Powered by ExamFX - Online Training & Assessment

General California Insurance Law

This section outlines regulations from the Supplemental California
Insurance Code regarding the business of insurance in general, and
conduct of insurance professionals in particular. You will learn
about the California Insurance Guarantee Association and its
functions, and read about regulations for fair claims settlement practices. You
will also review requirements for producers for displaying of license,
advertisements, and recordkeeping. Pay close attention to any numbers
associated with these regulations, such as time limits and dollar amounts.

A. Basic Insurance Concepts And Principles

1. Definition of Insurance (CIC 22)

Insurance transfers the risk of loss from an individual or business entity to

an insurance company, which in turn spreads the costs of unexpected losses to
many individuals. If there were no insurance mechanism, the cost of a loss
would have to be borne solely by the individual who suffered the loss.

In the law, a person is a legal entity which acts on behalf of itself, accepting
legal and civil responsibility for the actions it performs and making contracts
in its own name. Persons include individual human beings, associations,
organizations, corporations, partnerships, and trusts.

Insurance is the legal agreement, or contract, whereby the two parties

involved agree to the limits of the indemnification, the circumstances under
which it will occur and what things of value (consideration) will be exchanged
by the parties to the contract.

2. Definition of Insurable Events (CIC 250)

According to the California Insurance Code, "...any contingent or unknown

event, whether past or future, which may damnify a person having an
insurable interest, or create a liability against him, may be insured
against..." In other words, if a possible future event could result in loss or
liability to a person, it may be insurable under the Insurance Code. These
insurable events may never occur, but insurance policies can provide
protection when those times come.

The more predictable a loss becomes, the more insurable it becomes. The
more unpredictable a loss, the less insurable it becomes. For example, a
person cannot be insured against gambling loss or lottery outcomes because
they are unpredictable.

The law does not address a limit as to the level of loss that may be insured
against; it only specifies the type of event that is insurable. The level of loss to
be indemnified is agreed upon by the parties to the insurance contract.

3. Reinsurance (CIC 620)

Reinsurance is a contract under which one insurance company (the

reinsurer) indemnifies another insurance company for part or all of its
liabilities. The purpose of reinsurance is to protect insurers against
catastrophic losses. The originating company that procures insurance on itself
from another insurer is called the ceding insurer (because it cedes, or gives,
the risk to the reinsurer). The other insurer is called the assuming insurer, or
reinsurer.

When reinsurance is purchased on a specific policy, it is classified as

facultative reinsurance. When an insurer has an automatic reinsurance
agreement between itself and the reinsurer in which the reinsurer is bound to
accept all risks ceded to it, it is classified as a reinsurance treaty. Treaties are
usually negotiated for a period of a year or longer.

4. Classes of Insurance (CIC 100-120)

In California, insurance is divided into the following classes:

Life
Disability
Fire
Liability
Marine
Automobile
Title
Credit
Surety
Plate glass
Workmen's compensation
Common carrier liability
Boiler and machinery
Burglary
Sprinkler
Team and vehicle
Aircraft
Mortgage
Mortgage guaranty (Insolvency, and Legal insurance), and
Miscellaneous.
Here is how these classes of insurance are defined by the California Insurance
Code:

Life insurance includes life insurance and annuity coverage upon the lives of
persons.
Fire insurance covers losses in the following categories:

By fire, lightning, windstorm, tornado or earthquake;

Loss or destruction of, or damage to different types of property;
All-risk policies known as Personal Property Floater against any kind of loss
of, or damage to any personal property other than merchandise.
Liability insurance includes insurance against loss resulting from liability for
injury, fatal or nonfatal, suffered by any natural person, or resulting from
liability for damage to property, or property interests of others but does not
include workers compensation, common carrier liability, boiler and
machinery, or team and vehicle insurance.

Marine insurance covers losses to vessels, craft, aircraft, automobiles, etc., as

well as persons or property in connection with these losses. It also extends to
precious stones, jewelry, silver and gold.

Automobile insurance includes insurance of automobile owners, users,

dealers, or others having insurable interests against hazards incidental to
ownership, maintenance, operation, and use of automobiles. Automobile
insurance also includes any contract of warranty or guarantee that promises
service, maintenance, parts replacement, repair, money, or any other
indemnity in event of loss of or damage to a motor vehicle or any part from
any cause.

Title insurance indemnifies owners of real property or the holders of liens.

Surety insurance includes the following types of coverage:

Guaranty of performance of contracts other than insurance policies;

Loss resulting from the forgery or alteration of any instrument or signature;
Protection against loss or destruction from any cause of evidence of debt,
evidence of ownership of deeds, mortgages, bills of lading, etc.
Disability insurance includes insurance relating to injury, disablement or
death resulting to the insured from accidents and relating to disablements
resulting to the insured from sickness. Please note that the term health
insurance means individual or group disability insurance, but excludes
accidental death and dismemberment, disability insurance for hospital
indemnity or accident only, credit disability, long-term care, and other limited
coverage policies.

Plate glass insurance protects against breakage of glass.

Workers Compensation insurance includes insurance against loss from

liability imposed by law upon employers to compensate employees and their
dependents for injury sustained by the employees arising out of and in the
course of the employment, irrespective of negligence or of the fault of either
party.
Common carrier liability insurance includes insurance against loss
resulting from liability of a common carrier for accident or injury, fatal or
nonfatal, to any person but does not include liability or Workers
Compensation insurance.

Boiler and machinery insurance includes insurance against loss of

property and liability for damage to persons or property from explosion of, or
accident to, boilers, tanks, pipes, pressure vessels, engines, wheels, electrical
machinery, or apparatus connected to or operating nearby.

Burglary insurance includes insurance against loss by burglary or theft or

both, as well as against loss or destruction of, or damage to, any of the
following property, resulting from any cause:

Moneys, stamps, coins, and bullion;

Securities, notes, drafts, and accounts;
Books, maps, manuscripts, indexes and other valuable papers; or
Documents and records incidental to the business or profession or activity in
which the insured is engaged.
Excludes coverage of property listed above while in the custody of, or
possession of, or being transported by, any carrier for hire or in the mail.

Credit insurance includes insurance of persons engaged in business against

loss by reason of extending credit to those dealing with them, and insurance
against loss from the failure of persons to meet existing or contemplated
obligations to the insured.

Sprinkler insurance includes insurance against loss through damage by

water to goods or premises arising from the breakage or leakage of sprinklers,
pumps, or other apparatus placed for extinguishing fires, or loss arising from
the breakage or leakage of water pipes, or through accidental injury to such
sprinklers, pumps, or other apparatus.

Team and vehicle insurance includes insurance against loss through

damage or legal liability for damage, to property caused by the use of teams or
vehicles other than ships, boats, or railroad rolling stock, whether by accident
or collision or by explosion of engine, tank, boiler, pipe, or tire of the vehicle,
and insurance against theft of the whole or part of such vehicle.

Mortgage insurance includes the guaranteeing of the payment of the

principal, interest and other sums agreed to be paid under the terms of any
note or bond secured by mortgage.

Mortgage guaranty insurance includes insurance against financial loss by

reason of the nonpayment of principal, interest and other sums agreed to be
paid under the terms of any note or bond or other evidence of indebtedness
secured by a mortgage, deed of trust, or other instrument constituting a lien
or charge on real estate.
Aircraft insurance includes insurance of aircraft owners, users, and dealers,
against loss through hazards incidental to ownership, maintenance, operation
and use of aircraft, other than against loss resulting from accident or physical
injury, fatal or nonfatal, to any natural person.

Insolvency insurance includes insurance against loss arising from the failure
of an insolvent insurer to discharge its obligations under its insurance
policies.

Legal insurance includes the assumption of a contractual obligation to

reimburse the insured against all or a portion of his fees, costs, and expenses
related to or arising out of services performed by or under the supervision of
an attorney who is an active member of the bar of any jurisdiction or
jurisdictions of the United States, in which these legal services are performed.

Miscellaneous insurance includes the following:

Against loss from direct or indirect damage by lightning, windstorm, tornado,

earthquake; or
An open policy indemnifying the producer of any motion picture, television,
theatrical, sport, or similar production, event, or exhibition against loss by
reason of the interruption, postponement, or cancellation of such production,
event, or exhibition due to death, accidental injury, or sickness preventing
performers, directors, or other principals from beginning or continuing their
performances or duties; and
Any insurance not included in any of the classes which is a proper subject of
insurance.

B. Contract Law
1. Insurance Policy (CIC 380)

The insurance policy is the written instrument in which a contract of

insurance is set forth.

2. Legal Terms

Fraud (CIC 338, 1871.1-1871.4)

In order for an insurer to determine whether it wants to provide coverage to

an applicant, the insurer must be able to determine all relevant facts relating
to the likelihood of a claim being filed. Once the insurer has all the facts, its
underwriting department can decide whether the risk of a claim is small
enough to, over a large number of clients, generate a profit.

One of the major sources of information for an insurer is the insurance

application. The information provided by an applicant on an insurance
application is considered to be a warranty. A warranty is a written guarantee
that the information provided is true and accurate.

When an insurance applicant intentionally fails to communicate information

that the insurer needs, the insurer has the right to cancel the policy if the
failure to communicate is discovered after the policy has been issued. This act
is called rescission, and the insurer is said to have rescinded the policy.
Upon rescission, the client loses any right to file a claim on the policy, and the
insurer refunds all money paid. It is important to note that the insurer must
prove that the omission of information was intentional and was done for the
purpose of obtaining insurance fraudulently.

Penal Code Section 550 makes it illegal to intentionally commit any of the acts
specified below or to, in any way, intentionally enable someone else to commit
any of the acts specified. The wording of the law includes the phrase “false or
fraudulent.” Mistakenly presenting a false claim would normally not be
viewed as a criminal act. Knowingly presenting a false claim for the purpose of
taking something of value, however, is fraud and will be prosecuted as a
crime.

When determining whether fraud has been committed, consideration will be

given to whether any false statement is material to the transaction. This
means that the statement contains information which is relied on by the
insurer in making their decision to issue the coverage.

We have condensed the Penal Code Section to clarify the violations which
apply to all types of insurance claims and deleted wording which specifically
refers to auto insurance. Please note that it is equally illegal to do any of the
following in order to contest a claim:

Conspiracy to file, assistance with, or presentation of, a false or fraudulent

claim;
Making more than one claim for a single loss, including claims to multiple
insurers;
Creating paperwork or making an oral statement to support a false or
fraudulent claim;
Not disclosing an event which would affect an insurance benefit.

All of the above acts are felonies punishable by

Imprisonment in a county jail for 1 year or in a state prison for 2, 3, or 5

years;
A fine not to exceed $150,000 or double the value of the fraud - whichever is
greater; or
Both - fine and imprisonment.

If a person is convicted of a felony under this section and has twice been
previously convicted of such a felony or felony violations of related sections of
the Penal and Insurance Codes, he/she cannot receive probation. In addition,
for each prior conviction, the person will be sentenced to 2 additional years in
state prison. Criminal penalties can be applied in addition to these penalties
and enhancements.

The Coalition Against Insurance Fraud says that since most health care fraud
goes undetected, the amount of fraud is unknown. Estimates vary widely,
from 3% to 10% of health care costs. They conservatively estimate that it is
more than $53 billion per year. This results in a significant increase in health
care costs for everyone.

All insurance Notices of Claim and Claim Forms must have the following
wording to warn those who file claims about the legal ramifications of a false
claim.

For your protection California law requires the following to appear on this
form, "Any person who knowingly presents false or fraudulent claim for the
payment of a loss is guilty of a crime and may be subject to fines and
confinement in state prison."

The obvious exception to this wording requirement is reinsurance policies,

which are transactions directly between insurers.

Concealment (CIC 330-339)

Concealment is the legal term for the intentional withholding of information

of a material fact that is crucial in making a decision. In insurance,
concealment is the withholding of information by the applicant that will result
in an imprecise underwriting decision. Concealment may void a policy.

Concealment is the failure to disclose known facts. An injured party is entitled

to rescind the policy regardless of whether the concealment was intentional or
unintentional. Each party should have the reasonable expectation that the
other is acting in good faith without attempting to conceal or deceive the
other. Neither party of the contract is legally bound to provide information
pertaining to matters of their own judgment or opinions, even in matters in
question. The right to rescind the policy is permissible for an intentional and
fraudulent omission on the part of either party.

The following information does not need to be communicated in a contract:

Known information;
Information that should be known;
Information that the other party waives;
Information that is excluded by a warranty and not material to the risk;
Information that is excepted from insurance and not material to the risk; and
Information based on personal judgment.

