Raffles – Can They Be Used to Encourage Referrals? (Updated)

A recent caller to the Free Legal Service program that I run for the members of the Independent Insurance Agents of Georgia asked the above question.  His agency was thinking about running a promotion that gave a raffle ticket for each referral made to the agency during a specified period of time.  The winner would receive a prize having a value of well over $100.00.  With my previous posts on this subject, I thought I had thoroughly covered all aspects of it.  However, I failed to take into consideration the creative ability of independent insurance agents when it comes to thinking of ways to generate more business for their agencies.

The short answer to the above question is YES, if certain requirements are followed.  Those requirements are found in the Georgia Insurance Code and the Georgia Criminal Code.  First, as my regular readers are no doubt well aware, the Georgia Insurance Code prohibits the sharing of commissions with any person or entity that is not properly licensed by the Georgia Insurance Commissioner’s Office.  This means that any fee or other consideration given in exchange for a referral cannot be conditioned on the referral resulting in the sale of an insurance policy or related product.  Under a change to the Insurance Code that took effect on July 1, 2016, agents and agencies are also prohibited from giving “prizes, goods, wares, store gift cards, gift certificates, sporting event tickets, or merchandise” having a value of more than $100 to any customer or potential customer in any one calendar year.

Thus, under the Insurance Code, a raffle can be used to encourage people to make referrals to an insurance agency, as long as the referral does not have to result in the sale of an insurance policy or related product and if the raffle is limited to customers or potential customers of the agency, the value of the prize cannot exceed $100.00.

What does the Georgia Criminal Code have to do with the above question?  Under that Code, a raffle is considered to be a form of gambling, like the Georgia Lottery, and is prohibited with certain exceptions.  The one exception that is relevant to the type of raffle proposed by the caller to the Free Legal Service Program requires that the raffle be conducted as an “advertising and promotional undertaking in good faith solely for the purpose of advertising the goods, ware, and merchandise” of the business in question.  In addition, the raffle cannot require its participants (i) to “pay any tangible consideration” to enter it, (ii) to purchase “anything of value” from the business, or (iii) to “be present or be asked to participate in” any type of sales or other presentation, and (iv) the prize awarded must be something other than cash and cannot be awarded based on the playing of a game on a computer or mechanical or electronic device at a place of business in Georgia (this last requirement was omitted from the original post).

The type of raffle proposed by the caller to the Free Legal Service Program satisfies the requirements of the Georgia Criminal Code because the only thing a person had to do to be eligible to participate in the raffle was supply the name and contact information of a potential customer for the agency’s products and services, which were made known to the participant, and the prize was not cash.  Since there was no requirement that the referral made result in a sale by the agency and it was not limited to customers or potential customers of the agency, the requirements of the Georgia Insurance Code were also met.

 

Recording Customer Telephone Calls – A Good Idea But Is It Legal?

In a recent post on his blog, Steve Anderson recommended that insurance agents take advantage of the new telecommunications technology that makes it relatively easy to record all incoming and outgoing telephone calls.   He suggested that making such recordings could become the primary means by which an agency documents its contact with its customers and potentially, its insurance companies.  This would save time by eliminating the need to type information about such calls into the agency management system.  There are software products that will integrate recorded telephone calls with those systems and associate the recordings with the appropriate customer and policy.  If you still want to have the security of an electronic “paper trail”, there are many transcription services available that can create such a trail much faster than your office staff.

Please see his blog post for Mr. Anderson’s thoughts about other advantages to the recording by an agency of its telephone calls with its customers and the steps an agency should take before implementing such a procedure.  However, one very  important aspect of telephone call recording was initially overlooked by Mr. Anderson; its legality.  Under federal law, it is illegal to make such recordings without the consent of at least one party to the conversation.  But each state is free to impose greater consent requirements, and it is the requirements of the state in which each party to the call is located that will govern the legality of its recording with respect to that party.  In checking the laws of Georgia and the states that surround it, I found that all but one of them require the consent of only one party to the recording of a telephone call.  Florida was the only state that imposed a greater consent requirement.  Under its law, all the parties to a telephone call must consent to its recording.

