Tennessee Insurance Agents Win Investigation Protections, Lower Fines

Tennessee insurance agents who come under investigation by the state will enjoy some new due process protections and face lower financial penalties if found in violation of any laws under a measure just signed into law.

For years agents have complained that they are told little about any investigations into their conduct beyond being informed that an investigation is taking place. Now, they will have access to the complaint and other documentation and the state will be under a time limit to complete an inquiry.

Gov. Bill Haslam signed into law HB 1845/SB 1765, which establishes procedures that the Tennessee Department of Commerce and Insurance must follow when investigating complaints against agents. The new law also lowers the maximum financial penalties for violations.

Senator Bill Ketron, (R-Murfreesboro), sponsor of the bill and a former president of Professional Insurance Agents of Tennessee, said the bill protects the heart of an agent’s business: reputation.

“All it takes is running into one person at Sunday school or a basketball game who says someone’s under investigation to affect their business,” he said. “Agents should at least have the right to know about the complaint and the department shouldn’t be allowed to just sit on it.”

The Insurors of Tennessee, the state’s largest independent agents’ association, spearheaded the drive for the new law. Chuck Bidek, the association’s chief executive officer, said it has been a long time coming. “It’s taken six years, three insurance commissioners and two governors,” he said.

He said that the law defines what the state insurance department’s job is when conducting an investigation into agent’s conduct. “I told lawmakers that agents were fine being told what they could or couldn’t do, but the same requirements should be applied to the department,” Bidek said.

The law requires that any investigation must be “reasonable in scope.” It grants the insurance commissioner the power to subpoena witnesses and obtain other documentation when conducting an investigation. It says the agent who is the target of the investigation may obtain copies of inquisitorial orders and complaints and has the right of discovery if formal proceedings are instituted. Agents and other persons who are required to obtain records will be able to appeal the request to an administrative judge.

For the first time, insurance department investigations will be subject to a statute of limitations. The bill requires the department to conclude an investigation within two years and places a five-year limit on conducting an investigation after state officials become aware of a potential violation of the insurance code.

Ketron said the statute of limitation will eliminate situations where agents have to work while having a “black cloud” indefinitely hanging over their head.

The new law also reduces the maximum penalty an agent might face for operating outside of the law. Under the old law, the insurance commissioner could fine an agent $25,000 per violation, not to exceed an aggregate penalty of $250,000 if the commissioner determined it was a knowing violation of the law. The new law allows a monetary penalty of not more than $1,000 for each violation, but not to exceed an aggregate penalty of $100,000.

Bidek said that the lower fines are more responsible since they are more commensurate with what agents could reasonably pay, adding that the higher fines amounted to coercion on the part of the state. “If you tell me you’re going to fine me $25,000 a day, I’m going to cop a plea today,” he said. “But if I am CNA, maybe it’s worth it to dispute the department’s charges.”

The demand by agents for the law was more about perception than any crisis in the agent community over how they conduct their business, according to its supporters.

Since 2006, the Tennessee insurance department has brought formal disciplinary actions against 167 agents, with the vast majority stemming from agents using premiums paid by policyholders for other expenses. Other causes of action ranged from providing false statements on an application for a license to being behind in child-support payments.

In the 167 cases where agents were fined, the fine was for less than $5,000, largely reflecting the state’s costs to conduct the investigation. In many cases the department was just satisfied to revoke or suspend the agent’s license.

The House of Representatives voted unanimously for the bill (96-0) with little discussion.

In the Senate where the bill passed along party lines (20-10), Senator Roy Herron (D-Dresden) led the minority charge against the bill, arguing that it would “hamstring” Insurance Commissioner Julie Mix McPeak’s ability to protect consumers from unscrupulous agents. As for the lowered fines, he said they provided little disincentive to abide by the law. “This is the bill that if you were the Bernie Madoff of insurance in Tennessee, this is your way to get out of jail and go home free,” said Herron.

But supporter Ketron disputed Herron’s views. He said he met with McPeak and she was fine with the bill.

Senate Commerce and Insurance Committee Chair Jack Johnson (R-College Grove) told fellow lawmakers that he asked department officials if they had any objections to the bill and that they had registered none.

Department spokesperson Christopher Garrett said the department doesn’t comment on legislation and that its role is to enforce the law.

Bidek said Herron’s views were just part of a time-tested legislative strategy that helped kill the bill over the course of the six-year struggle it took to finally get it passed. “The way people talked about it you would think that every agent was a crook,” he said.

Topics Agencies Legislation Tennessee