Warranty (CIC 440-445, 447)

A warranty is a statement considered to be guaranteed to be true and

becomes part of the contract. According to the California Insurance Code, a
certain format of words is not necessary to create a warranty. Warranties can
either be expressed or implied. Statements in a policy are considered express
warranty. Every express warranty becomes part of the insurance contract.
Implied warranty is an unwritten or unspoken guarantee presumed to be
made based on the circumstances of a transaction.

Representations in insurance contracts qualify as implied warranties.

The creation of the warranty will take place at or before the execution of the
policy and will be contained in the policy itself. The warranty is not limited by
time; therefore, it may relate to the past, the present, the future or any
combination of these time frames. Violation of a material warranty on
either party entitles the other to rescind the policy.

Furthermore, the breach of an immaterial provision (meaning that it is not

important) does not void the policy unless specified by the policy itself. In
addition, if the policy contains a statement implying that there is an intention
to do or not to do that which affects the risk, it will be taken as a warranty that
such an act or omission will take place.

Materiality (CIC 334)

The concept of materiality is based on the idea that all parties to a contract
are entitled to all information necessary to make an informed decision about
the quality or nature of the contract. Materiality is determined by the
“probable and reasonable influence of the facts” that they would have on the
party that needs the facts to make a decision, whether that party is the insurer
or the insured. Failure to disclose material information may entitle the
“injured” party to rescind the contract.

Of paramount importance is the weight of disadvantages on either party.

Disadvantages are always material information. Every contract has
disadvantages for both parties, but they may not be compelling when it comes
to deciding whether or not to accept the contract. Insurers are entitled to
know material information about prospective insureds: Have they been
diagnosed or treated for cancer, heart disease, or diabetes? Have they ever
been hospitalized? Do they fly an aircraft? Have they ever been convicted of
a felony?

If an insured intentionally conceals information about a recent heart attack,

this would probably have a larger impact than if the insured had
misrepresented his age by 5 years. The materiality of a given
concealment determines the importance of a misrepresentation.

Insureds, however, are also entitled to know the disadvantages the contract
has for them: cash value surrender charges, principal exclusions (war,
terrorism, aviation, suicide), length of term, increase in premium at end of
term, internal fees and expenses, or a substandard rating, for example.
Producers have a responsibility to share disadvantages with the prospect, not
just the advantages of the contract.

Representations and Misrepresentations (CIC 350-361, 780-784)

Representations are statements believed to be true to the best of one's
knowledge, but they are not guaranteed to be true. For insurance purposes,
representations are the answers the insured gives to the questions on the
insurance application.

Untrue statements on the application are considered misrepresentations

and could void the contract. A material misrepresentation is a statement
that, if discovered, would alter the underwriting decision of the insurance
company. Furthermore, if material misrepresentations are intentional, they
are considered fraud.

Know that a representation may be changed or withdrawn prior to the

effectuation of the policy, but not after. Misrepresentations that are pertinent
to underwriting the insurability, level of risk, and decisions of either party are
grounds to void a contract. However, it must be determined that the
information was given under a false pretense, done so with the intent to
commit fraud, and was material in making the decision to enter the
contractual terms.

According to CIC 782, any person violating this provision is guilty of a

misdemeanor punishable by a maximum fine of $25,000, imprisonment
in a county jail for a period no longer than 1 year, or by both a fine and
imprisonment. If the loss to the victim exceeds $10,000, the fine should not
exceed three times the amount of the loss. In addition, the Commissioner may
suspend the license of the agent for a maximum period of 3 years.

3. Six Specifications for Insurance Policies (CIC 381)

I.B.7. Be able to identify six required specifications for all insurance

policies (CIC 381).

Every contract of insurance is required to identify the following 6 specific

elements:

1. The parties to the contract;

2. The persons or property being insured;
3. A statement of the insurable interest that exists if the insured is not the
owner;
4. The risks insured against;
5. The time period during which the policy will be in force or continue; and
6. The stated annual, semi-annual, quarterly, or monthly premium or a
statement of the manner in which a premium rate and total premium will
later be calculated, if it can only be determined at the termination or
expiration of the contract.
Note that an insurer's financial rating is not required to be specified in an
insurance policy - CA Educational Objective.

4. Rescission (CIC 331, 338, 359, 447)

Rescission is the revocation of a contract.

An injured party is entitled to rescind the contract if any of the following

occurs:

A false material representation (rescission is effective from the time the

representation becomes false);
Concealment (regardless of whether the concealment is intentional);
Violation of a material warranty or any other material provision of a policy.

C. The Insurance Marketplace

1. Distribution Systems

Agency

A producer is a legal entity, either human or corporate, that acts on behalf

of, or in the place of, its principal. In insurance, the producer is the agent,
and the principal is the insurer.

An insurance agent must first establish a licensing relationship with the state
or states within which the agent wishes to conduct business. This requires
meeting educational standards and passing required tests for the type of
insurance which will be sold. This licensing relationship is separate from, and
can exist without, any agent/insurer relationship being established.

The independent agent has contracts with more than one insurer and,
ideally, is then in an enhanced position to offer clients a wide range of product
options.

When the time to renew a policy comes, the independent agent is said to own
the renewal or own the expiration. This means that the independent
agent can move the client to a different insurer for the renewal. This would
best be done only if it is to the client’s advantage. An ethical challenge facing
the independent agent is to avoid moving clients simply to generate new or
higher commissions.

The exclusive or captive or career agent chooses to have a contract with

one company. An agent may choose to do this when he or she finds the
insurer’s products to be of extraordinary quality and applicability and feels no
need to have other insurer relationships. An agent might also make this choice
because the insurer only allows its products to be sold through its own,
exclusive agents.

Exclusivity, depending on the viewer, can appear to be a positive or a

negative. Positively, the agent can represent a product that would otherwise
be unavailable to the client. Negatively, the agent is not able to search
throughout the industry for a product which will be more to the client’s
advantage.
Direct Response

Mass marketing of insurance products through mail solicitations, print media

advertisements, or television and radio are referred to as direct response
marketing. The policies provided are generally low in benefits and low in
premiums.

The term "direct response" refers to the necessity of the potential client to
take the initiative and respond to the advertisement through a telephone or
mail contact with the insurer as directed in the ad.

Home Service

Home service (industrial life) insurance is exactly what it sounds like. It is

the opposite of direct response insurance. With home service products, the
agent solicits and sells insurance in the home or business, and returns to
collect the premium in person. Home service policies are sold through home
service or debit insurers; the face amount usually doesn't exceed $2,000 and
the premium is paid weekly.

This type of service generally comes at a very high price, and the purchasers
are frequently unsophisticated consumers of financial products.

Insurance companies market their products in different ways: through agents

or direct solicitation to the customers.

TYPE OF CHARACTERISTICS
MARKETING
ARRANGEMENTS

1 independent agent represents several companies

Independent Agency Nonexclusive
System/ Commissions on personal sales
American Agency Business renewal with any company
System
Exclusive Agency 1 agent represents 1 company
System/ Exclusive
Captive Agents Commissions on personal sales
Renewals can only be placed with the appointing
insurer

General Agency General agent-entrepreneur represents 1 company

System Exclusive
Compensation and commissions
Appoints subagents

Managerial System Branch manager (supervises agents)

Salaried
Agents can be insurer’s employees or independent
contractors
Direct Response No agents
Marketing System Company advertises directly to consumers
(through mail, Internet, television, other mass
marketing)
Consumers apply directly to the company

2. Producers

Definition of "Transact" and Types of Licensees

When a person performs any of the following actions, he or she is

transacting insurance:

Solicitation of insurance;
Negotiations preliminary to the execution of a contract;
The actual execution of a contract;
Any transactions that later result from the operation of the contract.
With the exception of certain persons who receive non-commission
compensation from their employer for these actions, any other person who
receives compensation for “transacting insurance” must be licensed as an
agent or broker. It is a misdemeanor to transact insurance without a
license. The maximum penalty for transacting insurance without a valid
license is a fine of up to $50,000 or imprisonment in a county jail for up
to 1 year, or both.

The California Insurance Code defines a variety of specific licenses which may
be issued to qualified persons:

Property and casualty broker-agent

Life-only agent (formerly life agent)
Accident and health agent (formerly life agent)
Personal lines agent
Surplus line broker.

An insurance agent in this state means a person authorized to transact all

classes of insurance on behalf of an admitted insurer other than life,
disability, or health insurance.

Life-only agents in California are authorized to transact insurance on

human lives including the following benefits:

Endowments
Annuities
Death or dismemberment by accident
Disability income.
Accident and health agents may transact the following types of insurance:

Sickness
Bodily injury
 Accidental death
Disability income
24-hour coverage.
A property and casualty licensee (former fire and casualty licensee) may be
authorized to transact any of the following coverages:

Automobile insurance
Personal watercraft
Residential property (including earthquake and flood)
Inland marine insurance
Umbrella or excess liability insurance.

A personal lines agent may transact only personal automobile, inland

marine for personal property, residential property, and umbrella or excess
liability lines of insurance.

A limited lines automobile insurance agent is authorized to transact

auto insurance, including automobile liability coverage, physical damage
coverage, and collision coverage.

A surplus line broker is authorized to transact insurance with a

nonadmitted insurer only if a specific class of insurance cannot be obtained
from admitted insurers (after proof of a diligent search).

Regardless of the type of license held, with the exception of a surplus line
broker, agents or brokers may not advertise or transact insurance on behalf of
a nonadmitted insure or aid a nonadmitted insurer in any way to transact
insurance in California.

Prohibited Actions (CIC 1631, 1633)

No person may perform the activities of an insurance agent or broker without

holding the appropriate valid licenses described in the Insurance Code. This
includes soliciting, negotiating, and executing contracts of insurance.

As a result, “any person who acts, offers to act, or assumes to act” in any
manner that would require a license, but does not hold a valid license, is
guilty of a misdemeanor. A misdemeanor conviction in California can result
in imprisonment in the county jail for up to 1 year, a fine of up to $50,000, or
both.

Written Consent in Regard to Interstate Commerce

It is considered unlawful insurance fraud for any person engaged in the

business of insurance to willfully, with the intent to deceive, make any oral or
written statement that contains either false statements or omissions of
material fact. This includes information and statements made on an
application for insurance, renewal of a policy, claims for payment or benefits,
premiums paid, and financial condition of an insurer.
Anyone engaged in the business of insurance whose activities affect interstate
commerce, and who knowingly makes false material statements may be fined,
imprisoned for up to 10 years or both. If the activity jeopardized the security
of the accompanied insurer, the sentence may be extended up to 15 years.
Anyone acting as an officer, director, agent or other insurance employee that
is caught embezzling funds faces the aforementioned fines and imprisonment.
However, if the embezzlement was in an amount that is less than $5,000,
prison time may be reduced to 1 year.

Federal law makes it illegal for any individual convicted of a crime involving
dishonesty, breach of trust or a violation of the Violent Crime Control and
Law Enforcement Act of 1994 to work in the business of insurance affecting
interstate commerce without receiving written consent from an insurance
regulatory official (Director of Insurance, Commissioner of Insurance, etc.) -
known as a 1033 waiver. The consent from the official must specify that it is
granted for the purpose of 18 U.S.C. 1033. Anyone convicted of a felony
involving dishonesty or breach of trust, who also engages in the business of
insurance, will be fined, imprisoned for up to 5 years or both.

Any person who engages in conduct that is in violation of Section 1033 may be
subject to a civil penalty of not more than $50,000 for each violation or
the amount of compensation the person received as a result of the prohibited
conduct, whichever is greater.

Agents vs. Brokers

Agents legally represent the insurer, not their clients. In other words, all
of an agent's actions are considered to be made on behalf of the insurer, not
the insured. With brokers, however, this is reversed. Brokers legally
represent their clients, not insurance companies. They negotiate contracts
of insurance on their clients' behalf.

The broker represents, and is expected to act in the best interests of the client,
not those of the insurance company. Although a broker could receive
compensation from an insurance company for a transaction, typically the
broker receives a fee for his or her services directly from the client. It could be
unethical for a broker to accept both a fee from the client and a commission
from the insurer.

Insurance Agents and Insurance Brokers

Insurance agent in this state means a person authorized to transact all

classes of insurance on behalf of an admitted insurer other than life,
disability, or health insurance. The term insurance broker refers to a
licensee who, for compensation and on behalf of a person other than an
insurer, transacts insurance other than life, disability, or accident and
health. Note that there is no such license as "life broker" or "health broker."
However, a person can be life licensed (as an independent), acting in a
broker's capacity.

A life licensee is a person authorized to act as a life agent on behalf of a life

insurer or a disability insurer to transact life insurance, accident and health
insurance, or a combination of life and accident and health insurance.

