4.1 Unfair Trade Practices
Key Takeaways
- Louisiana's Unfair Trade Practices Act lives in LA R.S. 22:1961 through 22:1973, with the defined unfair acts listed in R.S. 22:1964
- Rebating (R.S. 22:1964(8)) is prohibited, but the producer may give items worth $25 or less and other statutory exceptions
- Twisting and churning are misrepresentation offenses that can lead to license revocation and restitution
- Under R.S. 22:1892, an insurer must pay a satisfactory claim within 30 days of proof of loss or face a penalty of up to 50% of the amount due
- Unfair discrimination between individuals of the same class and life expectancy is prohibited under R.S. 22:1964(7)
The Louisiana Unfair Trade Practices Act
Louisiana Revised Statutes (LA R.S.) Title 22, Sections 1961 through 1973 make up the state's version of the National Association of Insurance Commissioners (NAIC) Unfair Trade Practices Act. The defined prohibited acts are listed in R.S. 22:1964, and the penalties sit in R.S. 22:1969. The Louisiana Department of Insurance (LDI), headed by the Commissioner of Insurance, enforces these rules against producers, adjusters, and insurers alike.
The exam tests this material heavily, so anchor on the structure: a prohibited act in 1964, a hearing and a cease-and-desist order in 1969, and dollar penalties layered on top.
Penalty ladder under R.S. 22:1969
| Trigger | Consequence |
|---|---|
| Any defined unfair act | Cease-and-desist order from the Commissioner |
| Violation of a cease-and-desist order | Fine up to $25,000 per violation |
| Willful violation of the Act | Fine up to $25,000 per act, plus license suspension or revocation |
| Flagrant, conscious disregard | Fine up to $250,000 in the aggregate |
Misrepresentation and false statements
R.S. 22:1964(1) bars making, issuing, or circulating any misrepresentation of the terms, benefits, dividends, or true nature of a policy. A producer may not:
- State or imply a policy covers losses it excludes
- Misstate the financial condition of an insurer
- Use a misleading policy illustration that overstates non-guaranteed values
- Misrepresent a competitor's policy, finances, or management
Common misrepresentation traps
| Statement made to a client | Why it violates the Act |
|---|---|
| "This whole life policy is really just a savings account." | Misrepresents the nature of the contract |
| "The dividends are guaranteed every year." | Dividends on participating policies are never guaranteed |
| "Your premium can never go up." | False on indeterminate-premium or term products |
| "Buy today or you lose this rate forever." | Creates false urgency |
False advertising and rebating
False advertising (R.S. 22:1964(2)) prohibits any advertisement, announcement, or statement that is untrue, deceptive, or misleading. The same standard applies to a billboard, a radio spot, or a social-media post: the communication must identify itself as an insurance solicitation, name the insurer, and avoid implying any government endorsement.
Rebating (R.S. 22:1964(8)) is offering any valuable consideration or inducement not specified in the policy as a condition of the sale. Both giving and knowingly receiving a rebate are violations.
Rebating: prohibited vs. permitted
| Prohibited | Permitted |
|---|---|
| Returning part of the commission or premium to the buyer | Dividends paid under a participating policy |
| Cash, gift cards, or prizes tied to a purchase | Advertising or promotional items of $25 or less in value |
| Sharing commission with an unlicensed person | Bona fide group or franchise premium discounts |
| Paying a non-cash inducement worth more than the statutory limit | Educational materials and value-added services described in the policy |
Exam tip: The $25 nominal-gift threshold and the rule that receiving a rebate is itself illegal are favorite test points. A pen or calendar is fine; a $200 dinner contingent on signing is rebating.
Twisting and churning
Both are forms of misrepresentation aimed at replacement.
- Twisting is using a misrepresentation or incomplete comparison to induce a client to lapse, surrender, or replace a policy with a different insurer's product. Example: telling a client her existing policy "has no real cash value" when it does.
- Churning is the same conduct but the replacement uses the same insurer's products, often to generate a fresh commission and new surrender-charge period.
Worked scenario
A producer convinces a 68-year-old to surrender a 10-year-old whole life policy (no surrender charge) and buy a new one (new 10-year surrender schedule), claiming "better returns." Same carrier, no real benefit to the client, new charges to the producer's advantage. That is churning, exposing the producer to license revocation and an order of restitution to the consumer.
Unfair claims settlement practices
R.S. 22:1964(14) lists prohibited claims conduct, and R.S. 22:1892 sets the hard deadlines. An insurer commits an unfair claims practice when it:
- Misrepresents pertinent facts or policy provisions to a claimant
- Fails to acknowledge and act reasonably promptly on communications about a claim
- Fails to adopt reasonable standards for prompt claim investigation
- Refuses to pay without conducting a reasonable investigation
- Offers substantially less than the amount ultimately recovered
- Fails to affirm or deny coverage within a reasonable time after proof of loss
Statutory claim deadlines and penalties
| Event | Rule (LA R.S. 22:1892 / 1973 as amended 2024) |
|---|---|
| Pay a written, satisfactory claim | Within 30 days of receiving proof of loss |
| Failure that is arbitrary and capricious | Penalty of up to 50% of the amount due, plus attorney fees |
| Initiate loss adjustment after notice | Within 14 days |
2024 update: Act 3 (SB 323), effective July 1, 2024, amended both R.S. 22:1892 and R.S. 22:1973 (neither was repealed; both remain in force). When a failure to pay is arbitrary, capricious, or without probable cause, the penalty is up to 50% of the amount found due, plus proven economic damages, attorney fees, and costs. The 30-day proof-of-loss rule still controls.
Unfair discrimination
R.S. 22:1964(7) prohibits unfair discrimination between individuals of the same class and equal life expectancy in premiums, benefits, or dividends. Permitted underwriting distinctions are risk-based, not class-based.
| Prohibited basis | Permitted (risk-based) factor |
|---|---|
| Race, color, religion, national origin | Age and gender (where actuarially supported) |
| Refusal to insure solely on a protected trait | Tobacco use and hazardous hobbies |
| Unfair use of genetic information | Documented health and claims history |
Louisiana also bars insurers from refusing coverage solely because an applicant is a victim of domestic abuse.
A Louisiana producer gives every new client a branded coffee mug worth about $8. Under the Unfair Trade Practices Act, this is:
An insurer receives a properly executed proof of loss on a satisfactory life claim and does nothing for 45 days without any reasonable basis. Under R.S. 22:1892, the insurer may be liable for: