Don's Discussion

IA&B Legal & Corporate Affairs Director Don Bankus provided this answer. Are you a member with a question? Contact Don at 717-918-9204 or DonB@IABforME.com.

QUESTION:

One of my insureds incurred a cost he feels is the agency’s fault. While I disagree, I do feel bad and reimbursed the customer $350. Is this OK?

ANSWER:

You’ve heard the saying “No good deed goes unpunished.” While your intent genuinely may have been to improve an uncomfortable situation – or simply to try to make the customer whole again – regulators in our three states may view your actions differently. Rather than an act of kindness, they may consider it a violation of the state’s rebating law.

HOW WOULD YOUR STATE VIEW THIS?

Delaware: Under the above scenario, applicable Delaware law would prohibit such an act, providing little to no leeway. While Delaware’s producer licensing statute is silent on the issue, its “Unfair Practices in The Insurance Business” statute is unequivocal, and at 18 DE Code, Section 2304(15) provides that:

No property, casualty or surety insurer or any employee or representative thereof, and no broker, agent or solicitor shall pay, allow or give, or offer to pay, allow or give, directly or indirectly, as an inducement to insurance, or after insurance has been effected, any rebate, discount, abatement, credit or reduction of the premium named in a policy of insurance, or any special favor or advantage in the dividends or other benefits to accrue thereon, or any valuable consideration or inducement whatever, not specified or provided for in the policy, except to the extent provided for in an applicable filing with the Commissioner as provided by law.

Maryland: Again, as it relates to the above scenario, applicable Maryland law would prohibit such an act, providing little to no leeway. The issue is governed by Maryland’s “Unfair Trade Practices and Other Prohibited Practices” statue at MD Code, Insurance, Section 27-212(b), which provides:

Except to the extent provided for in an applicable filing with the Commissioner as provided by law, an insurer, employee or representative of an insurer or insurance producer may not pay, allow, give, or offer to pay, allow, or give directly or indirectly as an inducement to insurance or after insurance has become effective: (1) a rebate, discount, abatement, credit, or reduction of the premium stated in the policy; (2) a special favor or advantage in the dividends or other benefits to accrue on the policy; or (3) any valuable consideration or other inducement not specified in the policy.

Pennsylvania: Generally speaking, Pennsylvania’s anti-rebating provisions are as restrictive as –and essentially mirror – those of Delaware and Maryland above. However, in 2018 Pennsylvania amended a portion of the “Pennsylvania Producer Licensing Act” to include the following exception to its anti-rebating provisions:

Exception. – An insurance producer may offer or give to an insured or a prospective insured, on an annual aggregate basis [on a calendar year basis], any favor, advantage, object, valuable consideration or anything other than money that has a cost of or a redeemable value of less than or equal to $100, which is not specified in the contract of insurance.

Accordingly, under the above scenario, it would be permissible for an agency to provide the Pennsylvania insured with a gift card, with a value of no more than $100. Keep in mind that the statute does not allow for payment in cash, which the Insurance Department has confirmed. However, as is the case with Delaware and Maryland above, it would be a violation of Pennsylvania law if you were to reimburse the customer the total amount of $350 as referenced in the scenario at the top of this FAQ.

WHAT ARE THE PENALTIES FOR A VIOLATION?

Delaware: A fine of up to $1,000 for each violation, not to exceed $100K; possible suspension or revocation of producer license; see 18 DE Code, Section 2308.

Maryland: A fine of between $100-$500 per violation; possible suspension or revocation of producer license.

Pennsylvania: A fine of up to $5,000 for each violation; possible suspension, refusal to renew, or revocation of producer license; see 40 P.S. Section 310.91.

FINAL THOUGHTS

While it hardly seems fair that simply trying to do a good deed could violate the law, the reality is you could end up in hot water if you engage in such a practice.

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.