Life Settlement Brokers

The term life settlement refers to any financial transaction in which the
owner of a life insurance policy sells a policy that is no longer needed to a
third party for some form of compensation, usually cash. While viatical
settlements are still used for persons who are terminally ill, most states
regulate policies that are sold to a third party for compensation under the
term Life Settlements.

In life settlements, the seller (the policyowner) could have a life expectancy of
more than one year. Policyowners may choose to sell their policies because
they feel they no longer need their coverage, or the premium costs have grown
too high to justify continuation of the policy.

Definitions

The term Business of Life Settlement refers to any activity relating to the
solicitation and sale of a life settlement contract to a third party who has no
insurable interest in the insured.

The term owner refers to the owner of the policy who may seek to enter into
a life settlement contract. The term does not include an insurance provider, a
qualified institutional buyer, a financing entity, a special purpose entity, or a
related provider trust.

Insured is the person covered under the policy that is considered for sale in a
life settlement contract.

Qualified Institutional Buyer is one that owns and invests at least $100
million in securities and is allowed by the SEC to trade in unregistered
securities. A life settlement provider may sell, or in some other manner
approved by the Superintendent, transfer ownership of a settled policy to a
qualified institutional buyer or other investment entity approved by the
Superintendent.

Life Expectancy is an important concept in life settlement contracts. It

refers to a calculation based on the average number of months the insured is
projected to live due to medical history and mortality factors (an arithmetic
mean).

Life Settlement Contract establishes the terms under which the life
settlement provider will pay compensation to the policyowner, in return for
the absolute assignment, transfer, sale, or release of any portion of any of the
following:

The death benefit;

Policy ownership;
Any beneficial interest; or
Interest in a trust or any other entity that owns the policy.
A life settlement contract also includes a premium finance loan that is made
on or before the date of issuance of the policy if one or more of the following
conditions apply:

The loan proceeds are not used solely to pay premiums for the policy;
The owner receives a guarantee of the future life settlement value of the
policy; and
The owner agrees to sell the policy in the event of a default.
The following would not constitute a life settlement contract:

A policy loan issued by a life insurance company;

A loan made by a bank or a lender;
A collateral assignment of a life insurance policy by the owner;
An agreement between closely related parties (by blood or by law);
A bone fide business succession arrangement;
Employer-owned life insurance on key employees;
An agreement between a service recipient and a service provider;
Any other form specified by the Commissioner.
A Life Settlement Broker is a person who, for compensation, solicits,
negotiates, or offers to negotiate a life settlement contract. Life settlement
brokers represent only the policyowners, and have a fiduciary duty to the
owners to act according to their instructions and in their best interest.

This does not include a licensed life settlement provider or its representative,
an attorney, an accountant, or a financial planner. This category includes
persons who would not receive a commission upon completion of a life
settlement contract, but charge a fee for their services, whether or not
ownership of the policy is transferred.

Life Settlement Producer is a person licensed as a resident or nonresident

insurance agent who is qualified to transact life settlements.

Financing Entity includes any accredited investor who provides funds for
the purchase of one or more life settlement contracts and who has an
agreement in writing to do so.

Financing Transaction takes place when a licensed settlement provider

obtains funds from the financing entity.

Broker License Requirements

Before a person can act as a life settlement broker in this state, he or she must
be properly licensed. The following are the required qualifications for a
licensee:

Complete required prelicensing education (15-hour training course);

Pass the licensing exam;
Submit an application to the Commissioner on the approved form;
Pay any required fees (currently, a 1-year license fee is $136); and
Be determined competent and trustworthy.
If an individual has been licensed as a life agent for at least a year, he or
she may act as a life settlement broker; however, they must notify the
California Department of Insurance within 10 days of transacting life
settlements. In lieu of a broker’s license, life agents will be required to pay the
notification fee of $136 dollars, and renew that notification biennially, at the
time of life license renewal.

Licensed viatical settlement brokers or providers will be considered to

have met the licensing requirements for life settlement brokers or providers.

Acting as an Agent without Appointment

A licensed life or accident and health agent who is not specifically appointed
for a particular insurer may not solicit insurance to a prospective client with
that insurer or pass on an application for insurance to that insurer if the
insurer requires that all its agents represent only that insurer.

If an insurer does not specifically require all of its agents to be appointed,

then any licensed agent may present a proposal for insurance to a potential
client on behalf of an insurer for which the agent is not specifically appointed
and may also give an application for insurance to that insurer. If an insurance
policy is issued, the insurer is considered to have authorized the agent to act
on its behalf, and the insurer is responsible for all actions of the agent that
relate to the application and policy as if the agent had been properly
appointed for the insurer. The insurer must forward to the Commissioner a
notice of appointment of the agent as the insurer's agent within 14 days
after the agent submitted the insurance application. An insurer is not
obligated to accept an application for underwriting from a life agent.

Some insurers employ exclusive/captive/career agents and will not allow

any other agents to sell their products. The Insurance stipulates that licensed
agents not contracted with such companies are not allowed to present
insurance applications to those companies. However, if an insurer does not
require that all agents be appointed by them in order to sell their products, an
agent is allowed to represent that company to a client and to receive an
application for insurance with that company. All payments by the client must
be made payable to the insurer, not to the agent. If the insurer does not accept
the application, no agency appointment exists. However, the insurer, by
issuing a policy in response to such an application, is deemed to have thereby
appointed that agent. The insurer must then notify the Commissioner of that
appointment within 2 weeks of receiving the application.
Solicitors

An insurance solicitor is a natural person employed to assist a property

and casualty broker-agent acting as an insurance agent or insurance broker in
transacting insurance other than life, disability, or health. In this state
an insurance solicitor is not eligible to act as an insurance agent or broker at
the same time. A person authorized to act as either an insurance agent or
broker is not eligible at the same time to act as an insurance solicitor.

A solicitor may make prospecting telephone calls, set appointments, even

offer quotes, or take applications for insurance other than life insurance. A
solicitor may be employed by more than one broker-agent at a time. A notice
of appointment appointing a solicitor may be filed by a second or subsequent
property and casualty broker-agent. In order to perform the duties of an
insurance solicitor, the Insurance Code requires that a person hold an
insurance solicitor’s license.

There is no such license as "life solicitor."

Take note:

"LIFE SOLICITOR" is NOT a license. (CIC 1704)

"ACCIDENT AND HEALTH SOLICITOR" is NOT a license. (CIC
1704)

Agent's Errors & Omissions Insurance

An insurance agent or broker may wish to obtain professional liability

insurance to protect against financial losses that could occur due to the
agent's negligent acts or actions. This is known as errors and omissions
(E&O) liability insurance.

Need for Coverage

Because of the risk of injuring a person as a result of the advice or services

rendered (an error) or not rendered (an omission) to that person, E&O
insurance is a necessity.

At any time during the sales process, there can be a misunderstanding or

misrepresentation that could lead to legal action being taken by the insured.
Agents should "document, document, document"— interviews, phone
conversations, requests for information, etc. The sales interview and the
policy delivery are the most common time for E&O situations to occur.

Types of Coverage

Errors and Omissions insurance is written for professionals (such as

insurance producers) to provide protection resulting from actions charging
that the professional failed to render reasonable duties or services. While
some professional liability insurance coverage is written with a limit of
liability on an occurrence basis and the insurance company is required to
obtain the insured's consent for any out-of-court settlement, the modern
trend is to provide coverage on a claims-made basis and to delete previous
requirements for consent of the insured for out-of-court settlements.

Errors and omissions liability contracts are renewable annually and are
usually written with “per claim” deductibles of at least $500 or $1,000, and
have either a “limit per claim” or “limit for all claims during the policy period”
provision that describes the contract’s maximum benefit.

Types of Losses

The following are examples of acts or omissions that could lead to

professional liability claims:

An agent unintentionally records an answer incorrectly on an application for

insurance, concealing the client’s actual response to a question regarding
qualifying information. Upon investigation of a claim, the insurer discovers
the correct information and lawfully rejects the claim and voids the contract
on the basis of the incorrect answers in the application, refunding premiums
paid. The E&O policy would pay for the actual claim losses of the agent’s
client.
The agent fails to disclose material information about a contract of insurance,
such as deductibles, coinsurance, copayments, surrender charges, premium
increases, or principal exclusions. Actual demonstrated damages incurred by
the agent’s client could be covered by the E&O policy.
The agent tells a client, “I guess I made a mistake,” in calculating the original
premium quotation when, in fact, the increased premium was due to the
client’s substandard rating. If an insured later discovers the
misrepresentation and decides to cancel the contract, an E&O policy could
pay the difference between the actual premiums paid and what the client was
originally quoted by the agent as the periodic premium, from the date of the
client’s discovery of the error.
The agent leads a client to believe that projected investment results in a
variable contract, or that the sales illustration for a contract with non-
guaranteed interest, are guaranteed elements of the contract. Actual client
losses could be paid for by an E&O policy.
The agent accepts a check from a client, representing an unscheduled deposit
to the cash account in a variable or flexible premium policy, and fails to send
it to the insurer on a timely basis. Actual investment or interest losses could
be restored by an E&O policy.

Losses Not Covered

Errors and Omissions insurance does not offer any protection for liabilities
that result from a person's criminal acts, such as fiduciary crimes, unfair
business or trade practices, or material misrepresentations which result in
financial loss or damages to a client.

It must be understood that if any of the previously named liability claims arise
out of a criminal conviction, or result in a criminal conviction, the E&O policy
will not pay the claim, and the agent or broker will remain personally liable
for the client's damages.

Prohibited Acts Regarding Nonadmitted Insurers (CIC 703)

I.C2.10. Be able to identify acts prohibited (unless a surplus line

broker) with regard to nonadmitted insurers (CIC 703).

A nonadmitted insurer is one which has not met the requirements, either by
choice or by failure, to legally have its representatives physically present in
order to conduct business in California. Such an insurer can be represented
within the borders of California by specially licensed individuals, called
“surplus lines brokers.” A valid Certificate of Authority must first be secured
from the department of insurance prior to conducting business in California.

Surplus lines brokers are of value to the residents of California: they help the
residents purchase types of property and casualty insurance that are not
available from an admitted insurer.

Advertising Requirements

This is a rather clear-cut portion of the Insurance Code: a person is either a

licensed surplus lines broker or not. If not licensed as a surplus lines broker, a
person may not in any way represent, advertise or assist a nonadmitted
insurer.

Prohibited Acts (Unless a Surplus Line Broker)

The following acts are misdemeanors except when performed by a surplus

line broker:

Acting as an agent for a nonadmitted insurer in the transaction of insurance;

Advertising a nonadmitted insurer in any way;
In any way aiding a nonadmitted insurer to transact insurance.
In addition to any penalty given for committing a misdemeanor, a
person violating any provision of this section will be fined $500, along with a
$100 fine for each month or part of a month during which the person
continues the violation.

New legislation was recently passed to streamline the surplus line broker
licensing laws, and the following changes were included. All individuals must
hold an individual surplus line broker license. Applicants for such a license
must already be licensed to transact fire (property) and casualty insurance.

Additionally, the application and renewal fee for a surplus lines broker is
$700. This fee allows for a 2-year license term.

The fee for a licensed surplus line broker organization to endorse a licensed
individual line broker is $24. When terminating such a broker, the CDI must
be notified (which is also a $24 fee).

Surplus Line brokers transacting insurance on behalf of a licensed surplus

line broker organization will not be required to file a bond. However, all other
surplus line brokers must file a $50,000 surplus line broker bond.

Prohibitions of Free Insurance (CIC 777.1)

I.C2.11. Be able to identify the prohibitions of free insurance (CIC

777.1).

To protect the integrity of the insurance industry in California, the state has
adopted the philosophy that insurance is a product of sufficient importance
and that it should be paid for by the insured because of its intrinsic value. To
this end, it is illegal for any insurance licensee to offer free insurance as an
incentive to conduct some other type of business.

If any insurer, agent, broker or solicitor willfully violates this provision, the
Insurance Commissioner may suspend or revoke that person's certificate or
license or other authority to do business for a period not exceeding 1 year.

The following are exceptions to the free insurance prohibition:

Insurance provided in connection with newspaper subscriptions;

The purchase of credit union shares;
Insurance to guarantee the performance of a product and reimburse a
customer for losses resulting from such product’s failure;
Title, life, or disability insurance which will pay off a debt in case a debtor
becomes disabled or dies;
Services provided by an attorney; and
The services of a motor club (AAA, for example) in regard to towing,
emergency roadside service, bail bond service, DMV transactions or other
normal motor club services that are not defined as the transaction of
insurance.

