Massachusetts agents, brokers and insurance companies who pay or are paid commissions should always make sure that all their licenses, and the licenses of those who work for them are always up –to-date. Paying commissions to an individual or entity who does not have an active insurance license in Massachusetts or whose license simply may have not yet been renewed could result in a hefty fine or worse. The Supreme Judicial Court just today (April 29th) affirmed a $30,000 fine against an agent who paid an unlicensed producer commissions.
Chapter 175 sec. 177 of Massachusetts law clearly prohibits the paying of commissions to someone not licensed to transact insurance business in the Commonwealth. It states in part,
No company and no officer, agent or employee thereof, and no duly licensed insurance producer, shall, directly or indirectly, pay or allow or offer or agree to pay or allow compensation or anything of value to any person, excepting an officer of a domestic company acting under section one hundred and sixty five, for acting in this commonwealth as an insurance producer, as defined in section 162H who is not then duly licensed as an insurance producer.
Under this law, the Commissioner of Insurance is authorized to impose sanction up to $500 per violation it determines were knowingly made. In the case decided today, the agent was fined $100 for each of the 300 violations of the statute.
Moreover, the Division of Insurance can fine you regardless of any statutes of limitations and may also separately fine you for violations it finds pursuant to G.L. c.176D sec. 2 which prohibits the engaging in unfair or deceptive acts or practices in the business of insurance.
This is one of those cases were ignorance is no defense and you have to be proactive. You have to actively check if someone has a license. In the case decided today, the agent violations were based on “failing to ascertain whether or not an employee or independent contractor had renewed their license prior to soliciting business from or accepting applications from and paying compensation to them.” So a defense of “I had no idea” will likely be held as no defense at all.
Agents and Brokers may check if their licenses are current as well as anyone else by consulting the Massachusetts Division of Insurance’s Agent Finder website: Find an Insurance Agent. The Division of Insurance states that by performing a detailed search of the site a person can determine if an agent’s licenses is current and up-to-date as only actively licensed individuals will appear on the AgentFinder website results.
If you have any questions about this or any other legal issue affecting your agency, please contact us here or call us at 617.598.3800
By Owen Gallagher