Vermont Unfair Trade Practices

Vermont insurance law prohibits unfair methods of competition and unfair or deceptive acts or practices in the insurance business.

Vermont Unfair Trade Practices Act

Vermont Statutes Title 8, Chapter 107 prohibits unfair insurance practices:

Purpose of the Act

Goals:

• Protect insurance consumers
• Maintain competitive insurance marketplace
• Ensure fair treatment of policyholders
• Promote ethical conduct by insurers and producers
• Prevent deceptive practices

Enforcement

Vermont Department of Financial Regulation:

• Investigates complaints
• Conducts market conduct examinations
• Issues cease and desist orders
• Imposes fines and penalties
• Revokes licenses for violations

Prohibited Unfair Practices

Vermont law specifically prohibits these practices:

Misrepresentation and False Advertising

Prohibited Acts:

• Making false or misleading statements about policy terms
• Misrepresenting benefits, advantages, or terms of any policy
• Misrepresenting dividends or future values
• Misrepresenting financial condition of insurer
• Using misleading names or titles to imply false status

Examples of Misrepresentation:

• "This policy covers everything!" (policies have exclusions)
• "Our company is rated A+ by AM Best" (when it's not rated or rated lower)
• "You'll never have a claim denied" (impossible guarantee)
• "This policy has no deductibles" (when deductibles apply)

Penalties:

• Cease and desist orders
• Fines up to $10,000 per violation
• License suspension or revocation
• Restitution to harmed consumers
• Criminal prosecution for fraud

Exam Tip: ANY false or misleading statement about insurance is misrepresentation. Even if unintentional, producers are responsible for accurate information. "I didn't know" is not a defense.

Rebating

Definition: Offering any valuable consideration not specified in the policy as an inducement to purchase insurance.

Prohibited Rebating Examples:

• Sharing commission with client
• Offering gift cards or cash incentives
• Providing free services not available to all policyholders
• Giving tickets to events
• Offering discounts on other products/services

Permitted (NOT Rebating):

• Discounts approved by insurer and filed with Department
• Marketing items of nominal value (pens, calendars <$10)
• Educational materials about insurance
• Services available equally to all clients (no special treatment)

Why Rebating is Prohibited:

• Creates unfair competition
• Undermines rate structure
• May indicate overpriced insurance
• Discriminates between similar risks
• Can lead to insurer insolvency if widespread

Penalties for Rebating:

• First offense: Fine + possible license suspension
• Repeat offense: License revocation
• Must disgorge (return) rebated amounts
• Possible criminal charges for pattern of violations

Exam Tip: Vermont STRICTLY prohibits rebating. Even offering a $25 gift card as "thank you" for purchasing insurance is illegal rebating. There are no exceptions unless approved by insurer and filed with Department.

Twisting

Definition: Misrepresenting or incomplete comparison of policies to induce a policyholder to lapse, forfeit, or replace existing coverage.

Twisting Examples:

• Exaggerating defects in existing policy
• Falsely claiming existing policy will be cancelled
• Omitting important differences between policies
• Overstating benefits of new policy
• Understating costs of replacement

Why Twisting is Harmful:

• Client loses valuable existing coverage
• New contestability period begins
• Client pays new acquisition costs
• May lose accumulated benefits
• Driven by producer's commission interest, not client need

Requirements for Proper Replacement:

• Complete comparison of existing and proposed coverage
• Disclosure of advantages AND disadvantages
• Signed replacement form acknowledging comparison
• Focus on client's best interest, not commission

Penalties for Twisting:

• License revocation (mandatory for egregious cases)
• Restitution to harmed clients
• Fines
• Criminal prosecution possible

Exam Tip: Replacement is NOT automatically wrong. Proper replacement with full disclosure is legal. TWISTING (misrepresenting to induce replacement) is illegal.

Churning

Definition: Excessive replacement of policies primarily to generate commissions.

Red Flags:

• Multiple replacements within short time period
• Replacements with minimal client benefit
• Pattern of replacing policies shortly after purchase
• Recommendations driven by commission structure

Difference from Twisting:

• Twisting: Misrepresentation to induce ONE replacement
• Churning: Pattern of MULTIPLE replacements for commission

Unfair Discrimination

Definition: Making distinctions between individuals of the same class and equal expectation of life in rates or coverage.

Prohibited Discrimination:

• Using non-risk-based factors
• Charging different rates for same risk
• Denying coverage based on protected characteristics

Protected Characteristics:

• Race, color, or national origin
• Religion
• Sex or gender identity
• Sexual orientation
• Marital status
• Disability (unless actuarially justified)
• Age (with limitations—actuarially justified age-based rates allowed)

Permitted Risk-Based Factors:

• Age (where actuarially justified)
• Driving record (auto insurance)
• Claims history
• Property location and condition
• Occupation (where actuarially justified)
• Credit score (with limitations)

Penalties:

• Cease and desist orders
• Fines and penalties
• Corrective action (adjust rates, pay restitution)
• License sanctions
• Federal civil rights violations possible

Unfair Claims Practices

Vermont prohibits unfair claims settlement practices:

Prohibited Practices:

• Misrepresenting pertinent policy provisions
• Failing to acknowledge communications promptly
• Failing to investigate claims properly
• Failing to affirm or deny coverage within reasonable time
• Not attempting good faith settlement when liability is clear
• Compelling insureds to sue by offering low settlements
• Attempting to settle claims for less than amount to which reasonable person would believe they're entitled

Vermont Claims Standards:

• Acknowledge claim: Within 10 days
• Begin investigation: Promptly
• Provide claim forms: Within 15 days
• Respond to inquiries: Within 15 days
• Make settlement decision: Within reasonable time after completing investigation

Penalties:

• Fines for each violation
• Corrective action required
• Restitution to policyholders
• Increased market conduct scrutiny
• License sanctions

Exam Tip: Vermont requires insurers to handle claims promptly and fairly. Unreasonably delaying claim payments or forcing policyholders to sue is prohibited.