Miscellaneous Code Requirements and Specifications

General
Agency Name/Use of Name (CIC 1724.5, 1729.5)

California state regulation has no ability to limit a human being’s right to use
his/her actual name to conduct the business of insurance. Other than that, the
regulators of insurance have a responsibility to ensure that California’s
residents not be misled by the name or names attached to a licensed entity.

Every licensee, individual and corporate, must reveal to the Insurance

Commissioner the real name of the legal person as well as all fictitious
(“DBA”) names which are intended for use. To prevent confusing the
insurance consumer, the Commissioner may deny the use of a name for any of
the following reasons:

The name would interfere with the business of another or is too similar to the
 name of another;
The name would mislead the consumer in any way;
The name gives the impression that the licensee is authorized to conduct a
type of business which it cannot legally conduct;
Though the terms “Chartered Property and Casualty Underwriter” and
“Chartered Life Underwriter” are commonly used by those who have earned
those designations, it is not acceptable to use the term “underwriter” in such
a way as to give the impression that the licensee is authorized to act as such.
The term “underwriter” can be used in the name of an organization of
insurance producers who are individually licensed; or
The licensee is already using 2 approved names. The exception to this is a
licensee who acquires ownership of another licensee, in which case the use of
a maximum of 2 names for each such entity is allowed.
In regard to the above, there is room for negotiation with the Commissioner if
there are extenuating circumstances.

If a broker or agent has a contract to provide service for a corporation which

holds an insurance license in its own name, or is a stockholder in a licensed
corporation, or is a member of an incorporated agency, that broker or agent
may use the name of such organization in printed materials as long as the
broker or agent clearly identifies the relationship.

Fictitious Names

All licensees, from individuals to organizations, must file with the

Commissioner their true names and any fictitious names under which they are
conducting business. They must also notify the Commissioner if any of the
names are changed or discontinued. The Commissioner has the right to
approve and disapprove names.

Licensees may not use more than two names, real or fictitious. When licensees
purchase or inherit a business, two additional names may be used for that
business.

Change of Address (CIC 1729)

All licensees, on their initial license application, must provide their residence,
business, and mailing addresses. It is the responsibility of the licensee to
notify the Commissioner immediately of any changes in the e-mail,
residence, principal business, or mailing addresses though the use of an
electronic service approved by the Commissioner.

Reporting Administrative Actions and Criminal Convictions

According to the CIC 1729.2, all licensees and applicants for licenses must
report any administrative actions or criminal convictions, and
background changes to the California Department of Insurance Producer
Licensing Bureau within 30 days of the final disposition of the matter.
Background information that must be reported includes the following:
 Misdemeanor or felony convictions;
Filing of felony criminal charges against the licensee in state or federal court;
Administrative actions regarding an occupational license;
Personal or organizational bankruptcy filing; or
Any financial breach or misappropriation.
Licensees and applicants are required to submit supporting documents, such
as a statement regarding the background change, certified court documents,
administrative documents, or any other related documents.

To report this information to the Department, licensees may use the

background change disclosure form available at www.insurance.ca.gov,
Producer Background Information, under Agents & Brokers. Background
changes may also be submitted electronically to the National Insurance
Producer Registry (NIPR) by selecting "Reporting of Actions" under
"Attachments Warehouse."

Filing License Renewal Application (CIC 1720)

Insurance licenses in this state must be renewed every 2 years. If a licensee

delays completing the renewal requirements and finds himself or herself near
the license expiration date, the licensee can continue to conduct business for
60 days past that expiration date if the licensee completes all requirements
and submits the license renewal fee no later than the expiration date.

Printing License Number on Documents (CIC 1725.5)

In order to facilitate a potential client’s investigation of a producer, each

producer must place his/her license number on all printed materials placed
before the public, including business cards, proposals, and all print
advertisements in California.

To ensure that the number is not minimized and would not be missed by a
prospective insurance purchaser, the license number must be printed at least
as large as the smallest address or telephone number on the same document.
For licensees with more than one license, a single license number will suffice.
Solicitors must use the license number of their employer.

A first offense will be punished by a fine of $200, a second by a fine of $500,

and a third by a fine of $1,000. However, a separate penalty cannot be
imposed for each piece of illegal material used. There is a process for
explaining violations, and the Commissioner has the option to consider
extenuating circumstances and relieve the licensee of the penalty.

The one exception to the license number requirement is motor club (A.A.A.,
etc.) advertisements which include insurance in a general list of services
provided without giving details regarding the insurance products.

Internet Advertisements
A California agent or broker who advertises his or her services over the
internet, regardless of whether the agent/broker created the ad or someone
created it on his or her behalf, must include all of the following information in
the ad:

His or her name as it appears on the insurance license, as well as any

fictitious name approved by the Commissioner;
The state of his or her domicile and principal place of business; and
His or her license number.
A person is deemed to be transacting insurance when the person advertises on
the Internet, regardless of whether the agent or broker maintains the Internet
presence or if it is maintained on his or her behalf, and does any of the
following:

Provides an insurance premium quote to a California resident;

Accepts an application for coverage from a California resident; or
Communicates with a California resident regarding one or more terms of an
agreement to provide insurance or an insurance policy.

Records

One of the challenges facing new agents and brokers is to accept the
responsibility to obtain and maintain accurate, legible records which can be
available within 30 days after a request to the insurer from the Department of
Insurance. Each admitted insurer must maintain certain records pertaining to
the activities of its life, life and disability, and disability agents for a period of
5 years. Life, life and disability, and disability insurance agents must also
maintain all applicable records at their principal place of business for a
minimum of 5 years. The records must be maintained in orderly manner and
be available for Commissioner's review at all times.

The records may be in the form of originals, copies, or electronic data-

processing records and must include the following:

Name of insured;
Name of insurer;
Policy number;
Date insurance is effective and any date it ceases to be effective;
Renewals;
Coverage changes;
All information regarding binders;
Proposals, including comparisons with existing coverage;
Copy of the application or other request for insurance;
All correspondence or other written records which describe the transaction,
except printed materials in general usage;
All correspondence regarding cessation of coverage; and
Legally required outline of coverage or disclosure statement.

The following records must be kept regarding policies, premium payments

and commissions:
 The original policy application;
Amount of premiums received by the insurer;
Production records showing policies sold by each agent;
Itemization of the premium received;
All written communications send by the insurer or its agents to a prospect,
applicant or insured;
A copy of outline of coverage or disclosure statements.

Disclosure of Effective Date of Coverage to Insureds/Applicants (CIC

1730.5)

When a person applies for an insurance policy or pays the initial premium, a
producer must disclose the effective date of coverage (if known), or the
circumstances under which coverage will be effective as soon as specific
conditions are met. This regulation applies only to coverage for personal lines
of insurance.

Fiduciary

The term fiduciary describes both the responsibility inherent in handling

another person's financial affairs, and the individual with such responsibility.
Insurance licensees commonly act as a conduit, receiving and transferring
funds from client to insurer, and, eventually, from insurer to client. Any
person who diverts or appropriates fiduciary funds to his or her own use is
guilty of theft and punishable for theft as provided by law.

If fiduciary funds are received by a licensed producer, he or she must ensure

the following:

Remit and return premiums received to the insurer (minus commissions

due);
Maintain fiduciary funds at all times in a trustee bank account separate from
any other accounts, in the amount at least equal to the premium and return
premiums received by the producer and unpaid to the person entitled to
those funds.

Managing General Agent (MGA) is any person, firm, association, partnership

or corporation that negotiates ceding reinsurance contracts on behalf of an
insurer or manages the insurance business for that insurer and acts as its
agent.

The following would not be considered MGAs:

An employee of the insurer;

A U.S. manager of the United States branch of an alien insurer;
An underwriting manager of the insurer who manages the insurance
operations and whose compensation is not based on the volume of the
premiums written by the insurer;
The attorney-in-fact authorized by and acting on the behalf of the subscribers
of a reciprocal insurer.

MGAs usually have the authority to transfer the funds to the appropriate
party; therefore, their fiduciary capacity includes the following:

Have a written management contract and an appointment with one or more

admitted insurers that cover a substantial portion of the insurance business
in the state of California;
Manage transactions of either all or some classes of insurance for those
insurers;
Appoint, supervise and terminate the appointments of local agents;
Accept and decline risks;
Collect premium funds from producing broker-agents and remit the funds to
the insurers.
The responsibility of the licensee is to, as soon as practicable, transfer the
funds to the appropriate party. If authorized by written agreement of all
involved parties, the licensee may place the funds in U.S. government
instruments, certificates of deposit, or government bonds which meet
specified guidelines until such time as they are to be transferred. Any losses
resulting from such investments are the responsibility of the licensee and in
no way reduces the amount of funds they must transfer.

Appointment Regulations

In order to validate and legitimatize the agency relationship and the insurance
contract, the insurer must submit a notice of appointment within 14 days to
the Commissioner. The licensee will be legal to conduct business, and the
insurer will become responsible for the acts of the licensee, as of the date the
appointment is signed by the insurer.

An appointment will cease and the licensee will become unable to conduct
business for the insurer when any of the following conditions exist:

The licensee loses his/her license; or

The licensee is terminated or resigns his/her appointment.

Life Insurance (CIC 1704, 1705)

Upon signing and submitting an appointment for an original license, an

insurer is inherently confirming to the Department of Insurance that the
applicant has a good reputation and is worthy to be issued the license. This
includes confirmation that the applicant has sufficient experience or
education or will soon (within 30 days) receive sufficient education to meet
the requirements of the license. All of this is true for the entity and each of its
natural persons if the applicant is a business entity.

When a licensed business entity adds a person to its license, the declarations
discussed above are presumed to have been made about that person.

A life or accident and health agent is allowed to present a coverage proposal to

a client for an insurer with whom the agent is not appointed. If the proposal
results in an application to the insurer and a policy is issued, which the
insurer is under no obligation to do, it is assumed that the insurer is
appointing the agent. Within 14 days, the insurer must file the notice of
appointment with the Department. All payments from the client in regard to
such a policy must be made payable to the insurer. The following are
exceptions to this rule:

An unappointed agent may not present a proposal or accept an application

for an insurer which uses only “career” agents, agents which exclusively
represent only a single company or group of companies; and
The insurer requires that it be the first insurer to whom its agents present
policy applications.

Disability Insurance (CIC 1673, 1704-1705)

A person licensed as a property and casualty broker-agent, a life-only agent,

or an accident and health agent may transact disability insurance on behalf of
any insurer which is authorized to transact disability insurance if he/she has
filed a notice of appointment for the purpose of transacting disability
insurance. The authority to transact disability insurance becomes effective the
day the notice of appointment is signed by the insurer. This authority will
apply to transactions occurring after that date and for the purpose of
determining the insurer's liability for acts of appointed agents.

Inactive License (CIC 1704a)

When a licensee has no active appointments, he or she does not lose his or her
license. The insurance license is the result of a relationship the licensee has
with the Department of Insurance, and a lack of appointments does not
change that relationship. A licensee with no appointments has a license which
is designated as inactive. Upon being appointed by any insurer, the license
becomes active again.

Cancellation of a License by the Licensee (CIC 1708)

A licensee may surrender his/her license for cancellation at any time. If the
license is in the possession of the licensee, he/she may surrender the license
by delivering it to the Commissioner. If the license is in the possession of the
insurer or the licensee's employer, the licensee may still surrender the license
by delivering a written notice of surrender to the Commissioner.

Application and License Related Laws (CIC 1666, 1668-1669, 1738)

Producer Application Investigation (CIC 1666)

The Commissioner is obligated to the consumers of California to assure that

all insurance licensees are qualified in regard to their knowledge and
character. To this end, the Commissioner is authorized to require the
provision of any information or documents necessary to make such a
determination. After the investigation is complete, the applicant may be
authorized to conduct business.

Denial of Applications (CIC 1668-1669)

There are many possible causes given in the Insurance Code for denying an
insurance license. Keep in mind that these causes apply to legal “persons”
which include individuals and business entities such as agencies and
corporations. The applicant can be denied licensure if the applicant is
unqualified or if licensing the applicant would be against the public’s best
interest.

An applicant's license could be denied if the applicant has committed any of

the following:

Has no intention of selling the insurance permitted by the license

Does not have a good business reputation
Lacks integrity
Was denied or lost another state license within the past 5 years for a reason
which would also cause an insurance license to be denied
Wants the license to avoid the consequences of insurance law
Has lied on his/her application
Previously acted dishonestly in business
Exposed the public to loss as a result of incompetence or lack of
trustworthiness
Lied about an insurance policy
Has either not done something required by, or has done something forbidden
by the Insurance Code
Has been convicted of (not charged with) any felony or a misdemeanor
violation of insurance law
Has helped someone else commit a crime which would make that other
person lose or be denied a license
Has allowed an employee to violate the Insurance Code
Has acted as a licensed person prior to issuing of a license
Has submitted a fraudulent educational certificate.