If all your agency’s customers are located in Georgia, Alabama, Tennessee, South Carolina, or North Carolina, there is no need to obtain the consent of those customers to the recording of their telephone calls.   However, if the agency decides to record all such calls, to avoid any potential issues with its customers or other parties over the recording of their telephone conversations without their knowledge, it would be a good idea to include an announcement before any incoming call that it will be recorded. Such an announcement can be programmed into many of the new telephone systems to play when the call is first answered and before any of the agency staff actually speak to the caller. It should protect the agency from violating the law of Florida and any other states that require the consent of all parties to the recording of telephone calls by allowing the agency to argue that the caller’s proceeding with the telephone call after hearing the announcement amounted to its consent to the recording of the call. That is apparently the conclusion drawn by many large companies, as such an announcement is routinely played when calls are made to their customer service centers.

If you want to be able to safely record outgoing calls, the agency staff will need to be trained to begin each such call with an announcement that it will be recorded and ask the other party if that is acceptable.  Such a procedure is advisable as the violation of the law on the recording of telephone calls is a crime, and in Georgia and most of the surrounding states, it is a felony.  Some of those states also give the other parties to such calls a right to sue for damages, if the law is violated.

What Rights Do Customers Have to Information in Agency Files?

The above question was recently asked of me by a caller to the Free Legal Service program that I run for the members of the Independent Insurance Agents of Georgia.  In particular, the caller wanted to know if they could refuse to provide loss runs to a former customer whose policy had been cancelled for non-payment of premium.  This customer owed the agency money, and the caller wanted to condition delivery of the loss runs on payment of the money owed.

The short answer to the question depends on two things.  First, whether the information sought by the customer is related to a commercial or personal lines policy and second, if related to a personal lines policy, what type of information is being sought.  As you might suspect from the short answer, there is no law or regulation applicable to Georgia agents or agencies that requires them to provide a commercial lines customer with information or documents maintained by them about that customer or the policies issued to that customer.  Such information and documents belong to the agent or agency, and they can control the circumstances under which their commercial lines customers can have access to their files.  Of course, such a customer can always go to the insurance company that issued the policy in question and ask for information about it from the company.

If the customer is asking to have access to information and documents related to a personal lines policy, under Georgia law, they have a right to be given access to certain kinds of information about them that is kept in an agent or agency’s files.  This right is found in the same law that governs the giving of notices to customers about the information gathering and privacy policies of agents and agencies (click here for a post about that law).  Under it, a personal lines customer has the right to request access to “recorded personal information” about the customer in an agent or agency’s files.

The request must be made in writing and “reasonably describe” the information the customer wants to review.  If that information is “reasonably locatable and retrievable”, the agent or agency must do several things within 30 days after receiving the customer’s request.  One of those things is permit the customer to “see and copy, in person” the information requested or have a copy of that information mailed to the customer, whichever the customer wants.

The information that a personal lines customer has the right to “see and copy, in person” or obtain by mail is “any individually identifiable information gathered in connection with an insurance transaction from which judgments can be made about an individual’s character, habits, avocations, finances, occupation, general reputation, credit, health, or any other personal characteristics.”  This right even extends to persons who only submitted an application for insurance and never obtained a policy from the agent or agency.  There is an exception for “privileged information”, which is any information the relates to a claim for insurance benefits or a civil or criminal proceeding involving the customer that was “collected in connection with or in reasonable anticipation” of such a claim or proceeding.

If the caller to the Free Legal Service Program had been asking about the claims history of a personal lines customer, the answer to the above question would have been completely different from the one I gave that caller.

 

Payment of Referral Fees – Additional Considerations

In October of last year, I wrote a post that summarized my opinion on the question of when and how an insurance agent may pay a fee to an unlicensed person for the referral of a potential customer to the agent by that person.  That post was written from the perspective of whether and when the Georgia Insurance Code would permit the payment of such fees.  It did not take into consideration, any other laws or regulations that may be applicable to the person to whom the referral fee was to be paid.

