The agent appointment process is not as simple as some think. Insurers that are not careful could find they are in legal trouble. As in so many other areas of insurer operations, due diligence is required in the handling of agency appointments and agent licensing verification.
Agents also have a responsibility under Florida law to make sure the carriers they represent are authorized.
In today’s environment, it is extremely important for an insurer to make absolutely certain that its insurance agent partners are properly licensed and appointed for the insurer’s own lines of business. An insurer must verify that the licensing and appointment of an agent have been properly completed before giving the agent any blank forms, applications or access to on-line systems for business production.
Why is this important? Because, generally speaking and with few exceptions, when an insurer cloaks an unlicensed or unappointed agent with any indicia of representation and writes business produced by the agent, the insurer is civilly liable to the insured just as if the agent had been licensed and appointed.
Section 626.342(2), Florida Statutes, states that any insurer that supplies production materials to an agent or prospective agent not appointed to represent the insurer and that accepts from or writes any insurance business for this agent is subject to civil liability to an insured to the same extent and manner as if the agent or prospective agent had been appointed or authorized by the insurer to act on its behalf.
Licensure verification in Florida is extremely important due in part to the state’s broad definition of what constitutes transacting insurance. “Transact” with respect to insurance includes “solicitation or inducement, preliminary negotiations, effectuation of a contract of insurance or transaction of matters subsequent to effectuation of a contract of insurance and arising out of it.”
Florida’s Insurance Code prohibits a person from acting as, advertising or holding himself or herself out as an agent unless currently licensed by the Department of Financial Services (DFS) and appointed by an appointing entity. Florida law further requires the possession of an agent license in order to engage in the solicitation of insurance that is an attempt to persuade any person to purchase insurance by:
- Describing the benefits or terms of insurance coverage, including premiums or rates of return;
- Distributing an invitation to contract to prospective purchasers;
- Making general or specific recommendations regarding insurance products;
- Completing orders or applications for insurance;
- Comparing insurance products, advising as to insurance matters, or interpreting policies or coverages; or
- Offering or attempting to negotiate on behalf of another person a viatical settlement contract.
Florida defines its “license” as a document issued by the DFS authorizing a person to be appointed to transact insurance for the line(s) of business identified in the document. An agent license also signals that, in the view of DFS, the person is “qualified” for licensure and has met all statutory requirements, including passing a Level 1 criminal history background check.
An appointment is different from a license. The decision to grant an original appointment or renew an existing appointment rests with an appointing entity (insurer). An “appointment” is the authority conferred by an insurer to a licensee to transact insurance on the insurer’s behalf.
When making an appointment, an insurer is also claiming that it has looked into the appointee’s character and reputation and believes the person is fit to engage in the insurance business.
Section 626.451(2) of the Florida’s insurance laws states, “By authorizing the effectuation of an appointment for a licensee, the appointing entity is thereby certifying to the department that an investigation of the licensee has been made and that in the appointing entity’s opinion and to the best of its knowledge and belief, the licensee is of good moral character and reputation, and is fit to engage in the insurance business.”
The insurer is also assuming liability.
Subsection (3) of the same section of law says that by authorizing the appointment of an agent, the insurer is thereby “certifying to the department that it is willing to be bound by the acts of the agent within the scope of the licensee’s employment or appointment.”
While the civil liability is clear, less clear is exactly what insurers are supposed to do to verify an appointed agent’s character.
Unfortunately, there appears to be little statutory guidance and no existing administrative rules directing insurers how to conduct due diligence on a proposed agent appointee, or as the statute puts it, determining in the insurer’s opinion whether the licensee is of good moral character and reputation, and is fit to engage in the insurance business.
This article and author want to be extremely cautious and not appear to be providing legal advice, so it would seem that the best recommendation is for insurers to continue relying upon the advice of their in-house and contract attorneys to establish and follow highly defined company procedures.
In addition to requiring insurers to conduct licensure verification and perform background reviews when appointing of its agents, the law goes even further to protect consumers in the event a policy is nonetheless placed by an unlicensed or unappointed agent. An insurer may not even be aware that and agent is falsely representing it but may still be held responsible if this unappointed agent sells one of its policies.
Section 626.141, Florida Statutes, states that, “An insurance contract which is otherwise valid and binding as between the parties thereto shall not be rendered invalid by reason of having been solicited, handled, or procured by or through an unlicensed agent or customer representative or an agent or customer representative who has not been appointed.”
The proper handling and remission of insurance fiduciary funds to those entitled to such funds is another area where Florida’s insurance laws hold insurers responsible for agents’ conduct.
Florida regulators have long held the position that money paid to an agent constitutes money paid to an insurer. If an insured’s premium payment given to an agent is misappropriated or otherwise unlawfully handled, the state consistently looks to the insurer to put coverage in place, pay claims or otherwise make the insured whole.
Therefore, given the legal and regulatory landscape described above, wise insurers are those that have confidence that a prospective agent appointee will remain in compliance and be a good fit before allowing the agent to represent the company.
Just as important as it is for an insurer to make sure their producing agents are in compliance, it is as important that an agent ensure that their insurer partner’s licensure through the Florida Office of Insurance Regulation (OIR) is in good standing.
By the way, licensing and appointments is a two-way street, meaning an agent also has responsibility.
With very few exceptions, every insurer conducting business in this state must hold either a valid Certificate of Authority or be on the OIR’s list of eligible surplus lines insurers. The OIR provides an on-line insurance company licensing search page at http://www.floir.com/companysearch/. When utilizing this service, it is extremely important to have the exact spelling of the name the insurer is using. This is because unauthorized insurers sometimes create names very similar to the names of properly licensed insurers in order to confuse regulators, agents and the public.
Knowingly or unknowingly representing an unauthorized insurer is a serious Insurance Code violation for which agents risk severe disciplinary action including revocation and potential financial responsibility for unpaid claims.
Several years ago in a DFS appellate case the First District Court of Appeals held that the statutory prohibition against agents representing unauthorized insurers is a strict liability statute. Therefore, an agent’s defense that he or she was unaware that the insurer held no license is not reliable.
To make matters worse, representing an unauthorized insurer also constitutes a felony and could lead to criminal investigation and prosecution through the DFS insurance fraud division.
If an agent cannot verify for certain through state records an insurer’s licensure status, he or she is advised to completely refrain from representing that insurer until the matter can be cleared up by speaking directly with state insurance regulators and obtaining proof of licensure in writing.
Miller is CEO of Lisa Miller & Associates, www.lisamillerassociates.com, a leading government and regulatory affairs and business development firm headquartered in Tallahassee. Miller is a former Florida deputy insurance commissioner. She frequently speaks and writes about insurance issues in Florida and around the country and works with all industry stakeholders in the legislature and in the marketplace.