The applicant may be denied a license without the right to a hearing if the
applicant has a history of any of the following conditions:

Felony convictions;
Misdemeanor violations of insurance law;
Denial of an insurance license within the past 5 years; or
Insurance license suspension or revocation within the past 5 years.
Note that any person caught willfully cheating on the licensing
examination will be barred from taking any license examination and from
holding an active license for a period of 5 years.

In regards to what may constitute a conviction: any applicant for licensure in

the state of California will be considered convicted of a misdemeanor or
felony if he or she was found guilty or convicted after entering a plea of "nolo
contendere," or "no contest."

It is important to remember that all convictions, at any time in an

applicant's past, must be disclosed on the license application. This also
applies to convictions for which the charges were later dismissed or expunged,
or for which a person was placed on probation or received a suspended
sentence. If an applicant fails to disclose all convictions, the application for a
producer license will be denied (CIC 1729.2).

Suspension or Revocation of License

A permanent license may be revoked for any of the reasons given for which a
license could be denied. A hearing would not be allowed if one of the four
conditions mentioned above exists.

Termination of a License/Dissolving Partnerships (CIC 1708-1714)

I.C2.17 (Life)/I.C2.16 (Health). Be able to identify the scope and

effect of the Code regarding termination of a (producer's) license,
including when producers dissolve a partnership (CIC 1708-1712.5).

A licensee can surrender his/her insurance license at any time, either by

returning the license to the Commissioner or, if not in possession of the
license, sending a notice of resignation.

An insurance license automatically terminates when the licensee dies. If the

licensee is an organization, the license will terminate if its partnership,
association or corporation is dissolved. Also, a partnership will lose its license
if it changes the persons serving as partners. When new partners join, a
partnership can continue its license if it files notice within 30 days with the
Department and the changes are approved.

When any of the above organizations cease, they may continue to conduct
business under another name if the same people remain involved and the
necessary paperwork is completed within 30 days.

Continuing Education Requirements

Continuing education rules are established to protect the public by

maintaining high standards of professional competence in the insurance
industry, and to maintain and improve the insurance skills and knowledge of
licensed producers. The State of California has implemented prelicensing and
continuing education requirements for initial applicants and license renewals
that apply equally to life-only agents, accident and health agents, property
broker-agents and casualty broker-agents (formerly fire and casualty broker-
agents).

Any licensee must complete 24 hours of continuing education (CE),

including 3 hours of ethics, per each 2-year license renewal term for the
type of license held. This regulation applies to the following licenses:

Life-only agent;
Accident and health agent;
 Property broker-agent;
Casualty broker-agent.
These hours can be completed at any time before the license renewal date. The
CE courses and programs must be approved by the Commissioner.

If an agent holds 2 types of licenses (for example, a life agent and a property
broker-agent), the agent may satisfy CE requirement by completing for any of
the license types held.

It may not be practical to complete precisely the minimum number of CE

units during a license period. While it is not possible to renew a license
without the required number of credits, those credits in excess of the required
number will be carried over into the next licensing period; they are not “lost.”

Note, however, that only those hours that were completed during the second
year of the licensing period may be carried over. The number of hours that
can be carried over cannot exceed the number of hours that are required to
renew the license.

Continuing education is available in a variety of settings. Courses are

available with a live instructor, known as a “contact” setting, via mail order as
a “self-study” course, and even by computer over the Internet, also a “self-
study” method. Agents should be certain, however, that the courses they pay
for are approved by the Department of Insurance for California continuing
education. A student may gain valuable knowledge by taking any course, but
only approved courses will satisfy license renewal requirements.

Life-only agents, accident and health agents, or property and casualty broker-
agents may only receive credit for CE courses approved for their respective
licenses. Agents who hold licenses in more than one line of authority
must satisfy the continuing education requirements by completion
of the approved courses or programs of instruction for any of the
license types.

Licensees who have been in good standing for 30 continuous years in this
state and who are 70 years of age or older are not required to comply with the
requirements for continuing education.

Agents Writing Long-Term Care Insurance (CIC 10234.93)

Each agent authorized to solicit long-term care insurance must satisfy the
training and continuing education requirements. The training
requirements are as follows:

8 hours of LTC training annually for the first 4 years after the original license
is issued; and
8 hours of training during each licensing period thereafter.
The required LTC training is included in the hours required for overall
continuing education, not added to them. Note that long-term care training is
not required when an agent is transacting accelerated death benefit
provisions or riders that do not require services.

Agents Writing California Partnership Coverage

Accident and health agents who intend to sell California Partnership for Long-
Term Care (CPLTC) insurance must also satisfy the continuing education
requirement for those courses. These agents are required to complete one
specifically designated long-term care training course, and one specifically
designated 8-hour California Partnership for Long-Term Care classroom
course. Once the initial training requirement has been met, the agents are
required to complete an 8-hour classroom CE course on the Partnership every
2-year licensing period.

Life-only agents may be authorized to solicit long-term care riders to a life

insurance policy after meeting the proper training requirements.

Note that the total number of CE hours required for the accident and
health agent is not increased by CE requirement for LTC or CPLTC.

Ethics

I.C2.23 (Life)/I.C2.21 (Health). The following points are derived

from the ethical codes of major industry organizations and may be
the basis of Ethics-related test questions on the licensing exam.
I.C2.24 (Life)/I.C2.22 (Health). Be able to identify that the CIC and the
California Code of Regulations (CCR) identify many unethical and/or illegal
practices, but they are not a complete guide to ethical behavior.

You should be able to identify and apply the meaning of the following:

Place the customer's interest first;

Know your job and continue to increase your level of competence;
Identify the customer's needs and recommend products and services that
meet those needs;
Accurately and truthfully represent products and services;
Use simple language that insurance consumers can understand;
Stay in touch with customers and conduct periodic coverage reviews;
Protect your confidential relationship with your client;
Keep informed of and obey all insurance laws and regulations;
Provide exemplary service to your clients; and
Avoid unfair or inaccurate remarks about the competition.

Note that the California Insurance Code (CIC) and the California
Code of Regulations identify many unethical and/or illegal
practices. It is impossible, however, to write legislation for every
possible unethical act.

An agent's role in the insurance industry is one of great responsibility toward

others. The Insurance Code articulates in many different ways the legal and
ethical aspects of the client-agent relationship. Fiduciary responsibilities are
very high on the list – the contact an agent has with the money or premiums
of insureds, or the advice and recommendations given to others which have
implications for their money or financial security.

An insurance agent must practice and demonstrate the highest level of ethics,
integrity, and morals. Failures or lapses in any of these areas can result in
great financial harm to others. Misrepresentation, twisting, concealment,
diverting client money to personal use, commingling client money with
general business funds (even if there was no bad intent), and other practices
are ethical, integrity, and moral issues and are prohibited in various ways by
the Code. Failing to answer, or giving an intentional wrong answer to
questions that insureds or prospects ask is also an ethical problem, because it
can lead a client to make a choice that might not be in their best interest.
Unethical conduct can lead to suspension or loss of license, monetary
penalties, and even time in jail or prison.

Agents must make recommendations to clients based on the clients' best

interests. For an agent to recommend products or services to a person that he
or she would not recommend for himself or herself in the same circumstances
is an ethical dilemma. This is often described as conflict of interest. The
normal conduct of business, especially in the insurance industry, can present
agents with many opportunities for conflicts of interest.

Agents are typically paid on a commission basis. Commissions are usually

calculated on the basis of annual premium submitted, even though the client
may have paid just the first monthly installment with their application. For an
agent, then, the higher the premium collected, the higher their commission
check. If the higher premium, and the higher commission, is the result of an
inappropriate recommendation for the client, that is a conflict of interest and
an unethical act.

The opportunity an agent may have to represent multiple insurers can be in

the best interest of the client, but it can also lead to conflicts of interest,
especially if a decision to place business with a particular company is made on
the basis of which company is offering the best “perk” to its agents. Incentives
such as commission bonuses, trips or cruises, computers, or other sales-based
contests all present opportunities to do what’s right for the agent, but not
what’s right for the client.

Ethics demands that the other person and his or her family are of primary
importance. An agent who demonstrates the highest respect for others will
have the most successful career. Agents who neglect this respect for others
may have success initially, but they rarely have long-term success. The
responsibility for ethical behavior is squarely on the agent.

Special Ethical Concerns Regarding Senior Citizens

Seniors are among the least likely to report financial crimes or abuses against
them because they might be embarrassed at having “been taken,” or because
they do not wish to appear to be losing the ability to manage their lives or
personal finances.

Unethical agents have been caught selling multiple, duplicative policies to

seniors, proposing one type of insurance policy or annuity contract but
delivering another (bait and switch), and misleading senior consumers into
believing that an annuity product is actually a long-term care contract (or
vice-versa).

The California's Medicare supplement and long-term care insurance

regulations address unethical practices such as inaccurate or misleading
comparisons of existing and proposed replacement contracts, selling a person
a third long term care policy within 12 months, or a second Medicare
supplement policy. California enacted the Financial Elder Abuse statutes
in 2002, which, in part, specifically addresses insurance agent abuses of
persons age 65 or older.

Under most circumstances, insurance institutions, agents, and insurance-

support organizations are not allowed to use pretext interviews to obtain
information that relates to an insurance transaction.

A pretext interview is conducted when any person, in an attempt to gain

information about another natural person, does one or more of any of the
following:

Pretends to be someone he or she is not;

Pretends to represent someone he or she is not actually representing;
Misrepresents the purpose of the interview; or
Refuses to identify himself or herself upon request.
Pretext interviews are prohibited during any phase of the transaction
process of insurance. This includes information gathering during
underwriting. Obviously, the use of a pretext interview could reveal
information that is privileged and would not normally be available to the
insurer or agent. It could result in an adverse underwriting decision.
However, in the investigation of a claim, particularly when fraud is suspected,
as an investigative technique, pretext interviews are permitted.

It is further required that the reason of the interview must be to investigate a

claim where there is a reasonable basis for suspecting criminal activity, fraud,
material misrepresentation, or material nondisclosure in connection with a
claim.

3. Insurers

Qualifications to Be an Insurer (CIC 150, 19)

According to California Insurance Code 150, any person capable of making a

contract may be an insurer, subject to the Code restrictions. In order to
become an admitted insurer (legally entitled to transact insurance in this
state), there are many financial, technical, and legal qualifications that a
company must meet. The Code regulation is in place to prevent unqualified
persons from offering insurance to the public.

The term person is used in the law to refer to any entity which is legally
capable of performing legal acts, such as making contracts, on its own behalf.
In California, a person may, therefore, be either a natural person at least age
18 who is legally competent, or any of the following entities:

Association
Organization
Partnership
Business trust
Limited liability company
Corporation.

Any person may be an insurer by meeting the following guidelines of the

California Insurance Code:

Submitting all forms, products, premiums, and advertising for approval prior
to use;
Using only licensed agents and brokers;
Using acceptable D.B.A. ("Doing Business As") names; and
Maintaining required financial reserves.

Insurance is available from both private companies and the government. The
major difference between government and private insurance is that the
government programs are funded with taxes and serve national and state
social purposes, while private policies are funded by premiums.

Private insurance companies can be classified in a variety of ways:

Ownership;
Authority to transact business;
Location (domicile);
Marketing and distribution systems; or
Rating (financial strength).
As you read about different classifications of insurers, keep in mind that these
categories are not mutually exclusive, and the same company can be described
based on where it is located and allowed to transact the business of insurance,
who owns it, and what type of agents it appoints.

Admitted vs. Nonadmitted Insurers (CIC 24-25)

Before insurers may transact business in a specific state, they must apply for
and be granted a license or Certificate of Authority from the state
department of insurance and meet any financial (capital and surplus)
requirements set by the state. Insurers who meet the state's financial
requirements and are approved to transact business in the state are
considered authorized or admitted into the state as a legal insurer. Those
insurers who have not been approved to do business in the state are
considered unauthorized or nonadmitted. Most states have laws that
prohibit unauthorized insurers to conduct business in the state, except
through licensed excess and surplus lines brokers.

Before an insurance company can legally transact insurance, it must first

obtain a certificate of authority from the Commissioner. This certificate
indicates that the Commissioner has examined the business and found it to be
financially stable and organized in accordance with the Insurance Code.