A recent call to the Free Legal Service program that I run for the members of the Independent Insurance Agents of Georgia made me think about such other laws and regulations.  The caller mentioned that an agent he knew had been told that it was illegal to pay a referral fee to a real estate agent or mortgage broker under the Real Estate Settlement Procedures Act (“RESPA”).   That Act prohibits both the payment and the acceptance of “any fee, kickback, or Thing of Value” in connection with “business incident to or a part of a real estate settlement service involving a federally related mortgage loan.”  The criminal penalty for the violation of this prohibition is a fine of up to $10,000 and up to one year in prison, and the civil penalty is payment of three times the amount charged the borrower for the settlement service in question, plus attorney fees and other costs of litigation.  Both the payer and the recipient of a prohibited referral fee are subject to these penalties.

The RESPA prohibition on fees, kickbacks, and things of value applies only to residential mortgage loans for real property designed principally for “the occupancy of from one to four families.”  It also applies only to services that are “incident to or a part of” the settlement of such loans.  The statute refers specifically to title insurance and services performed by real estate agents or brokers as being covered by this prohibition.  Nothing is said in the statute or regulations about the provision of property and casualty or any other kind of insurance to the borrower of a covered loan.

However, if the existence of such other insurance coverage is required by the lender of a covered loan in order for the loan to be “settled”, a good argument can be made that the provision of such insurance is “incident to or a part of” the settlement of the loan.  If a charge for the cost of such insurance is included on the settlement statement for the loan, this good argument becomes a convincing argument.  For an agent who is considering paying a referral fee to real estate agents, mortgage brokers, or lenders for the names of home buyers who may need property and casualty or other insurance coverages to obtain a loan, it would be a good investment to pay an attorney for a legal opinion on whether the payment of such a fee is prohibited under RESPA.

For a referral fee arrangement with any other person, it would be a good idea to ask that person if their activities are subject to any laws or regulations that may prohibit the payment of such fees.  As the above makes clear, just because it may be legal under the Georgia Insurance Code to pay a referral fee does not mean it’s permissible under all other laws and regulations.

Privacy Notices May Still Be Required Under Georgia Law

In early December, I wrote a post about a change made to the Gramm-Leach-Bliley Act (the “GLBA”) by Congress at the end of 2015, which created an exemption under that Act from its requirement that notices of an insurance agency’s data sharing and privacy policies be given to its customers on an annual basis.  In preparing for a recent presentation to a group of insurance agents on this subject, I realized that, while my earlier post was correct, it did not take into account the fact that Georgia has a statute that took effect in 1982 that also governs the giving of such notices by insurance agents and companies.  Its provisions were not affected by the change made to the GLBA, and they impose notice requirements that are different from those found in the GLBA.

The Georgia data sharing and privacy policy statute is found in Chapter 39 of Title 33 of the Georgia code.  As with the GLBA, the Georgia statute requires the giving of a data sharing and privacy policy notice to customers and potential customers at the beginning of the relationship, but it does not impose an annual requirement for the giving of such notices thereafter.  Instead, such notices must be given “no later than the policy renewal date” and “no later than the time a request for a policy reinstatement or change in insurance benefits is received” by the agent, with some exceptions.  In both situations, no notice need be given if personal information about the policyholder in connection with the renewal, reinstatement, or change in benefits is obtained only from the policyholder or from public records.  In the case of a policy renewal, no notice need be given if a notice meeting the requirements of the statute was given to the policyholder within the prior 24 months, even if information about the policyholder is obtained from other sources.

Thus, it appears that for customers who have policy renewals, a notice meeting the requirements of the Georgia statute must be given to such customers at least every 24 months, unless information about the policyholder in connection with every renewal during that 24 month period is obtained only from the policyholder or public records.  Fortunately, as with the GLBA, the notice requirement only applies to products and services that are “primarily for personal, family, or household needs”, i.e.,  personal lines property and casualty and individual life, health, or disability insurance applicants and customers.  In determining whether, a particular renewal customer does or does not have to be given a privacy notice, it is important to remember that any previous notice given such customer must satisfy the requirements of Georgia law, which are not the same as the notice requirements under the GLBA.  Georgia law requires that more information be included in such a notice, including a description of the recipient’s right to submit a written request to the agent for access to their personal information collected by the agent and their right to request that corrections be made to such information and the way these rights may be exercised.

