6.4 Illegal Dealings in Premiums & the Policyholders Bill of Rights

Outline item II.D, Unfair Trade Practices, lists two provisions: illegal dealings in premiums, s. 626.9541(1)(o), and the Policyholders Bill of Rights, s. 626.9641. Both sit in Part IX of Chapter 626, the Unfair Insurance Trade Practices Act, and both apply to surplus lines agents.

Illegal Dealings in Premiums: s. 626.9541(1)(o)

Two kinds of conduct are unfair trade practices under this paragraph.

1. Collecting premium for insurance that does not exist

It is prohibited to knowingly collect any sum as a premium or charge for insurance that is not then provided, or is not in due course to be provided, subject to the insurer's acceptance of the risk, by a policy issued by an insurer as permitted by the Code.

Example: An agent collects a deposit premium, tells the insured the risk is bound, and never submits it to any insurer. That is illegal dealing in premiums, and it may also be misappropriation of trust funds under s. 626.561.

2. Collecting more or less than the proper premium

It is also prohibited to knowingly collect more or less than the premium applicable to the insurance. For filed-rate business, the benchmark is the filed and approved rates specified in the policy. Where rates are not required to be filed, which includes surplus lines, the benchmark is the premium specified in the policy and fixed by the insurer.

The surplus lines carve-outs

The paragraph expressly does not prohibit:

• surplus lines agents from charging and collecting applicable state and federal taxes, or fees authorized by s. 626.916(2), in addition to the insurer's premium; or
• licensed agents from collecting the exact amount of a credit card facility's discount or fee, as authorized by s. 626.9541(1)(q)3.

Working with the tax and fee statutes

• Sections 626.932(1) and 626.9325(1) prohibit a surplus lines agent from absorbing the tax or service fee, or rebating any part of the tax, the fee, or the agent's commission as an inducement or for any other reason.
• Charging less than the insurer's premium by quietly absorbing a portion, or charging more by padding the premium with an unauthorized "broker charge," both fall within the "in excess of or less than" prohibition.
• Unlawful rebating, or unlawfully dividing a commission, is also a compulsory ground for license discipline under s. 626.611(1)(k).

Policyholders Bill of Rights: s. 626.9641

Section 626.9641 lists principles that serve as standards for the department, the commission, and the office in exercising their powers and discretion, interpreting the law, and adopting rules. Policyholders have the right to:

1. competitive pricing practices and marketing methods that let them determine the best value among comparable policies;
2. obtain comprehensive coverage;
3. insurance advertising and selling approaches that give accurate and balanced information on a policy's benefits and limitations;
4. an insurance company that is financially stable;
5. be serviced by a competent, honest insurance agent or broker;
6. a readable policy;
7. an insurer that provides an economic delivery of coverage and tries to prevent losses; and
8. balanced and positive regulation by the department, commission, and office.

Important limit (s. 626.9641(2)): the section does not create a civil cause of action by an individual policyholder against an individual insurer. It guides regulators; it is not a private right to sue.

How the Bill of Rights maps to surplus lines duties

Scenario Practice

1. A surplus lines agent offers a restaurant owner a "tax holiday," saying the agency will cover the surplus lines tax. This is prohibited: s. 626.932(1) bars absorbing or rebating the tax, and it is also an illegal dealing in premiums.
2. An insured sues an insurer solely for violating the "right to a readable policy." The Bill of Rights does not create a civil cause of action against an individual insurer.
3. A retail agent collects a $2,000 deposit, promises coverage, and holds the file for two weeks without submitting it. Collecting premium for insurance not in due course to be provided is illegal dealing in premiums.