CLAIRE-IFICATION

IA&B Vice President - Advocacy Claire Pantaloni, CIC, CISR Are you a member with a question? Contact Claire to find the answer at 800-998-9644, ext. 604 or ClaireP@IABforME.com.

QUESTION:

Can a producer filing for bankruptcy jeopardize his license?

ANSWER:

In the case of bankruptcies, our three states are fairly consistent in their interpretation of the statute. Here is how our Delaware, Maryland, and Pennsylvania insurance regulators currently handle producers’ bankruptcies.

DELAWARE

Business bankruptcies or personal bankruptcies involving funds held on behalf of others must be reported to the Delaware Department of Insurance (DOI). If it is a personal bankruptcy that does not involve funds held on behalf of others, the DOI does not need to be notified.

On the other hand, failing to comply with an administrative or court order imposing a child-support obligation, or failing to pay state income tax or comply with any administrative or court order directing payment of state income tax can cause serious problems as they are, by statute, acceptable reasons for denying a license. Such issues should be addressed with the bankruptcy attorney and the DOI upfront. Losing a producer’s license after filing for bankruptcy would be both devastating and counterproductive for all parties involved by depriving the producer of his ability to earn a living.

MARYLAND

If it is a personal bankruptcy only, the Maryland Insurance Administration (MIA) would not require to be notified. The requirement to notify the MIA only applies to business bankruptcies.

The failure to pay state income tax or a child-support obligation, however, also would trigger the Maryland producer licensing statute and could jeopardize a license renewal. If there are taxes owed to the State of Maryland that are not the subject of a repayment agreement, the Comptroller’s Office will notify the MIA, and the licensee will not be allowed to renew his/her license. For child-support obligations, notification from the child support agency results in the suspension of the producer’s license until the obligation is resolved. Any producer contemplating an individual bankruptcy should voice these issues with the bankruptcy attorney and/or discuss it upfront with the MIA in order to prevent any fallout.

PENNSYLVANIA

According to the Insurance Department, if it is a personal bankruptcy only, there shouldn’t be any problem with the license renewal. However, as in Delaware and Maryland, if the individual has failed to pay state income tax or is behind in child-support payments, there could be some ramifications: the producer licensing statute contains similar provisions as the other two states. If the Pennsylvania Department of Revenue indicates that the producer is non-compliant with state taxes, then the Insurance Department likely will take action unless the producer has entered into an agreement with the Department of Revenue to come into and maintain compliance.

As a result, it is best to err on the side of caution and pay close attention to any state income tax debt as well as any child-support obligation with the bankruptcy attorney before proceeding. As in the other states, contacting the Insurance Department ahead of time could be helpful as well. Note that the Pennsylvania Insurance Department is in the process of an internal review (as of November 2021) and may make some changes in the future.

Finally, also keep in mind that in all three states, carriers have latitude to deny an appointment to an individual with a personal bankruptcy, if they so choose, independently from the license.

This document is not a legal opinion and should not be relied upon as such. The intent of this document is to provide a general background regarding the topic or topics discussed, not to provide legal advice. Producers and agencies should consult an attorney regarding specific situations and specific questions with respect to the topic or topics covered in this document. Neither the Insurance Agents & Brokers nor any of its employees shall be responsible for any errors or omissions regarding any statements made in this document, nor any errors or omissions regarding any statutes, regulations, court rules, and/or any other government documents cited in this document.