Penalty for Acting as an Insurer without a Certificate of Authority

Transaction of insurance business in this state without a certificate of

authority is considered a public offense punishable by:

Imprisonment according to the Penal Code; or

Imprisonment in a county jail for up to 1 year; or
Fine up $100,000; or
Both that fine and imprisonment.

Domestic, Foreign, and Alien Insurers (CIC 26-27, 1580)

Insurance companies are classified according to the location of

incorporation (domicile). Regardless of where an insurance company is
incorporated, it must obtain a Certificate of Authority before transacting
insurance within the state.

A domestic insurer is an insurance company that is incorporated in this

state. In most cases, the company's home office is in the state in which it was
formed - the company's domicile. For instance, a company chartered in
Pennsylvania would be considered a Pennsylvania domestic company.

A foreign insurer is an insurance company that is incorporated in another

state or territorial possession (such as Puerto Rico, Guam or American
Samoa). For example, a company chartered in California would be a foreign
company within the state of New York.

An alien insurer is an insurance company that is incorporated outside the

United States.

Major Types of Private Insurers

The following are the most common types of ownership.

Stock Insurance Companies

Stock companies are owned by the stockholders who provide the capital
necessary to establish and operate the insurance company and who share in
any profits or losses. Officers are elected by the stockholders and manage
stock insurance companies. Traditionally, stock companies issue
nonparticipating policies, in which policyowners do not share in profits or
losses.

A nonparticipating (stock) policy does not pay dividends to policyowners;

however, taxable dividends are paid to stockholders.

Mutual Insurance Companies

Mutual companies are owned by the policyowners and issue participating

policies. With participating policies, policyowners are entitled to dividends,
which, in the case of mutual companies, are a return of excess premiums and
are therefore nontaxable. Dividends are generated when the premiums and
the earnings combined exceed the actual costs of providing coverage, creating
a surplus. Dividends are not guaranteed.

De-mutualization is the process in which a mutual insurer becomes a stock

company.

Fraternal Organizations

A fraternal benefit society is an organization formed to provide insurance

benefits for members of an affiliated lodge, religious organization, or fraternal
organization with a representative form of government. Fraternals sell only to
their members and are considered charitable institutions, and not insurers.
They are not subject to all of the regulations that apply to the insurers that
offer coverage to the public at large.

4. Market Regulation - General

California Insurance Code (CIC) and Code of Regulations (CCR)

The California Insurance Code (CIC) is the primary body of laws

established by the state legislature, which regulates the business of insurance
in California. The present form of the Code, as amended, was enacted in 1935,
as a restatement and expansion of previously established law. It is a dynamic,
fluid device, constantly being reviewed, amended, added to, and even having
outdated sections repealed, all consistent with current issues and practices in
the marketplace.

How the Code May Be Changed

In order to change the Insurance Code in any way, legislative action is

required. A bill amending or repealing an existing section or desiring to add
something new is introduced into either the Assembly or the Senate, where it
undergoes a variety of committee hearings and revisions before it is presented
to the full body for a vote. If approved, it goes to the other body for the same
sort of process. If more changes are made before the bill is approved, it must
be returned to the first body for re-approval. Once approved by both houses,
the bill goes to the Governor for approval or veto, or it may also become law
without action, positive or negative, by the Governor.

California Code of Regulations

The California Code of Regulations (CCR), also known as the California

Administrative Code, is the set of regulations issued by the Department of
Insurance that identifies the standards for the Insurance Code, and how it is
to be administered. The CCR contains the regulations that have been issued
by the Insurance Commissioner for clarification and administration of the
Code.

Definitions
Shall and May (CIC 16)

Certain concepts or terms have special relevance to insurance, but they do not
have different legal interpretations in insurance law than elsewhere. For
example, the words shall and may always have the same implications,
whether they appear in the Insurance Code or any other law.

Shall is a word that compels action; it normally indicates that a specific

action or response is mandatory. Where the Code states that a person “shall”
or “shall not” do something, there is usually no room for misunderstanding
what that means. The word may, on the other hand, is normally a word of
options or permission; it leaves room to act or not act and still remain in
compliance with the law. However, the Code leaves open the possibility that,
in context, even the word may could be interpreted the same as the word
shall.

Person (CIC 19)

Even the word person is expansive. A person does not simply mean a living,
breathing human being – a natural person. Person also refers to associations,
organizations, partnerships, trusts, limited liability companies, and even
corporations – all are non-natural persons. Whether natural or non-natural,
all persons are distinguished by their ability to contract, sue, or be sued. Non-
natural persons simply have to designate a natural person to represent them
or act as their agent.

The Commissioner
Selection of Commissioner (CIC 12900)

The Commissioner of Insurance is an elected officer in California. The

Commissioner may be elected to serve not more than two consecutive 4-
year terms.

The Commissioner is expected to be a person knowledgeable in the business

of insurance, but cannot be an active agent, officer, director, or employee of
an insurance company. If a licensed person is elected Commissioner, he or she
must surrender his/her license within 10 days of taking office. At the
conclusion of his/her term of office, he/she may have his/her license
reinstated for the balance of his/her license term without penalties or fees.

Responsibilities (CIC 12921)

The Commissioner of Insurance has no power or authority to write or

change the law but has the authority to enforce the law. The
Commissioner’s duty is to issue regulations which establish how the
Department of Insurance intends to interpret and enforce the law. The
regulations proposed by the Commissioner must undergo a public hearing
process to determine their fairness or applicability before they may actually
go into effect.

The Commissioner has the responsibility to oversee the California

Department of Insurance (CDI) and direct all of the CDI's affairs and staff.

The Commissioner can appoint persons to act on his or her behalf. These
representatives can negotiate settlements with agents or insurers who have
violated the Code. However, it is the Commissioner’s responsibility to make
the final approval of a sanction.

The Commissioner is responsible for a procedure to investigate complaints

and respond to inquiries and, when warranted, to bring enforcement actions
against insurers. The system for managing complaints must include the
following:

A toll-free number published in telephone books throughout the state,

dedicated to the handling of complaints and inquiries;
Public service announcements to inform consumers of the toll-free telephone
number and how to register a complaint or make an inquiry to the
department;
A simple, standardized complaint form designed to assure that complaints
will be properly registered and tracked;
Retention of records on complaints for at least 3 years;
Guidelines to disseminate complaint and enforcement information to the
public that includes license status, number and type of complaints filed
within the last calendar year, number and type of violations found, and
enforcement actions taken. Also included is the ratio of complaints received
to total policies in force, or premium dollars paid in a given line, or both.
The Commissioner's duty is to provide to the insurer a description of any
complaint against the insurer that the Commissioner received and deemed to
be justified at least 30 days prior to public release of a report summarizing
the information required. This description includes the name of the
complainant, the date it was filed, a description of facts and a statement of the
DOI's rationale for determining whether the complaint is valid.

The Commissioner must prepare a written report, to be made available by the

DOI to
interested individuals upon written request, that details complaint and
enforcement information on individual insurers in accordance with the CIC.
The report must be made available by mail, telephone, internet and email.

All public records of the Department and the Commissioner must be available
for inspection and copying.

The Commissioner receives complaints and inquiries, investigate complaints,

prosecute insurers according to guidelines determined by the CIC, and must
respond to complaints and inquiries concerning alleged misconduct. The
Commissioner must notify the complainant of receipt within 10 working
days. The complainant will be notified of final order within 30 days of
judgment.

The Commissioner has the authority to issue a cease and desist order
against any person acting as an insurance agent or broker without being
licensed, and against any person transacting insurance without having been
issued a certificate of authority. The Commissioner may issue a cease and
desist order without holding a hearing prior to issuance of the order, and
may also impose a fine of up to $5,000 for each day the order is violated. A
person to whom a cease and desist order is issued may request a hearing by
filing a request with the Commissioner within 7 days after service of the order.

Unfair Trade Practices (CIC 790-790.10)

Subsequent to passage of the McCarran-Ferguson Act in 1945, affirming the

role of state regulation of insurance, California adopted regulations pertaining
to “unfair practices.” Section 790 of the Code, together with its subparts,
contain the several different practices that the Code has specifically identified
as unfair, as well as the penalties and other regulations related to unfair
practices. The Code is also clear that any other undefined act or practice
which the Commissioner determines to be unfair to consumers or unfair to
insurers, even though it is not mentioned in particular, may still be a violation
of the Code.

General Prohibitions

Many of the most common or prevalent practices which are problems include
things such as misrepresentations in sales illustrations or advertised policy
terms, or in the financial condition of an insurer, including its reserves, policy
titles which could mislead a person into believing that the contract performs
differently, or other misrepresentations which could lead a person to lapse,
forfeit, or surrender a policy. Additionally, acts such as filing false financial
documents, unfairly discriminating against classes of insureds, or simply
making false statements which should be known as untrue by using
"reasonable care" are identified as unfair practices.

Unfair claims settlement practices include the following:

 Misrepresenting facts or provisions of policy coverage;
Failure to determine within a reasonable amount of time following
submission of proof of loss forms whether or not a claim is payable;
Not making a fair and equitable settlement of a claim after the insurer’s
liability has been made clear;
Compelling insureds to sue the insurer in order to obtain a judgment to
enforce a claim by offering substantially less than the insured receives
following a trial, only to collect an amount the same or nearly the same as the
insured hoped to receive; and
Advertising insurance that the insurer will not sell;
Providing untrue or deceptive information about a person or entity engaged
in insurance.

Also included in this subpart are other offenses, such as the following:

An insurer attempting to appeal arbitration awards in an effort to get the

insured to accept a settlement or compromise for less than the arbitration
award;
Requiring insureds to submit preliminary claim reports followed later by a
request to submit essentially the same information in order to either deny or
accept a claim;
Advising an insured not to retain or seek an attorney;
Delaying payment in regard to hospital, medical, or surgical claims for
persons with AIDS or HIV, for more than 60 days after filing a claim for the
purpose of attempting to invoke a pre-existing condition exclusion
Filing false financial statements;
Unfair discrimination;
Advertising membership in the State's Guarantee Association;
Boycott, coercion, intimidation.

Specific Unfair Trade Practices Defined

False Advertising

Advertising covers a wide scope of communication, from publishing an ad in a

newspaper or magazine, to broadcasting a commercial on television or the
Internet. Advertisements cannot include any untrue, deceptive, or misleading
statements that apply to the business of insurance or anyone who conducts it.
The violation of this rule is called false advertising.

It is prohibited to advertise or circulate any materials that are untrue,

deceptive, or misleading. False or deceptive advertising specifically includes
misrepresenting any of the following:

Terms, benefits, conditions, or advantages of any insurance policy;

Any dividends to be received from the policy, or previously paid out;
Financial condition of any person or the insurance company; or
The true purpose of an assignment or loan against a policy.
Representing an insurance policy as a share of stock, or using names or titles
that may misrepresent the true nature of a policy also will be considered false
advertising. In addition, a person or an entity cannot use a name that
deceptively suggests it is an insurer.

Misrepresentation
It is illegal to issue, publish, or circulate any illustration or sales material that
is false, misleading, or deceptive as to policy benefits or terms, the payment of
dividends, etc. This also refers to oral statements. Committing this illegal act
is called misrepresentation.

Rebating

Rebating is defined as any inducement offered to the insured in the sale of

insurance products that is not specified in the policy. Both the offer and
acceptance of a rebate are illegal. Rebates may include, but are not limited to,
the following:

Rebates of premiums payable on the policy;

Special favors or services;
Advantages in the dividends or other benefits; and
Stocks, bonds, securities, and their dividends or profits.

Twisting

Twisting is a misrepresentation, or incomplete or fraudulent comparison of

insurance policies that persuades an insured/owner, to his or her detriment,
to cancel, lapse, switch policies, or take out a policy with another insurer.
Twisting is prohibited.

Unfair Discrimination

Discrimination in rates, premiums, or policy benefits for persons within the

same class or with the same life expectancy is illegal. No discrimination may
be made on the basis of an individual's marital status, race, national origin,
gender identity, sexual orientation, creed, or ancestry unless the distinction is
made for a business purpose or required by law.

Defamation

Defamation occurs when an oral or written statement is made that is

intended to injure a person engaged in the insurance business. This also
applies to statements that are maliciously critical of the financial
condition of any person or a company.

Boycott, Coercion and Intimidation

It is illegal to be involved in any activity of boycott, coercion, or

intimidation that is intended to restrict fair trade or to create a monopoly.
This would include unfair behavior that influences not only clients, but
competing agents and brokers.

Penalties

Whenever the Commissioner has reason to believe that a person has been
engaged or is engaging in any unfair trade practices, the Commissioner must
issue a cease and desist order to show cause, the person's liability, and the
notice of a hearing, which must be at least 30 days from the date of the
order. At the hearing, if the charges are found to be justified, the
Commissioner may issue a penalty.

