Insurance Law in the United States

By Michael Lustig

The legal implications of - and the laws that govern - agent or broker conduct.

Gain a lawyer's perspective in the principles of agency; agency powers and limitations; waiver and estoppel; misrepresentations and warranties by agents or companies, and hundreds of other laws that serve to protect the interests of the insurance-buying public.

Objectives
• Learn to spot unethical behavior by unscrupulous insurance companies or agents.
• Develop basic skills in properly filling out an insurance application, scheduling a medical examination, collecting advance premiums, etc.
• Gain insight to the legal implications of unethical agent, broker, or insurance company conduct.

Major Subjects Covered
• Knowledge of Agent as Imputed to the Company.
• Representations and Acts of Agent or Company.
• Misrepresentations and Warranties Generally.
• Authority of Agents for the Company.
• Types and Powers of Agents.

• Language: English
• Publisher: Michael Lustig
• Release date: Jun 27, 2011
• ISBN: 9781933891361

Michael Lustig

Michael Lustig is a graduate of the University of San Diego, California and a former Professor at California State University at Pomona and Immaculate Heart College (Los Angeles). He has been a California Real Estate Broker and the Owner and President of Real Estate License Services, a California real estate and insurance licence school, since 1978, offering state-approved license courses in 47 states and the District of Columbia. He is the author of 35 books on real estate and insurance topics.

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Smashwords Edition

INSURANCE LAW IN THE UNITED STATES

3rd Edition

CAL-STATE EXAMS

5059 Newport Avenue, #209

San Diego, CA 92107

Telephone: [phone]

Copyright © 2010-1991 REAL ESTATE LICENSE SERVICES, INC. Copyright registered. All rights reserved. No part of this material may be reprinted, reproduced, transmitted, stored in a retrieval system, placed in a computer or on the Internet, or otherwise utilized, in any form or by any means electronic or mechanical, including photocopying or recording, now existing or hereinafter invented, nor may any part of this course be used for teaching without permission from the copyright holder. CAL-STATE EXAMS is a division of REAL ESTATE LICENSE SERVICES, INC., holder of the registered copyright.

Notice

CAL-STATE Exams has not authorized anyone to copy any part of this textbook, including the distributors, training schools, and insurance companies it has authorized to use or sell this textbook.

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TABLE OF CONTENTS

INSURANCE LAW IN THE UNITED STATES

LESSON ONE — STATUS AND REGULATION OF AGENTS AND ADJUSTERS

Statutory Regulation of Agents — Purpose and Object of Laws

License Requirements — Necessity of Licenses

License Requirements — Persons Securing License or Acting as Agent

License Requirements — Effect of Nonlicensing Upon Validity of Contract

Licensing of Agents - Authority and Discretion

Licensing of Agents — Renewals of Licenses

Suspension and Revocation of Licenses

Suspension and Revocation of Licenses — Grounds for Action

Suspension and Revocation of Licenses — Procedures Before the Commissioner

Suspension and Revocation of Licenses — Action by the Commissioner

Judicial Review of Actions by the Commissioner

License or Privilege Taxes and Fees

Penalties for Acting without a License

Penalties for Rebating

Penalties for Misrepresentation – Adjusters

Status and Regulation

Unauthorized Practice of Law — Adjusters and Lay Employees of Insurance Companies

Unauthorized Practice of Law — Life Underwriters; Estate Planning

LESSON TWO — AUTHORITY OF AGENTS FOR THE COMPANY

Statutory Provisions

General Principles of Agency

Policy Provisions Limiting Authority of Agents

Apparent or Implied Authority

Apparent or Implied Authority — Effect of Instructions or Secret Limitations

Apparent or Implied Authority — Insufficiency of Authority to Bind Insurer

LESSON THREE — TYPES AND POWERS OF AGENTS

General Agent — Who is a General Agent?

General Agents — Delegation of Authority; Persons Acting

General Agents — Powers of General Agents

Local Agents

Local Agents — Territory

Soliciting Agent — As Distinguished from other Agents

Soliciting Agent — Effect of Statutes — Agency for Insurer or Insured

Soliciting Agent — Powers of Soliciting Agent

Soliciting Agent —Limitations Upon Powers

Special Agents

Subagents

Assistants, Employees, and Clerks of Agents

LESSON FOUR — AGENCY FOR INSURER OR INSURED

Independent Agent As Agent of Insurer

Independent Agents — Policy Provisions Making Agent of Insured

Distinction between Agents and Brokers

Who is a Broker?