Proper Sales Practices

Vermont producers must follow ethical sales practices:

Required Disclosures

Producers Must Disclose:

Needs-Based Selling

Vermont encourages needs-based insurance sales:

Process:

1. Assess Client Needs: Understand client's situation and exposures
2. Analyze Options: Review available coverage options
3. Recommend Coverage: Based on client needs, not commission
4. Explain Features: Coverage, exclusions, limitations, costs
5. Document: Keep records of recommendation basis

Improper Sales Practices:

• High-pressure tactics
• Creating false urgency ("This rate expires today!")
• Selling coverage client doesn't need
• Recommending inadequate coverage to save premium
• Focusing on commission rather than client need

Suitability Standards

Producers must recommend suitable coverage:

Suitability Factors:

• Client's financial situation
• Insurance needs
• Risk tolerance
• Existing coverage
• Long-term affordability

Unsuitable Sales Red Flags:

• Senior citizens sold excessive coverage
• Low-income clients sold expensive policies
• Replacing coverage for minimal benefit
• Selling duplicate coverage

Vermont Advertising Regulations

Insurance advertising in Vermont must be truthful and not misleading:

Advertising Requirements

Must Be:

• Truthful and accurate
• Not misleading or deceptive
• Clear about who is advertising (insurer or producer)
• Compliant with filed policy terms

Cannot:

• Make false claims
• Use misleading headings
• Misrepresent policy benefits
• Create false urgency
• Disparage competitors falsely

File-and-Use for Ads:

• Some insurers file advertising with Department
• Department can prohibit misleading ads
• Producers using insurer materials should ensure compliance

Social Media and Online Marketing

Vermont regulations apply to ALL advertising including:

• Websites
• Social media posts (Facebook, Instagram, LinkedIn, etc.)
• Email marketing
• Text messages
• Online reviews/testimonials

Producer Responsibilities:

• Ensure accuracy of all online content
• Include required disclosures
• Don't misrepresent credentials or experience
• Respond to inquiries professionally
• Maintain professional image online

Exam Tip: Social media posts are advertising and subject to Vermont insurance advertising laws. Producers are responsible for content they post, share, or like if it promotes insurance products.

Record Keeping and Documentation

Vermont requires proper documentation:

Required Records (5 Years)

Documentation Best Practices

Why Documentation Matters:

• Proves compliance with regulations
• Protects against E&O claims
• Demonstrates due diligence
• Required for Department examinations

What to Document:

• Client conversations and needs assessments
• Coverage recommendations and reasoning
• Policy comparisons (replacements)
• Disclosures provided
• Client decisions and refusals
• Premium payment dates and methods

Vermont Consumer Protection

Vermont emphasizes consumer protection in insurance:

Consumer Rights

Vermont insurance consumers have right to:

• Fair treatment by insurers and producers
• Accurate information about coverage
• Timely claims handling
• Appeal denied claims
• File complaints with Vermont DFR
• Privacy of personal information

Consumer Resources

Vermont DFR Consumer Services:

• Phone: 1-800-964-1784 (toll-free within VT) or (802) 828-3302
• Website: dfr.vermont.gov
• Email: dfr.insurance@vermont.gov
• Services: Complaint handling, information, mediation

How Consumers File Complaints:

1. Contact producer/insurer first to resolve
2. If unresolved, file complaint with Vermont DFR
3. Department investigates
4. Mediates resolution if appropriate
5. Takes enforcement action if violations found

Producer Role in Consumer Protection

Producers protect consumers by:

• Providing accurate, complete information
• Recommending appropriate coverage
• Explaining policy terms clearly
• Handling claims fairly
• Responding to inquiries promptly
• Acting in client's best interest
• Maintaining confidentiality
• Complying with all regulations

Summary

Vermont unfair trade practices law prohibits:

Prohibited Practices: ✗ Misrepresentation - False statements about coverage ✗ Rebating - Offering inducements not in policy ✗ Twisting - Misrepresenting to induce replacement ✗ Churning - Excessive replacements for commission ✗ Unfair Discrimination - Using non-risk-based factors ✗ Unfair Claims Practices - Delaying or denying claims improperly ✗ False Advertising - Misleading marketing

Required Practices: ✓ Truthful, accurate information ✓ Needs-based selling ✓ Full disclosure of material facts ✓ Proper documentation ✓ Fair claims handling ✓ Consumer-focused service ✓ Ethical conduct

Violations result in fines, license suspension/revocation, and potential criminal prosecution. Vermont DFR actively enforces ethical standards to protect consumers.

Next section covers professional responsibilities and best practices for Vermont producers.