The civil penalties which may be assessed for violations of unfair trade
practices are $5,000 for each act in violation of the Code, whether intentional
or not. However, if the act or practice is determined to be a willful violation
or a general business practice, the penalty increases to a maximum of $10,000
per violation. In addition to this, the Commissioner may also take action
against the license of a person found to have been engaged in any unfair
practice.

If the Commissioner has reason to believe that a person has violated a cease
and desist order after the order has become final, the Commissioner may,
after a hearing at which it is determined that the violation was committed,
order that person to pay a sum not to exceed $5,000 which may be recovered
in a civil action. If the violation is found to be willful, the amount of the
penalty may be a sum not to exceed $55,000. These fines are in addition to
civil penalties for violation of insurance code ($5,000 for each act) and
intentional violation of insurance code ($10,000 for each act).

The Gramm-Leach-Bliley Act

The Gramm-Leach-Bliley Act stipulates that in general, an insurance company

may not disclose nonpublic personal information to a nonaffiliated third party
except for the following reasons:

The insurance company clearly and conspicuously discloses to the consumer

in writing that information may be disclosed to a third party.
The consumer is given the opportunity, before the time that information is
initially disclosed, to direct that information not be disclosed to the third
party.
The consumer is given an explanation of how the consumer can exercise a
nondisclosure option.

The Gramm-Leach-Bliley Act requires 2 disclosures to a customer (a

consumer who has an ongoing financial relationship with a financial
institution):

1. When the customer relationship is established (i.e. a policy is purchased);

and
2. Before disclosing protected information.
The customer must also receive an annual privacy disclosure, and have the
right to opt out, or choose not have their private information shared with
other parties.

Insurance Information and Privacy Act (CIC 791-791.26)

Practices
Section 791 of the Insurance Code is concerned with access to, or collection
and distribution of, a person’s private or privileged information which may be
necessary to obtain in connection with an application for insurance. The law is
sensitive to a consumer’s desire to keep certain information private, but it
also recognizes that in the absence of that information, an insurer might
approve a person for insurance that it could lawfully decline coverage to if it
knew that same information.

Section 791 tries to strike a balance of fairness for both applicants and
insurers in the process of gathering and using information. The law is
intended to apply to natural persons who are residents of the state and are
seeking life or disability insurance. It also applies to any person seeking
property or casualty insurance for policies that will be issued or delivered in
this state.

The information necessary for proper underwriting may be both personal and
highly sensitive in nature. Because of this, there is great potential for harm to
an individual if their personal information is disclosed to others who have no
legitimate reason for receiving it. How, and from whom, that information is
obtained, collected, held, and when or how it will or may be disseminated to
others must be disclosed in advance to applicants for insurance.

In some cases, insurers may decide to conduct an investigative consumer

report in connection with an application. An investigative consumer report
goes beyond simply gathering information from the credit reporting bureaus
or the Medical Information Bureau (MIB). It can include interviews with
applicants, their relatives, employers, or neighbors, or any other person who
may have personal or other information about the person's character, general
reputation, personal characteristics, and lifestyle. The Insurance Code allows
people to request that they be interviewed personally. It also requires that the
person must be given a copy of the report upon request and provides them
with a mechanism to protest and request correction of inaccurate information
about them. The person has a right to know to whom the information has
been given and those who were the source or sources of information about
them.

In the event of an “adverse underwriting decision,” which could mean being

declined, rated, or in any way deemed less than a standard risk, or even being
issued coverage by a company other than the one the applicant originally
intended to apply for coverage, the person must be given the reason for the
decision. That information must be given to them in writing, or the person
must be advised that they may request in writing the reason for the action be
furnished to them.

If the information is medically-related, and supplied by a medical care

institution or medical professional, it must be disclosed, upon request, to the
individual directly or to a medical professional of that person’s choosing who
is licensed to treat the person for the condition to which the information
relates. If the information is related to a person’s mental health, it may only
be disclosed with the consent of the professional who is responsible for the
treatment related to that information.

Prohibitions

The Insurance Code also addresses the issue of pretext interviews. A pretext
interview is conducted when any person, in an attempt to gain information
about another natural person, does one or more of any of the following:

Pretends to be someone he or she is not;

Pretends to represent someone he or she is not actually representing;
Misrepresents the purpose of the interview; or
Refuses to identify himself or herself upon request.

Pretext interviews are prohibited during any phase of the transaction

process of insurance. This includes information gathering during
underwriting. Obviously, the use of a pretext interview could reveal
information that is privileged and would not normally be available to the
insurer or agent. It could result in an adverse underwriting decision.
However, in the investigation of a claim, particularly when fraud is suspected,
as an investigative technique, pretext interviews are permitted.

Penalties

Section 791 also details under what circumstances and how the Commissioner
may examine insurers, agents, and others engaged in the information
gathering processes, and how they maintain or distribute the information
obtained. There are a variety of penalties which can be applied to the various
violations that could be committed. The following are some of the penalties:

Suspension or loss of license; and

Civil fines for violating cease and desist orders of up to $10,000 for each
violation; or
Up to $50,000 if the violations are found to be committed with a frequency
indicating they are a general business practice.

Insurers or agents can also be liable for civil damages and legal fees that arise
for the unlawful collection or distribution of personal, private, or privileged
information about a person that causes him/her harm. Certain acts could also
violate other criminal laws and subject a person to prosecution, resulting in
fines or imprisonment.

California Financial Information Privacy Act

The California Financial Information Privacy Act, in effect since July 1, 2004,
enacted the most stringent financial privacy protections in the country.

The act, which gives consumers the final say in the sharing of their
information, also restricts financial profiling of consumers and makes
consumers aware of their rights through a clearly written and easy-to-
understand notice.

The "opt-in" rule means that financial institutions must get a consumer's
permission before sharing information with outside companies.

Cal-GLBA

The California Financial Information Privacy Act provides standards for

financial institutions regarding sharing or selling of nonpublic personal
information about consumers. California Legislature, known as Cal-GLBA,
provides greater privacy protection to consumers than the federal Gramm-
Leach-Bliley Act. Cal-GLBA outlines consumer privacy choices and rights, and
allows California consumers to have greater control over the disclosure of
nonpublic personal information.

As defined by the California Financial Code, nonpublic personal information

means any financial information that is

Provided by a consumer to a financial institution;

Obtained as a result from a transaction with the consumer; or
Obtained by a financial institution by any other means.

The Health Insurance Portability and Accountability Act (HIPAA)

Legislation that took effect in July 1997 ensures "portability" of group

insurance coverage and includes various required benefits that affect small
employers, the self-employed, pregnant women, and the mentally ill. HIPAA
(Health Insurance Portability and Accountability Act) regulates protection for
both group health plans (for employers with 2 or more employees) and for
individual insurance policies sold by insurance companies.

HIPAA includes the following protection for coverage:

Group Health Plans

Prohibiting discrimination against employees and dependents based on their

health condition;
Allowing opportunities to enroll in a new plan to individuals in special
circumstances.
Individual Policies

Guaranteeing access to individual policies for qualifying individuals;

Guaranteeing renewability of individual policies.

Eligibility

HIPAA has regulations regarding eligibility for employer-sponsored group

health plans. These plans cannot establish eligibility rules for enrollment
under the plan that discriminate based on any health factor relating to an
eligible individual or the individual's dependents. A health factor includes
any of the following:

Health status;
Medical conditions (both physical and mental);
Claims experience;
Receipt of health care;
Medical history;
Genetic information;
Disability; or
Evidence of insurability, which includes conditions arising out of acts of
domestic violence and participation in such activities as motorcycling, skiing,
snowmobiling, etc.
Employer-sponsored group health plans may apply waiting periods prior to
enrollment as long as they are applied uniformly to all participants.

To be eligible under HIPAA regulations to convert health insurance coverage

from a group plan to an individual policy, an individual must meet the
following criteria:

Have 18 months of continuous creditable health coverage;

Have been covered under a group plan in most recent insurance;
Have used up any COBRA or state continuation coverage;
Not be eligible for Medicare or Medicaid;
Not have any other health insurance;
Apply for individual health insurance within 63 days of losing prior coverage.
Such HIPAA-eligible individuals are guaranteed the right to purchase
individual coverage.

Pre-existing Conditions

Under HIPAA, a pre-existing condition is a condition for which the employee

has sought medical advice, diagnosis, or treatment within a specified period of
time prior to the policy issue.

Creditable Coverage

The concept of creditable coverage means that an insured must be given

day-for-day credit for previous health coverage against the application of pre-
existing condition exclusion period when moving from one group health plan
to another, or from a group health plan to an individual plan.

Prior to the enactment of the Affordable Care Act (ACA), individual insureds
were entitled to receive credit for previous creditable coverage that occurred
without a break of 63 (or more) consecutive days.

The ACA has prohibited pre-existing condition exclusions and eliminated

waiting period in excess of 90 days; it also eliminated the requirement to
issue HIPAA group health plans certificates of creditable coverage after
December 31, 2014.
Renewability

At the plan sponsor's option, the issuer offering group health coverage must
renew or continue in force the current coverage. However, the group health
coverage may be discontinued or nonrenewed because of nonpayment of
premium, fraud, violation of participation or contribution rules,
discontinuation of that particular coverage, or movement outside the service
area or association membership cessation.

Conservation Proceedings (CIC 1011, 1013, 1016)

Insurance companies are specifically exempted under federal bankruptcy

laws, which means that any liquidation of an insolvent insurer is strictly a
matter for the state to pursue. To accomplish this, California has adopted the
Uniform Insurers Rehabilitation Act. This Act describes the steps that
the Commissioner must take when attempting to either rehabilitate an
insolvent or delinquent insurer to sound financial condition or liquidate an
insurer that cannot be rehabilitated. The Code also describes the mandatory
action the superior court is required to take when the Commissioner presents
a petition for either a conservation or liquidation order.

Each year, on or before March 1, every insurer doing business in California is

required to report its financial condition to the Commissioner. At that time, or
at any other time, if an insurer’s legal reserve funds are less than the
minimum required by law, the company is impaired in its ability to pay
claims, and is technically insolvent. The Commissioner has authority under
the Code to take control of the insurance company, and the superior court
must grant the Commissioner’s petition for conservation. There is no long,
drawn-out legal battle – the insurer has no power to prevent the act of
conservation.

The court order gives the Commissioner absolute control over the assets and
operations of the company. The Commissioners first responsibility is to
attempt to rehabilitate the company, if at all possible. Initially, all new
business transactions are terminated. Existing and new claims are paid, and
ways to return the company to solvency are explored. If it becomes clear that
there is no possibility of rehabilitating the company, the Commissioner's final
move will be to liquidate the company, selling assets to continue to pay
claims, and if all claims have been satisfied, any remaining assets will be used
to satisfy the claims of other creditors.

If the company cannot pay any or all of its claims, the two Guarantee
Associations in California are prepared to pay a portion of the claims,
depending on the type of policy. If either or both of the Guarantee
Associations have paid claims due to the inability of the company to pay, they
become creditors of the company and can seek repayment through the
liquidation process.
In a conservation or liquidation effort, the Commissioner also has the power
to sue officers, directors, or others who may bear responsibility for the
company’s condition, including managing general agents, auditors and
accountants, or actuaries in order to add to the “estate” of the company in
order to pay claims of insureds or creditors. Even the industry rating
companies have been held responsible for their published inaccuracies!

Additionally, in a liquidation, other parties not normally associated with the

claims-paying responsibility of the company may have their assets seized. If
the insolvent insurer was a substantial owner of another business or
partnership, those assets may be taken to satisfy the obligations of the
insurer, regardless of whether that business was involved in the business of
insurance.

When the Commissioner is engaged in liquidating an insurer, there is a legal

requirement to publish the notice of liquidation for 4 consecutive weeks, and,
in most cases, to also mail notices to known potential claimants against the
estate of the company. Once the notices have been published or mailed,
claimants have no more than 6 months to file their claims. The Insurance
Code establishes the priority of claims, and only when the claims of a class or
group have been fully satisfied will the next in order be entitled to pursue
their claims.

Insolvent Insurers (CIC 36, 985, 1013)

Insolvency means either of the following:

Any impairment of minimum paid-in capital" required of an insurer by the

provisions of the Insurance Code for the class, or classes, of insurance that it
transacts anywhere; or
An inability of the insurer to meet its financial obligations when they are due.
Even if the insurer is able to provide for all its liabilities and for reinsurance
of all outstanding risks, it cannot escape the condition of insolvency unless it
has additional assets equivalent to the aggregate paid-in capital as established
by the state regulation.