Broker As Agent of Insured

Broker As Agent of Insured (A) Power and Authority to Bind Insured

Broker As Agent of Insured (B) Limitations on Power to Bind Insured

Broker As Agent of Insured (C) Acts of Broker as Not Binding on Insurer

Brokers As Agent of Insurer

Agents for Other Companies

Another Company as Agent

Private Persons

Dual Agency

Personal Interest of Agent in Subject-Matter of Insurance

Personal Interest of Agent in Subject-Matter of Insurance — Circumstances not Avoiding Liability

Duties and Liability of Agent to Company

LESSON FIVE — KNOWLEDGE OF AGENT AS IMPUTED TO COMPANY

Knowledge of Agents Generally

Knowledge of Agents Generally — Limitations Upon Imputation

General Agent or Officer

Local, Soliciting, and Subagents

Local, Soliciting, and Subagents — As Not Imputable to Insurer

LESSON SIX — WAIVER OR ESTOPPEL BY AGENT

Waiver or Estoppel by Acts of Agents — Generally

General Agents

Local, Soliciting, or Subagents

LESSON SEVEN — ULTRA VIRES ACTS; ESTOPPEL OF INSURED

Estoppel of Insured

Estoppel of Insured — Circumstances Not Raising Estoppel

Estoppel of Insured — Acts of Agent of Insured.

LESSON EIGHT — REPRESENTATIONS AND ACTS OF COMPANY OR AGENT

Powers of Agents to Make Contracts

Powers of Agents to Make Contracts - Lack of Authority

Powers of Agents to Make Contracts — Loss Occurring Prior to Contract

Powers of Agents to Make Contracts - Matters of Reinstatement

Representations and Acts of Agents — As Binding on Insurer

Modifications or Alterations of Policy by Agent

Modifications or Alterations of Policy by Agent — Circumstances Under Which Insurer is Bound

Modifications or Alterations of Policy by Agent — Failure of Agent to Make Reports

LESSON NINE — MISREPRESENTATIONS, WARRANTIES, AND CONDITIONS GENERALLY

Insertion of False Answers by Agent

Insertion of False Answers by Agent — Omission or Concealment

Insertion of False Answers by Agent — Availability of Defenses

Insertion of False Answers by Agent — Circumstances under Which Insurer is Not Bound by False Answer

Duty to Read — Effect of Reading, Signing or Acceptance

Duty to Read — (A) Failure to Read as Not Barring Recovery

Duty to Read — (B) Signing in Blank, or Completion by Agent, as Not Barring Recovery

Duty to Read — (C) Limitations Upon Effect of Acceptance Types and Powers of Agents

Types and Powers of Agents

Types and Powers of Agents — Representations of Agents

Types and Powers of Agents — Agents of Insurer or Insured — Brokers

Types and Powers of Agents — (A) Policy Provisions Making Agent of Insured

Types and Powers of Agents — Fraudulent or Collusive Acts of Agents

Effect of Provisions of Application, Policy, or By-laws

Effect of Provision of Application, Policy, or By-laws — Inefficacy of Provisions

Knowledge of or False Answers by Medical Examiner

Knowledge of, or False Answers by, Medical Examiner — As not Binding Insurer

LESSON TEN — HEALTH OR MEDICAL ATTENTION

Representations as to Health or Existing Disorders

Representations as to Health or Existing Disorders — Knowledge or Acts of Agent as Barring Defenses

Representations as to Health or Existing Disorders — Knowledge or Acts of Agent — as Barring Defenses — (A) As not Binding Insurer

Representations as to Health or Existing Disorders — Knowledge or Acts of Medical Examiner as Barring Defenses

Representations as the Health or Existing Disorders — Knowledge or Acts of Medical Examiner as Barring Defenses — (A) As not Binding Insurer

Representations as to Health or Existing Disorders — Effect of Failure to Give Medical Examination

Representations as to Health or Existing Disorders —Waiver as to Specific Disorders

Representations as to Heath or Existing Disorders — (A) Nonwaiver as to Specific Disorders

Representations as to Health or Existing Disorders — Pregnancy or Miscarriage

Representations as to Health or Existing Disorders — Insanity

Representations as to Health or Existing Disorders — Accidents

Representations as to Health or Existing Disorders —Bodily Infirmity

Medical History and Prior Treatment

Medical History and Prior Treatment — Acts or Knowledge of Agent as Barring Defenses

Medical History and Prior Treatment — Acts or Knowledge of Agent as Barring Defenses — (A) As not Barring Defenses

Medical History and Prior Treatment — Acts or Knowledge of Medical Examiner

Sound Health Clauses — Effect of Statutes

Sound Health Clauses — Acts of Insurer as Waiver or Estoppel

Sound Health Clauses — Acts of Insurer as Waiver or Estoppel — (A) Matters Not Constituting Waiver

Sound Health Clauses — Acts of Agents

Sound Health Clauses — Acts of Agents — (A) Matters Not Constituting Waiver

Sound Health Clauses — Change in Condition — Prior Death.

