Key Takeaways
- Montana producers have fiduciary duties including honesty, disclosure, and proper handling of premiums
- Prohibited practices include misrepresentation, rebating, twisting, and unfair discrimination
- Producers must maintain records for at least 5 years
- All premiums collected are trust funds that must be properly accounted for and remitted
- Violations can result in license suspension/revocation, fines up to $5,000 per violation, and criminal prosecution
Montana Producer Responsibilities and Prohibited Practices
Fiduciary Duties
Montana insurance producers owe fiduciary duties to their clients. A fiduciary is someone who acts in the best interests of another party and handles their assets responsibly.
Core Fiduciary Obligations
| Duty | Description |
|---|---|
| Loyalty | Put client interests ahead of personal gain |
| Honesty | Tell the truth about coverage, costs, limitations |
| Disclosure | Reveal material information affecting decisions |
| Competence | Maintain knowledge and skills |
| Confidentiality | Protect client information |
| Care | Exercise reasonable care in all dealings |
Premium Handling
All premiums collected by a Montana producer are trust funds:
| Requirement | Standard |
|---|---|
| Separation | Keep premium funds separate from personal funds |
| Trust Account | Maintain designated premium trust account |
| Remittance | Forward premiums to insurer within agreed timeframe |
| Accounting | Maintain accurate records of all transactions |
| Shortage | Any shortage is personal liability of producer |
Exam Tip: Premium funds are trust funds in Montana. Commingling (mixing) premium funds with personal funds or using premium funds for personal expenses is a serious violation that can result in license revocation and criminal charges.
Disclosure Requirements
Required Disclosures
Producers must disclose:
| Information | When Required |
|---|---|
| License Status | Upon request or when required |
| Commission Arrangements | When material to transaction |
| Relationship to Insurer | Agency, exclusive, or independent status |
| Coverage Limitations | Before purchase |
| Exclusions | Material exclusions that may affect claims |
| Conflicts of Interest | Any situation that may influence recommendation |
Material Information
Material information is any fact that would affect a reasonable person's decision. Examples include:
- Policy exclusions that apply to client's situation
- Premium changes or surcharges
- Claims history requirements
- Financial strength concerns about insurer
- Alternative coverage options
Prohibited Practices
Montana law prohibits several practices that harm consumers or undermine fair competition:
Misrepresentation
Misrepresentation is making false or misleading statements about:
- Policy benefits or coverage
- Terms or conditions of insurance
- Financial condition of insurer
- Dividends or returns
- Premium costs
| Type | Example | Penalty |
|---|---|---|
| False Statement | "This policy covers floods" (when it doesn't) | Revocation |
| Misleading Omission | Failing to mention exclusions | Suspension |
| Exaggeration | "This company never denies claims" | Fines, discipline |
Rebating
Rebating is offering something of value not specified in the policy as an inducement to purchase:
| Prohibited | Permitted |
|---|---|
| Cash kickbacks | Standard policy dividends |
| Gift cards or merchandise | Advertising items of nominal value |
| Sharing commissions with insured | Company-approved discounts |
| Personal loans or favors | Rate reductions in filed rates |
Important: Even offering to reduce your own commission is considered rebating if used as an inducement to purchase. Montana strictly prohibits this practice.
Twisting
Twisting is inducing a policyholder to lapse, surrender, or switch policies through misrepresentation:
| Element | Description |
|---|---|
| Inducement | Encouraging policy replacement |
| Misrepresentation | False or misleading statements |
| Harm | Replacement disadvantages the client |
Example: Telling a client their existing policy "doesn't cover anything" to convince them to buy a new policy you sell, when the existing policy actually provides adequate coverage.
Churning
Churning is excessive replacement of policies solely to generate commissions:
- Multiple policy replacements for same client
- No benefit to client from replacements
- Producer benefits from repeated commissions
- May involve both twisting and misrepresentation
Unfair Discrimination
Montana prohibits unfair discrimination in insurance:
| Prohibited | Permitted |
|---|---|
| Race-based decisions | Actuarially justified rates |
| Religious discrimination | Risk-based underwriting |
| Arbitrary classification | Geographic territory rating |
| Gender discrimination (in most cases) | Claims history consideration |
Unfair Claims Practices
Producers must ensure insurers handle claims fairly. Prohibited claims practices include:
| Practice | Description |
|---|---|
| Misrepresenting coverage | Telling claimant coverage doesn't apply when it does |
| Failing to acknowledge | Not responding to claims communications |
| Unreasonable delay | Delaying investigation or payment without cause |
| Lowball offers | Settling for less than clearly owed |
| Bad faith denial | Denying valid claims without reasonable basis |
Record Keeping Requirements
Required Records
Montana producers must maintain:
| Record Type | Retention Period |
|---|---|
| Applications | 5 years |
| Policies issued | 5 years after expiration |
| Premium records | 5 years |
| Claims files | 5 years after closure |
| Correspondence | 5 years |
| CE certificates | 4 years |
Record Access
- CSI may examine records during investigations
- Records must be produced upon request
- Electronic records acceptable if retrievable
- Failure to maintain records is violation
Penalties for Violations
Administrative Penalties
| Violation Severity | Potential Penalty |
|---|---|
| Minor Violation | Warning, additional CE requirement |
| Moderate Violation | Fine up to $5,000 per violation |
| Serious Violation | License suspension |
| Severe Violation | License revocation |
| Pattern of Violations | Enhanced penalties, industry bar |
Factors in Penalty Determination
The CSI considers:
- Severity of violation
- Harm to consumers
- Producer's compliance history
- Cooperation with investigation
- Willfulness of conduct
- Remedial actions taken
Criminal Referral
Some violations may be referred for criminal prosecution:
- Insurance fraud
- Theft or embezzlement of premiums
- Forgery of applications or policies
- Material misrepresentation in application
Appointments and Terminations
Insurer Appointments
| Requirement | Timeframe |
|---|---|
| Filing Appointment | Within 30 days of first business |
| Appointment Fee | Varies by insurer |
| Renewal | Coincides with license renewal |
| Termination | Must notify CSI within 30 days |
Termination for Cause
When an insurer terminates a producer for cause, they must:
- Notify the CSI within 30 days
- State the specific reasons for termination
- Provide supporting documentation if requested
The producer receives notification and may respond to the CSI.
Exam Tip: Insurers must report "for cause" terminations to the CSI, which investigates the circumstances. This creates a permanent record that follows the producer.
What is rebating in Montana insurance law?
How long must Montana producers retain policy records?
What is twisting?