Prohibited Practices Under Minnesota Law

Minnesota's Regulatory Framework

Minnesota Statutes Chapter 72A

Minnesota Statutes Chapter 72A governs insurance industry trade practices and prohibits unfair and deceptive acts in insurance transactions. Key sections include:

Prohibited Trade Practices

1. Rebating

Rebating is offering any inducement to purchase insurance that is not specified in the policy.

Illegal Rebating Examples:

• Offering cash back to a policyholder
• Providing gift cards for purchasing a policy
• Sharing commissions with the insured
• Paying for services not included in the policy
• Offering discounts not approved by the insurer
• Providing valuable consideration outside the contract

Legal Exceptions:

• Group policy dividends as specified in the contract
• Premium refunds authorized by the policy
• Company-approved discounts filed with the Department
• Loss control services included in commercial policies

Warning: Even small gifts like logo pens or calendars may be considered rebating if they are used as inducements to purchase insurance.

2. Twisting

Twisting is using misrepresentation to induce a policyholder to replace an existing policy with a new one.

Elements of Twisting:

1. Written or oral misstatement about policy terms
2. Intent to induce policy replacement
3. Detriment to the insured through the replacement

Common Twisting Tactics:

• Misrepresenting terms of the existing policy
• Exaggerating benefits of the replacement policy
• Concealing disadvantages of switching coverage
• Making false comparisons between policies
• Omitting material information about the new policy

3. Churning

Churning is the excessive replacement of policies for the purpose of generating commissions, particularly with cash value life insurance products.

Characteristics of Churning:

• Repeated replacements over time
• Producer benefits through commissions
• Client is harmed through fees, surrender charges, or coverage gaps
• No legitimate reason for the replacements

4. Misrepresentation

Misrepresentation involves making false or misleading statements about insurance.

Types of Misrepresentation:

Important: Misrepresentation can occur even without intent to deceive. If information is inaccurate and misleads the consumer, it is still misrepresentation.

5. Unfair Discrimination

Unfair discrimination means treating insureds differently based on prohibited factors rather than legitimate risk characteristics.

Prohibited Discrimination:

• Race, color, or national origin
• Religion or creed
• Sex (except where actuarially justified)
• Marital status (except where actuarially justified)
• Physical or mental disability (unrelated to risk)
• Geographic location (redlining)

Permitted Risk-Based Distinctions:

• Claims history affecting premiums
• Credit-based insurance scores (with limitations)
• Territorial rating based on loss experience
• Driver record for auto insurance
• Property condition for homeowners

6. False Advertising

False advertising includes any misleading marketing communications.

Prohibited Advertising Practices:

• Misleading descriptions of coverage
• False statements about benefits
• Untrue claims about competitors
• Deceptive company names suggesting official status
• Misleading testimonials
• Incomplete policy information

7. Defamation

Defamation is making false statements that harm another's reputation.

Insurance Defamation Examples:

• Falsely claiming a competitor is financially unstable
• Spreading untrue information about an insurer's claims practices
• Making false statements about another producer's conduct

Unfair Claims Settlement Practices

Minnesota Statutes Section 72A.201

Minnesota's Unfair Claims Settlement Practices Act protects consumers during the claims process:

Prohibited Claims Practices:

Required Claims Handling Standards:

• Acknowledge all claims within 10 business days
• Provide company representative's phone number with acknowledgment
• Respond to communications within 10 business days
• Maintain complete claim files with all documentation
• Conduct reasonable investigations before denying claims
• Pay claims promptly when liability is established

Penalties for Violations

Administrative Penalties

The Minnesota Commerce Commissioner can impose:

Criminal Penalties

Serious violations may result in:

• Misdemeanor charges for minor violations
• Felony charges for fraud or embezzlement
• Imprisonment for serious offenses
• Criminal fines in addition to civil penalties

Professional Consequences

Beyond legal penalties:

• Loss of appointments with insurance companies
• Industry reputation damage
• Difficulty finding employment in insurance
• Civil lawsuits from harmed consumers

Exam Tip: Remember that the Commerce Commissioner can impose fines of up to $10,000 per violation without needing to show a general business practice—a single violation is sufficient for enforcement action.