DEFINITION OF TERMS USED IN THIS TEXTBOOK

es • top • pel, e • stop_ el n. [O.Fr. estoupail, stopple, stopper.] Law, a bar or impediment preventing one from asserting a fact or claim, arising from a previous action, or a failure to act, by which one has admitted, implied, or established the contrary.

im • pute, im • put_, v.t..— imputed, imputing. [O.Fr. Fr. imputer,

ul • tra vi • res, ul__tra vi_ rez, a., adv. Law, beyond or exceeding the legal authority or power, as of some corporation.

waiv • er, wa_ver, n. [A.Fr. weyver, mi., used as noun.] Law. An intentional relinquishment of a known right, interest, or advantage; an express or written statement of such relinquishment.

LESSON ONE: STATUS AND REGULATION OF AGENTS AND ADJUSTERS

STATUTORY REGULATION OF AGENTS

The insurance business is affected with a public interest and is subject to control by legislation requiring insurance agents to be licensed and regulated. This right of control arises under the general police powers of the state, and laws passed pursuant thereto apply to all agents of insurance companies writing policies within the state. Agents of foreign companies doing business within the state may be required to give bond for an annual accounting, and payment of a certain percentage of the premiums. Likewise, a statute may validly authorize the Insurance Commissioner to regulate bail bondsmen.

Statutory regulations have been considered to apply both to foreign associations and mutual companies. Thus, a foreign mutual insurance company may be required to publish a statement of its affairs in a newspaper, published in the county where its agent transacts the business of his agency, before he can make a valid contract of insurance. But if the statute is expressly limited to certain types of companies, such as fire and marine companies, it cannot be extended to apply to a different type of business entirely, such as to an accident company, which may be regulated by a different statute.

STATUTORY REGULATION OF AGENTS — PURPOSE AND OBJECT OF LAWS

Statutes relating to insurance agents are highly regulatory and often penal in form, and are intended to safeguard the rights of those those dealing with insurance agents, even though they may also raise some revenue for the commonwealth. The object of laws providing for licenses for agents, brokers, and solicitors is, therefore, more for the protection of the public than to provide revenue. More explicitly, it is desired to protect the public from surrendering its money in exchange for questionable or worthless pieces of paper denominated insurance policies. Likewise, it has been held that the statutory licensing requirements are primarily for the protection of public and not private rights. And a statute making an insurance agent who discharges certain duties an agent of the insurer as to all duties and liabilities imposed by law, regardless of the stipulations in the policy, is to enable the state to effectively supervise insurance companies and their agents.

LICENSE REQUIREMENTS — NECESSITY OF LICENSES

Since the insurance business is quasi public, the state may regulate and control such business and those engaged therein under its police power by enacting laws prescribing and fixing insurance agents’ qualifications, requiring them to obtain registration certificates and licenses, and authorizing revocation of such licenses for cause. Similarly, statutes concerning the qualifications of brokers and requiring them to be licensed are valid as a proper exercise of the legislative powers.

Statutes governing the purchase of insurance in connection with installment sale contracts have been held not to prevent an automobile dealer from acting as the agent of an insurer and from purchasing insurance at the buyer’s expense. But an automobile dealer obtaining insurance on the cars sold by it may be required to be licensed as an agent. An actuary employed by the insured to audit and appraise insurance policies and advise the insured is not an insurance agent or broker within the insurance laws. Nor do such license laws prevent an unlicensed person from acting in a bona fide capacity as attorney for a foreign insurer. And agents engaged solely in selling the stock of a foreign insurer within the state are not required to procure certificates of authority.

But a druggist to whom an advertising company distributed automobile accident policies for delivery free of charge to customers making purchases is a soliciting agent within a statute requiring certificates of authority, though the advertising company paid the premiums before the policies were delivered to the druggist for distribution.

LICENSE REQUIREMENTS — PERSONS SECURING LICENSE OR ACTING AS AGENT

When a partnership enters into a contract as agent with an insurance company, it becomes the duty of such company to certify to the Insurance Commissioner the partnership as such, in order to permit the latter legally to do business as an insurance agent. Upon compliance with such requirement, a license would then have been granted to the partnership.

As respects a license, a corporation with sufficiently broad charter powers may act as agent for an insurance company, where not specifically prohibited by statute; the statutes of Texas, for example, not prohibiting the licensing of a corporation to act as agent for a fire, marine, or casualty insurance company. And such result may be specifically authorized by statute. The requirement of a statute that an applicant for license as an insurance agent shall be a person of good moral character does not prevent a corporation from acting as such agent if its acts through persons who themselves possess the character and other qualifications necessary to entitle them to a license. A statute requiring that every soliciting agent or broker must procure a license and that only a natural person could be so licensed is restricted to soliciting agents or brokers of insurance. Of course, a statute may provide for the disqualification of a corporation as agent and such provision would be valid.

Under the provisions of the Illinois Insurance Code, a service corporation can be an insurance agency. A savings and loan association has the power to act as a broker in the placement of mortgage insurance, because that activity is reasonably incident to the making of a mortgage loan. Such association may be able to secure either a broker’s or