When I asked my audience how many of their agencies had been giving privacy notices to their customers, only a couple of hands went up.  Apparently, many of them assumed that this requirement was being satisfied by the insurance company.  That is possible under Georgia law if the insurance company is “authorized to act on” behalf of the agency, but it is possible under the GLBA only for entities that are affiliated with each other, i.e., under common ownership or control.

It would be a good idea for all Georgia insurance agents to check their agency agreements to see if those agreements authorize the insurance company to provide the privacy notices required by Georgia law on their behalf.  If not, such a provision should be added or the agency should be prepared to comply with that law, because the Insurance Commissioner has the authority to impose up to a $500 fine for each “knowing violation” of the law (i.e, for each privacy notice that was not sent or did not contain the required information) with a maximum penalty of $10,000.00.

 

 

 

Privacy Notices No Longer Required (in some cases)

On November 28, 2016, the Georgia Insurance Commissioner’s Office issued a Bulletin, 16-EX-2, that clarified the duty of insurance agencies in Georgia to give annual notices to their customers of their data sharing and privacy policies.  In that Bulletin, the Insurance Commissioner’s Office confirmed that it would adopt a change that had been made to the Gramm-Leach-Bliley Act (the “GLBA”) by Congress at the end of 2015. This change created an exemption from the requirement imposed by that Act for certain “financial institutions”, which include insurance agencies, to give their customers an annual notice of their policies on the sharing with other entities of nonpublic personal information they collected about their customers.  These notices are commonly referred to as privacy notices.

The giving of privacy notices under GLBA was a very hot topic back around the turn of the century when that law was first enacted.  I gave many seminars on who had to give those notices and what they had to contain, but since then I have not heard much about those notices from my clients.  Apparently, it has not been something the Insurance Commissioner’s Office and the federal regulatory agencies involved have been that concerned about.  I have sometimes wondered how many of my clients were actually giving the required notices every year.

In any event, there is now an exemption from the requirement for the giving of privacy notices.  That exemption applies to any insurance agency that only shares the nonpublic personal information they collect about their customers in ways that are explicitly permitted by the GLBA and that have not changed their data sharing policies since their “most recent disclosure sent to consumers in accordance with” the GLBA.  An agency that satisfies these two requirements is relieved of the obligation to provide annual privacy notices to their customers until they no longer meet both requirements, i.e., they begin to share nonpublic personal information about their customers in ways that are not explicitly permitted by the GLBA or they otherwise change their data sharing policies from what was said in the last notice sent to their customers.

The list of ways in which nonpublic personal information is explicitly permitted to be shared under the GLBA is a long one, but the permitted sharing of such information that is most relevant to insurance agencies involves three main areas:  marketing, the use of such information to perform the services requested by the customer, and the disclosure of such information to insurance rate advisory organizations or other state or federal regulatory bodies and the agency’s attorneys, accountants, and auditors.  Disclosing such information to consumer reporting agencies and in connection with the sale, merger, or other transfer of the ownership of all or a portion of an agency’s business is also permitted.  Of course, any such disclosure to which the customer consents is permitted.

The most likely situation where an insurance agency may step over the line, so to speak, and thus, be required to give a privacy notice is in connection with its marketing activities.  Under the GLBA, an agency can disclose the nonpublic personal information of its customers to parties affiliated with it and to a non-affiliated third party to perform marketing activities for its products or services, if the agency fully discloses that it is doing so to its customers and enters into a contract with the non-affiliated third party that requires the third party to maintain the confidentiality of the information provided to it.  If the full disclosure of such information sharing has previously been made by an agency to its customers in a privacy notice, it is no longer required to continue to give such notices every year, unless and until its data sharing practices in this regard or in other ways change.

 

 

 

FLSA Issues That All Agencies Should Be Aware Of

It has been over a week since a federal District Court Judge issued an injunction staying the implementation of the new overtime rule (click here for more information on the injunction), and it does not appear that the U.S. Department of Labor is going to try to have the injunction overturned on appeal, at least anytime soon.  So employers will not have to comply with the new overtime rule that was set to go into effect tomorrow, December 1.  However, that only relieves employers from having to pay their employees who they want to treat as exempt from the overtime pay requirements of the Fair Labor Standards Act (“FLSA”) under the administrative, executive, or professional exemptions a minimum salary of $913 a week, or $47,476 a year.  Employers will still have to pay their employees overtime for any hours they work in excess of 40 in any one work week, unless they qualify for one of the exemptions referred to above or another exemption. (Click here for a post that discusses those exemptions and others as they may apply to employees of insurance agencies.)

