Producer Settlement Agreements with the Division of Insurance are considered ‘Reportable Administrative Actions’
Most agents are aware that you cannot be paid commissions if you do not have a current insurance license. While this is common knowledge, it is also true that one of the most time-consuming and complicated issues for agents doing business in multiple states involves keeping up to date with the various licensing requirements and regulations for each state in which a producer writes business.
Two recent decisions from the Division of Insurance, however, are a good reminder as to the potential pitfalls that await a producer who is not on top of the requirements involving lapsed licenses and how that can reverberate into other jurisdictions where an agency does business via reportable administrative actions.
A Wisconsin-based agency doing unlicensed business in Massachusetts during a three-year period
The first agency, the Stanley McDonald Agency of Illinois, Inc., (“SMA”) entered into a Settlement Agreement with the Massachusetts Division of Insurance on July 9, 2021. According to the investigation conduction by the Division, SMA’s business entity license had expired on February 2, 2018, and was not reinstated until three years later on February 26, 2021. During that time period, however, the DOI alleges that the agency “wrote, placed, renewed, and/or negotiated more than 20 policies” during that specific time period.
Each policy written is considered a separate violation under Massachusetts General Law c.175, §175 in “acting as an insurance producer without being licensed” resulting in a fine of not less than $10 and not more than $100 dollars for each violation. The Division, however, also noted that SMA’s actions under Massachusetts law were also a violation of M.G.L. c175, §162R(a)(2), “the penalty of which is a fine of no more than $1,000 and/or license suspension, probation, or revocation.”
As a result, the Division offered a settlement of $750 in return for SMA agreeing to waive its right to a public hearing, as well as to “cease and desist from the above-alleged conduct” in addition to paying the agreed upon fine amount.
A seven-month license lapse results in a DOI investigation
Similar to the above case, the Cane Insurance Agency in Braintree fell afoul with the Division of Insurance after placing or renewing approximately 31 insurance policies while technically unlicensed. According the DOI, the business entity license for Cane expired for nonrenewal around February 22, 2019 and was not renewed until September 27, 2019. During that time period of being technically unlicensed, however, the Division claimed that the agency placed or renewed the 31 policies worth $220,992.92 during that time period. In total, the agent generated commissions of approximately $45,988.33 while not currently licensed.
Similar to the previous case, after notifying Cane that each policy was both a violation of M.G.L. c. 175, §175 as well as a violation of M.G.L. c. 175, § l 62R(aX2), the Division offered to enter into a settlement with the agency if the agency “…agrees to waive the right to a public hearing, agrees to cease and desist from the above alleged conduct and agrees to pay a fine of $1,500.”
A reportable administrative event must be reported both in renewing a license and in other jurisdictions
While the above cases are illustrative as to the potential pitfalls for producers who do not stay on top of their business entity license renewals, there is also another important lesson to take from these examples.
At the end of the Division of Insurance’s letter to Cane, it included the following statement:
The Division considers the acceptance of this settlement agreement to constitute a reportable administrative event which must be included on Cane’s next Massachusetts business entity producer license renewal application. Cane also may be required to report this action in other jurisdictions where it holds a business entity insurance producer license.
If you have read previous Agency Checklists articles involving licensing decisions in the past, then you may recognize that many of the cases begin with just such a settlement. The issue or potential pitfall, however, is when an agent or agency who has entered into a settlement agreement then forgets to report this ‘reportable administrative event’ not only in the state in which the settlement agreement occurred, but in every other state where they are licensed. While each state’s Division of Insurance has separate rules and regulations, many such rules and regulations mirror each other in requiring that a ‘reportable administrative action’ be disclosed not only when the settlement agreement is formalized but upon each renewal of a business entity producer’s license renewal application in that state.
