Vermont Producer Responsibilities & Ethics

Fiduciary Duties

Vermont insurance producers have fiduciary duties to both clients and insurers:

Duties to Clients

Duties to Insurers

Prohibited Practices

Vermont law strictly prohibits certain producer practices:

Misrepresentation

Definition: Making false or misleading statements about:

• Policy coverage or benefits
• Insurer financial condition
• Policy terms or conditions
• Dividends or future values
• Any material fact about insurance

Examples of Misrepresentation:

• Telling client policy covers flood when it doesn't
• Claiming insurer is "rated A+" when it's not rated
• Stating policy has no exclusions when it does
• Promising specific claim payment amounts

Penalties: License suspension/revocation, fines up to $10,000, potential criminal charges

Rebating

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

Examples of Illegal Rebating:

• Sharing commission with client
• Offering gift cards for purchasing policy
• Providing free services not available to all clients
• Returning part of premium as cash incentive

Allowed (NOT Rebating):

• Insurer-approved discounts filed with Department
• Marketing items of minimal value (pens, calendars under $10)
• Educational materials about insurance
• Services available to all clients equally

Penalties: License revocation, fines, restitution

Exam Tip: Vermont strictly prohibits rebating. Producers cannot share commissions or offer valuable inducements beyond what's specified in filed policies. Even offering a $25 gift card is illegal rebating.

Twisting

Definition: Misrepresenting facts to induce a policyholder to lapse, forfeit, or replace existing coverage

Examples of Twisting:

• Falsely claiming existing policy will be cancelled
• Overstating benefits of new policy
• Understating costs of replacement
• Failing to disclose disadvantages of replacement

Consequences of Twisting:

• Client loses valuable coverage
• Client pays new acquisition costs
• Client may lose accumulated benefits
• Producer faces license revocation

Churning

Definition: Excessive replacement of policies to generate commissions without benefit to client

Red Flags of Churning:

• Multiple replacements in short time period
• Replacements with minimal benefit to client
• Pattern of replacing policies just after contestability period
• Replacement recommendations driven by commission, not client need

Unfair Discrimination

Definition: Using non-risk-based factors to discriminate in rates, underwriting, or claims

Prohibited Discrimination Based On:

• Race, color, or national origin
• Religion
• Sex or gender identity
• Sexual orientation
• Marital status
• Disability (except where actuarially justified)

Allowed Risk-Based Factors:

• Age (where actuarially justified)
• Location (based on legitimate risk factors)
• Claims history
• Credit score (with limitations in some states)
• Property condition

Penalties: Fines, license suspension, corrective actions, restitution to harmed parties

Premium Handling

Vermont law requires producers to handle client premiums properly:

Trust Account Requirements

Producers holding premiums must:

Premium Remittance Timeframes

Vermont requires timely premium remittance:

• Direct Bill: Insurer bills client directly; producer doesn't handle premium
• Agency Bill: Producer collects premium and remits to insurer

Agency Bill Timeframes:

• New Business: Remit within 30 days of receipt or policy effective date, whichever is later
• Renewals: Remit by policy renewal date
• Cancellations: Return unearned premium within 30 days

Penalties for Premium Mishandling

Exam Tip: Premium theft (embezzlement) is the most serious violation. It results in immediate license revocation, criminal prosecution, and often imprisonment. Vermont has zero tolerance for premium theft.

Record Keeping Requirements

Vermont requires producers to maintain records for at least 5 years:

Required Records

Record Format

• Electronic or Paper: Both formats acceptable
• Accessibility: Must be readily accessible for Department examination
• Organized: Records must be organized and easily retrievable
• Secure: Protected from unauthorized access or destruction

Department Examination Rights

The Commissioner may:

• Examine producer records at any time
• Require production of records within 10 business days
• Conduct on-site examinations
• Impose penalties for record keeping violations

Disclosure Requirements

Vermont producers must disclose certain information to clients:

Required Disclosures

Company Representation

Producers must disclose:

• Captive Agent: Represents one company exclusively
• Independent Agent: Represents multiple companies
• Broker: Represents client, not insurers

Material Information

Producers must disclose all material information that could affect client's decision:

• Policy exclusions and limitations
• Waiting periods or deductibles
• Coverage gaps
• Alternative coverage options
• Costs and fees

Ethics and Professional Conduct

Vermont expects producers to maintain high ethical standards:

Ethical Principles

1. Honesty: Always tell the truth to clients and insurers
2. Integrity: Do the right thing even when not watched
3. Competence: Maintain knowledge and skills
4. Fairness: Treat all parties fairly
5. Confidentiality: Protect client information
6. Professionalism: Conduct business professionally

Prohibited Conduct

Professional Standards

Vermont producers should:

• Return client calls and emails promptly
• Explain coverage clearly and accurately
• Recommend coverage appropriate to client needs
• Disclose conflicts of interest
• Maintain client confidentiality
• Continue professional education beyond CE requirements
• Treat all clients with respect and fairness

Disciplinary Actions

Vermont DFR can discipline producers for violations:

Types of Disciplinary Actions

Grounds for Disciplinary Action

The Commissioner may discipline producers for:

Mandatory Revocation:

• Premium theft or embezzlement
• Forgery or fraud
• Felony conviction

Discretionary Discipline:

• Misrepresentation
• Rebating or twisting
• Failure to maintain CE requirements
• Operating without proper license
• Violating insurance laws
• Providing false information on application
• Unfair trade practices
• Failure to respond to Department inquiries
• Poor record keeping

Disciplinary Process

1. Investigation: Department investigates alleged violation
2. Notice: Producer receives notice of charges
3. Response: Producer may respond in writing or request hearing
4. Hearing: Formal administrative hearing (if requested)
5. Decision: Commissioner issues decision and order
6. Appeal: Producer may appeal to Vermont courts
7. Compliance: Producer must comply or face additional penalties

Reporting Requirements

Producers must report to Vermont DFR within 30 days:

• Criminal charges or convictions
• Administrative actions by other states
• Civil judgments related to insurance
• Changes to background information
• Bankruptcy filings

Failure to report may result in additional disciplinary action.

Summary

Vermont producers must: ✓ Act as fiduciaries with honesty and integrity ✓ Avoid prohibited practices (misrepresentation, rebating, twisting) ✓ Handle premiums properly and remit timely ✓ Maintain records for at least 5 years ✓ Make required disclosures to clients ✓ Maintain ethical and professional conduct ✓ Comply with all Vermont insurance laws

Violations can result in fines, suspension, or license revocation. The next chapter covers Vermont property insurance regulations.