In determining whether the 40 hour threshold has been exceeded in any one work week, agency owners need to be aware of what is work time that must be included in making that determination.  The FLSA does not require an employer to give an employee any time off during the workday for any reason, even to eat.  It only requires that an employee be paid at least the minimum wage for all the time they are working and overtime pay if they work more than 40 hours in any one work week.  If an employer decides to give its employees a break from work, that break must be at least 30 minutes long and the employee must not be required to do any work during the break period before that time can be excluded from work time for which the employee must be paid.  With respect to breaks given so an employee may eat a meal, what this means is that an employee must not be on call or perform any other work related duties during the break.  If they do, they must be paid for that time, too.

For agency employees who are licensed or have another certification that they must have to perform their duties, any time taken by such an employee for the purpose of attending a class, a webinar, or any other event to obtain or keep their license or other certification is considered work time for which they must be paid.  The same thing is true for any class or other event an employee attends at the request of the agency.  If the agency owner does not want to have to pay overtime to a nonexempt employee in this situation, any such class or other event should be attended during the employee’s normal working hours.

If an employee attends such a class or other event outside of their normal working hours, the agency owner must also be aware of the FLSA’s rules regarding payment for time spent traveling by employees.  These rules are complex, but a good explanation of the basics, as well as other situations that may require payment, can be found here.

While the pressure is off for now on compliance with the new overtime rule, the existing rules still apply and can create problems for an agency that is not aware of what those rules require.

Court Stays Implementation of New Overtime Rule

Yesterday, a judge on the U.S. District Court for the Eastern District of Texas entered a preliminary injunction staying the enforcement of the new overtime rule that was to take effect on December 1, 2016. (Click here for an explanation of the rule.)  The judge found that rule to be unlawful because it imposed a minimum salary requirement for employees who would otherwise qualify as exempt under the administrative, executive, and professional duties exemptions from the overtime pay requirements of the Fair Labor Standards Act (“FLSA”).  Apparently, in the judge’s opinion only Congress can impose such a salary requirement.  However, a minimum salary requirement has been a part of the requirements for employees to qualify for those exemptions for many years, so it’s anybody’s guess what the final outcome will be.  

For now, employers do not have to worry about satisfying the new minimum salary requirement for an employee to be exempt from the overtime pay requirements of the FLSA under the above three exemptions.  However, that could change upon an appeal to the U.S. 5th Circuit Court of Appeals, which could be made before December 1.  So stay tuned for further developments.

In the meantime, remember that an agency’s producers and other employees will have to be paid overtime for any hours they work in excess of 40 in any one workweek, unless they qualify for one of the exemptions referred to above or another exemption. That fact is not affected by this court ruling, (Click here for a post that discusses those exemptions and others as they may apply to employees of insurance agencies.)

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Payment of Referral Fees – Is It Legal?

The above question continues to come up every so often in the Free Legal Service program that I run for the members of the Independent Insurance Agents of Georgia. There is no definitive answer to the question in either the Insurance Code of Georgia or the regulations or other pronouncements issued by the Georgia Insurance Commissioner’s Office.  However,  I have advised my clients for a long time that a very strong argument can be made that the payment of referral fees is permissible, as long as their payment is not conditioned on the purchase of an insurance product by the person or business who is the subject of the referral.

The basis for my argument is that the law most often cited in support of the position that the payment of referral fees is illegal is the prohibition on the sharing of commissions by an insurance agent with a person or entity that is not licensed by the Insurance Commissioner’s Office.  I agree that this prohibition would most likely make illegal the payment of a referral fee only for referrals that resulted in the sale of an insurance policy or other product.  In that situation, it is easy to see how the agent or agency could be said to be sharing the commissions earned for such a sale with the referral source.