Paid-in Capital (CIC 36 & 985)

Paid-in capital or capital paid-in means the following:

1. In the case of a foreign mutual insurer not issuing or having outstanding

capital stock, the value of its assets in excess of the sum of its liabilities for
losses reported, expenses, taxes, and all other indebtedness and reinsurance
of outstanding risks as provided by law. Foreign mutual insurers cannot be
admitted, however, unless their paid-in capital is composed of available cash
assets amounting to at least $200,000.
2. In the case of a foreign joint stock and mutual insurer, its paid-in capital is
computed, according to its desire, based on the standards for either 1 or 3. If
paid-in capital is computed pursuant in accordance with 1, then its admission
is subject to the same qualifications.
 3. In the case of all other insurers, the lesser of the following amounts:
The value of its assets in excess of the sum of its liabilities for losses
reported, expenses, taxes, and all other indebtedness and reinsurance of
outstanding risks as provided by law; or
The aggregate par value of its issued shares of stock, including treasury
shares. For the purpose of computing paid-in capital or capital paid-in,
shares of stock are not taken as liabilities.

Refusal to Issue Information (CIC 1013)

Whenever it appears to the Commissioner that irreparable loss and injury to

the property and business of a person has occurred or may occur unless the
Commissioner takes action, the Commissioner, without notice and before
applying to the court for any order, can take possession of the property,
business, books, records, and accounts of the person and the person's office.
The Commissioner can continue to retain possession after receiving a court
order.

Any person against whom a seizure order has been issued and who refuses to
deliver pertinent books, records, or assets will be guilty of a misdemeanor
and could be punishable by a maximum fine of $1,000, imprisonment for no
longer than 1 year, or both.

Fraud

Insurance fraud is a significant problem for insurance companies and

insureds alike. Premiums for most forms of insurance have risen in recent
years because of the increasing number of fraudulent claims that are being
presented to insurers for payment. The most common forms of insurance
fraud include claims in the following areas:

Staged automobile accidents;

Fraudulent healthcare billings (including HMO and Medi-Cal);
False and/or inflated property loss claims;
Phony Workers Compensation claims;
Fraudulent denial of Workers Compensation benefits;
Arson for profit;
Fake life insurance claims; and
Workers Compensation premium fraud by employers.

The California Department of Insurance reported in 2002 that up to 50% of

all automobile insurance claims may be fraudulent, many of them being
“staged” on paper instead of actually occurring, and that automobile
insurance fraud is estimated to cost California consumers as much as
$500,000,000 per year. Due in large part to the high cost of medical claims,
but also to the large number of fraudulent claims, California also has the
highest rates for Workers Compensation insurance, even though the actual
compensation benefits are among the lowest in the nation.

Efforts to Combat Fraud (CIC 1872, 1874.6, 1875.8, 1875.14, 1875.20,

1877.3b1)
Federal, state, and local law enforcement officials work together, aided by
insurance companies and industry support organizations to combat all forms
of insurance fraud. The California Department of Insurance has created the
Fraud Division to enforce the provisions of the Penal Code and to
administer the fraud reporting provisions. (CIC 1872)

Among other agencies and systems put in place to help combat fraud is the
Arson Information Reporting System that allows for cooperation between
insurers, law enforcement agencies, fire investigating agencies, and district
attorneys. This system allows all parties to deposit arson case information in a
common data base within the Department of Justice. (CIC 1875.8)

To prevent auto insurance related fraud, every insurer must report covered
private passenger vehicles involved in theft, including the vehicle
identification number and any other pertinent information, to the National
Automobile Theft Bureau or a similar central organization engaged in
automobile loss prevention approved by the Commissioner. Prior to the
payment of theft losses, insurer must comply with verification procedures
according to the regulations adopted by the Commissioner. (CIC 1874.6)

Insurance companies, agents and brokers also have a legal responsibility to

report suspected fraud. Whenever an insurer or licensed rating organization
knows or reasonably believes that it knows the identify of a person or entity
that has committed a fraudulent act relating to a workers compensation
insurance claim or policy, they insurer must notify the local district attorney's
office and the Fraud Division of the Department of Insurance, and may notify
any other authorized governmental agency of that suspected fraud and
provide any additional information. (CIC 1877.3)

The Commissioner may license an organization as an Insurance Claims

Analysis Bureau if is a nonprofit corporation organized for the purposes of
fraud prevention with at least 2 years of relevant experience. An Insurance
Claims Analysis Bureau is required to perform the following functions:

Collect and compile information and data from members concerning

insurance claims;
Disseminate claims-related information to members for the purpose of
preventing and suppressing insurance fraud;
Promote training and education related to investigation, suppression, and
prosecution of insurance fraud; and
Provide to the Commissioner (without fee or charge) all state data and
information contained in the records of the Bureau to further prevent and
prosecute insurance fraud.
Every insurer admitted to do business in this state must provide for the
continuous operation of a unit or division to investigate possible fraudulent
claims by insureds or by persons making claims for services or repairs against
policies held by insureds (CIC 1875.20).
Insurers, agents, and brokers have legal immunity from civil suits claiming
libel or slander that might result from giving statements, filing reports, or
furnishing any other information, as long as the information is offered "in
good faith and without malice."

Fraudulent Claim Forms

If a claimant signs a fraudulent claim form, the claimant may be found guilty
of perjury.

False and Fraudulent Claims Article (CIC 1871-1872.5)

Chapter 12 of the Insurance Code is devoted exclusively to the Insurance

Fraud Prevention Act. The Insurance Code describes the basic
responsibilities that the Insurance Commissioner, law enforcement agencies,
insurers, agents, brokers, and others have when "confronting aggressively the
problem of insurance fraud in this state."

State insurance claim forms are required to carry a notice informing claimants
of their liability in the event of a fraudulent claim. The notice now reads: "For
your protection California law requires the following to appear on this form:
Any person who knowingly presents a false or fraudulent claim for the
payment of a loss is guilty of a crime and may be subject to fines and
confinement in state prison."

Every person who commits insurance fraud may be punished as follows:

Imprisonment in the county jail for 1 year, or in the state prison, for up to 5
years;
Fine up to $150,000 or double the value of the fraud, whichever is greater; or
Both imprisonment and fine.
The court will determine the amount of restitution, and where the restitution
must be paid. A person convicted may be charged for the costs of investigation
at the discretion of the court.

A person who commits insurance fraud and who has a prior felony conviction
will receive a 2-year enhancement for each prior conviction in addition to
the sentence provided.

Rates
Requirements for Rates to be Approved or Remain in Effect (CIC
1861.05a)

Insurance rates cannot be approved or remain in effect if they are excessive,

inadequate, unfairly discriminatory or otherwise in violation of the California
Insurance Code. In considering whether a rate is excessive, inadequate or
unfairly discriminatory, no consideration can be given to the degree of
competition, and the Commissioner must consider whether the rate
mathematically reflects the insurance company's investment income.
Types of Rating Laws
Prior Approval

Under this plan, insurers must file proposed policy rate information with the
state department of insurance. Upon filing, the insurer must deliver
supporting evidence that such rates are justified and do not charge excessive,
inadequate, or unfairly discriminatory premiums. The Commissioner has a
predetermined number of days, generally 30 to 60, to approve or reject the
submitted rate plan; however, the Commissioners failure to reject the plan is
deemed as approval to adopt and market such plan.

File and Use

File-and-use laws require that the rate plan be filed prior to marketing the
plan; however, such laws provide that once the plan is filed, the insurer does
not have to wait for the Commissioner's approval to begin marketing the plan.

Use and File

Use-and-file laws require that rate plans be filed within a specified period,
generally 15-30 days, after they are first used with the public.

Open Competition

The open competition rating method, also known as no-file laws, allow
insurers to compete with one another by quickly changing rates without
review by the state regulators. Under such a plan, market forces rather than
administrative action determine what rates will be charged for a given risk.

State Regulation of Rates (CIC 1861.05c)

The Commissioner must notify the public of any application by an insurer for
a rate change. The application will be deemed approved 60 days after public
notice unless:

A consumer requests a hearing within 45 days of public notice and the

Commissioner grants the hearing, or determines not to grant the hearing and
issues written findings in support of that decision;
The Commissioner on his or her own motion determines to hold a hearing;
The proposed rate adjustment exceeds 7% of the then applicable rate for
personal lines or 15% for commercial lines, in which case the Commissioner
must hold a hearing upon a timely request.
In any event, a rate change application will be deemed approved 180 days
after the Commissioner receives the rate application unless that application
has been disapproved by a final order of the Commissioner.

Notice by Mail (CIC 38)

I.C4.11 (Life)/I.C4.12 (Health). Be able to identify the requirements for

notice by mail and by electronic transmission (CIC 38 and 38.5).
 Since there is always the possibility that a party to a policy may
attempt to avoid responsibility under the policy by falsely claiming
that he or she sent a notice or that the other party never sent an important
notice, the law explains what is considered to be sufficient proof of mailing.

If the notice had postage applied and was put in the hands of the U.S. Postal
Service with the last known address of the recipient on it, then an affidavit by
the sender, stating such facts, is proof of the mailing. Any notice provided by
electronic transmission must be treated as if mailed or given for the purposes
of any provision of the Insurance Code. A valid electronic signature will be
sufficient for any provision of law requiring a written signature.

The insurance company must retain a copy of the confirmation and

electronic signature, when either is required, with the policy information so
that they are retrievable upon request by the Department of Insurance while
the policy is in force and for 5 years thereafter.

Fair Claims Settlement Practices Regulations

Definitions

Claimant - any person who asserts a right of recovery under a surety bond,
an attorney, any person authorized by operation of law to represent the
claimant, or an insurance adjuster, a public adjuster, or any member of the
claimant's family as designated by the person.

Notice of legal action - notice of an action commenced against the insurer

with respect to a claim, or notice of action against the insured received by the
insurer, or notice of action against the principal under a bond, and includes
any arbitration proceeding.

Proof of claim - any evidence or documentation in the possession of the

insurer that reasonably supports the magnitude or the amount of the claimed
loss. The documentation could have been submitted by the claimant or
obtained by the insurer in the course of its investigation.

File and Record Documentation

I.C5.2. Be able to identify File and Record Documentation (CCR

2695.3).

The Commissioner reserves the right to examine every licensee's claim files,
including all documents, notes and work papers (including copies of all
correspondence). The files should be in such detail that events and the dates
of events can be reconstructed; and the licensee's actions can be determined.

Insurers must do the following:

Maintain claim records that are accessible, legible and retrievable.

 Record the dates the licensee received, processed and transmitted or mailed
relevant documents in the file.
Maintain hard copy files. If the files aren't hard copies, they must be in a
format that is accessible, legible and capable of being duplicated to hard copy.
If the licensee cannot construct complete records, he or she must document
for the Commissioner the inability or difficulty to obtain data due to
catastrophic losses or other unusual circumstances.

In this case, the licensee must submit to the Commissioner a plan for file and
record documentation to be used while the circumstances that keep the
licensee from compiling a complete record persist.

Standards for Prompt, Fair and Equitable Settlements

I.C5.4. Be able to identify Standards for Prompt, Fair and Equitable

Settlements (CCR 2695.7(a)(b)(c)(g) and (h).

Insurers cannot discriminate in their claims settlements practices based on a

claimant’s age, race, gender, income, religion, language, sexual orientation,
ancestry, national origin, or physical disability, or the territory of the property
or person insured.

Once the claim is received, insurers must either accept or deny it within 40
calendar days. The amounts accepted or denied must be clearly documented
unless the claim has been denied in its entirety. (The time frame doesn’t apply
to claims arising from disability insurance and disability income insurance
policies, or to automobile repair bills arising from policies of automobile
collision and comprehensive insurance.)

If an insurer rejects a first party claim, that must be done in writing and state
the basis for the rejection. Insurers are protected from disclosing information
that could alert a claimant that a claim is being investigated as a suspected
fraudulent claim.

Written notification must include a statement that a claimant may have a

claim reviewed by the California Department of Insurance if he or she
suspects the claim has been wrongfully denied or rejected. The notice will
include the address and telephone number of the unit of the Department
which reviews claims practices.

If an insurer needs more time to determine if a claim should be accepted or

denied, the insurer must, within the 40-day acceptance period, notify the
claimant in writing of the need for more time and any additional information
the insurer requires and any continuing reasons for the insurer's inability to
make a determination. Thereafter, the written notice must be provided every
30 calendar days until a determination is made or notice of legal action is
served.
An insurer cannot attempt to settle a claim by making a settlement offer that
is unreasonably low. Upon acceptance of the claim, insurers are required to
provide payment within 30 days.