and the avalanche of advertisements being sent to telefax machines.  It imposed limitations on those marketing methods, one of which was the need to obtain the consent of the recipient of any telefax intended as an advertisement.  The TCPA was passed before there were text messages, but the Federal Communications Commission (“FCC”) has interpreted its provisions to cover the sending of such messages.

In fact, the FCC has taken a very restrictive view of what the TCPA requires for text messages sent for a commercial purpose.  The FCC has ruled that statute covers all text messages sent for a commercial purpose, even if they are to sent to only one person.  The FCC has also held that, unlike many other commercial communications, the fact that the recipient of a text message has an existing business relationship with the sender of the message does not exempt the sender from the requirement of obtaining the prior written consent of the recipient to the sending of such a message.  It appears that this requirement even applies before an insurance agency or agent can reply to a text message initially sent to them by a customer or potential customer.

The IIABA memorandum notes that many agencies and agents may choose not to follow the legal requirements, especially when the text messages are sent by or to a customer about their existing policy.  Why this is the case can be seen by examining the sample forms attached to the memorandum.  While the consent, or opt-in form, is a manageable one page document, the sample terms and conditions that will apply to the use of text messages is five pages long and filled with legal jargon that will likely make any customer or potential customer think long and hard about whether to sign the consent form.  The jargon includes disclaimers of liability and warranties, a waiver of the right to participate in class actions, and a requirement to arbitrate any dispute.

As noted in the memorandum, if an agency or agent intends to use text messages for mass marketing purposes, they should follow the above legal requirements with respect to every person to whom such messages are sent.  If for no other reason than each recipient of a text message sent in violation of those requirements is eligible to receive their actual damages or $500, whichever is greater.  If the court finds the sender of the message did so knowing it was in violation of the law, the amount awarded as damages can be increased by up to three times.

Given the requirements imposed by the FCC on the use of text messages for commercial purposes and the amount of damages that can be claimed for a violation of those requirements, agencies and agents will need to carefully weigh the risks and benefits of using that means of communication with their customers and potential customers.





New PEO Regulation

Last weekend, I attended an insurance agency function at which the Insurance Commissioner, Ralph Hudgens, spoke.  In his speech, he mentioned that a new regulation governing the sale of insurance products by Professional Employer Organizations (“PEOs”) has been adopted by his office.  That regulation will take effect on February 14, 2018.  It amends Sections 120-2-3-.03 and 120-2-3-.05 of the Georgia Rules and Regulations.  A definition of “negotiate” that is specifically directed at the activities of PEOs was added to Section 120-2-3-.03.  A specific requirement that any business entity that employs an individual who is engaged in the sale, solicitation, or negotiation of insurance on behalf of that entity be licensed as an insurance agency was added to Section 120-2-3-.05.

The definition of “negotiate” in Section 120-2-3-.03 tracks the one found in the Insurance Code.  It goes on to define a “purchaser” of insurance to include “current or prospective coemployers, or their employees, of professional employer organizations.”  It also addresses when an employee of a PEO will be deemed to “negotiate” with such a purchaser about the purchase of insurance.  Such a negotiation will occur if the PEO employee “offers advice or renders opinions as to the substantive benefits, terms, conditions, value, effect, advantages or disadvantages under any contract of insurance issued or offered by any insurer” to the PEO, which contract of insurance “covers or is proposed to cover” a coemployer or their employees of the PEO.

Under the new regulation, a PEO employee cannot discuss with a current or prospective customer for its services any of the terms or conditions of the insurance coverages provided through the PEO or the relative merits of such coverages compared to what the customer may already have, unless that employee has the appropriate insurance agent’s license.  In addition, if such discussions are occurring, the PEO must obtain an insurance agency license.

This new regulation in intended to level the playing field for insurance agents who are competing with PEOs to place insurance coverages for their current or prospective customers.  If a PEO wants its employees to be able to discuss the insurance coverages available through it with such customers, they must obtain an insurance agency license and the employees must obtain an insurance agent’s license; just like an independent insurance agent and agency does.

In his speech, Commissioner Hudgens encouraged anyone who has information about a possible violation of this new regulation to report it to his office once that regulation becomes effective.  He stated an intent to make a serious effort to enforce the requirements of the new regulation.  Insurance agents who have been complaining about unfair competition by PEOs in connection with the sale of insurance now have a way to stop such competition.  If they don’t take advantage of it, nothing will change.

A big thank you for this new regulation goes to the Independent Insurance Agents of Georgia and its lobbyist, John Barbour.  They were one of the leading organizations that lobbied successfully for its adoption through two administrative hearings and countless hours of meetings.


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.