However, if the referral fee is paid regardless of whether the person or business who is referred buys an insurance policy or other product from the agent or agency, to say that such an arrangement would be the sharing of commissions with an unlicensed person would mean that an agency could not pay its employees who are not licensed by the Insurance Commissioner’s Office for the services rendered to the agency.  This because the source of the compensation paid to those employees was the commissions received by the agency for the insurance policies and other products it sold to its customers.

Obviously, such an interpretation of the law would make it cost prohibitive, if not impossible, for many agencies to conduct their business activities.  The passage of an amendment to the anti-rebate law by this year’s General Assembly lends further support to my argument.  In a change that took effect on July 1, 2016, that law was amended to allow an insurance company or producer to give a customer or potential customer certain kinds of gifts as part of an “advertising” or “promotional” program, as long as the giving of such gifts was not conditioned on the purchase or renewal of an insurance policy by the recipient of the gift. (Click here for more details on this new law).

If an agent and presumably an agency can give a customer or potential customer a gift as long as it is not conditioned on the purchase or renewal of an insurance policy, there is no difference in giving a fee or other gift to a third party for referring a potential customer regardless of whether that potential customer buys an insurance policy.

 

 

 

New Overtime Rule – Who Is Exempt?

Judging by the reaction of the audience at a presentation on the new overtime rule I made a couple of weeks ago, that rule is going to create significant problems for independent insurance agencies.  I barely had time to introduce myself before the first question came and they just kept coming.  The focus of many of the questions was whether customer service representatives and producers could be exempt from the overtime pay requirements of the Fair Labor Standards Act (“FLSA”).

I addressed this issue in a post in early 2015.  At that time, the required minimum salary for an employee to be considered exempt was only $455 per week, or $23,660 per year.  I say only because as those of you who have followed my blog posts on the new overtime rule know, the required minimum salary will more than double to $913 a week, or $47,476 a year, on December 1, 2016.  That will significantly increase the financial cost of treating an employee as exempt, which cost should only be incurred if a particular employee can satisfy the duties tests for exempt employees.  If not, the employer is wasting their money and will need to look at other options.  (Click here for a more recent post on what those options are.)  

In my 2015 post, I discussed the most likely exemptions that could apply to customer service representatives and producers.  What was said in that post still applies, with one exception.  The commissioned sales person exemption will not apply to producers or any other employee of an independent insurance agency because that exemption only applies to employees of a “retail sales” business, and the U.S. Department of Labor (“USDOL”) has issued regulations that state businesses that sell insurance are not engaged in “retail sales” for purposes of that exemption.

As I told my audience, that leaves the administrative exemption as the most likely one for customer service representatives and the highly compensated employee exemption as the only one available for producers, unless they operate as door to door sales persons who have no office and meet with their customers only at the customers’ home or place of business. That is not how most producers perform their duties.  Producers will not qualify for the administrative exemption because the USDOL has ruled that an employee whose primary duty is the selling of a product or service cannot qualify for that exemption.  It will be very difficult to argue that a producer’s primary duty is not the sale of insurance products, especially if their main source of compensation is commissions from the sale of such products.  

Exceptions to the above general statements are possible because whether a particular employee is exempt from the overtime pay requirements of the FLSA is a case by case determination that is dependent on the duties actually performed by that employee. However, I told my audience that unless their producers were earning at least $134,004 a year, of which $47,476 was paid as a salary (highly compensated employee exemption), as of December 1, 2016, they would probably be required to pay their producers overtime for any hours worked in excess of 40 in any one work week.  That is true today for any producer who is not making the current threshold amount of $100,000 a year, of which at least $23,660 is paid as a salary.

As with any law, the fact I have never heard of a producer suing an agency for overtime pay does not mean that producers who don’t qualify for the highly compensated employee or outside sales exemptions cannot do so.  It just means no one has tried to do so for any number of reasons.  As explained in my 2015 post, the consequences of not paying required overtime to an employee can be severe and employees have an incentive to file such lawsuits.

For more detailed information on this subject, see the updated question and answer white paper prepared by IIABA and attend its seminar on this subject that is scheduled to begin at 2 p.m. on August 30, 2016.