4.1 Unfair Trade Practices

Where the Rules Live: Title 27

Maryland's unfair trade practice rules are codified in Title 27 of the Insurance Article of the Annotated Code of Maryland, enforced by the Maryland Insurance Administration (MIA) and its Insurance Commissioner. Title 27 is the single most heavily tested body of law on the Maryland-specific portion of the Life and Health producer exam, so you must know the category of each prohibited act and the penalty exposure.

The Commissioner may, after a hearing, impose an administrative penalty of up to $25,000 per violation, order restitution to harmed consumers, and suspend or revoke a producer license. Knowing acts can also be referred for criminal prosecution.

Misrepresentation (Section 27-208)

Misrepresentation is making, issuing, or circulating any false statement about a policy, an insurer, or a competitor to induce a transaction. Prohibited conduct includes:

• Misstating policy terms, benefits, dividends, or the use of dividends
• Misrepresenting the financial condition of an insurer or the legal reserve system it operates under
• Using a name or title of a policy that misrepresents its true nature
• Making false or maliciously critical statements about a competitor's solvency

Spot the Misrepresentation

False Advertising (Section 27-207)

Advertising includes brochures, social media posts, illustrations, and oral sales talk. Maryland requires advertising to be truthful and not misleading by fact or implication. A producer may not imply government endorsement, use deceptive testimonials, or imply that a Maryland-licensed insurer is somehow safer than the guaranty fund permits. The insurer's full name must be identifiable, and an ad cannot create the impression that limited-benefit coverage is comprehensive.

Rebating (Section 27-209)

Rebating is offering any valuable consideration or inducement not specified in the policy to persuade someone to buy, keep, or surrender insurance. Both giving and knowingly receiving a rebate are violations. Prohibited examples:

• Returning part of the commission or premium to the applicant
• Sharing commission with a person not licensed for that line in Maryland
• Paying a non-licensed person a referral fee tied to a sale
• Giving a prize, trip, or gift of more than nominal value to close a sale

The $25 Gift Threshold

Maryland permits gifts, advertising novelties, and articles of merchandise so long as the value does not exceed $25 per person in any 12-month period and is not conditioned on buying insurance. Pens, calendars, and logo mugs are fine; a $200 gift card tied to a purchase is illegal rebating.

Exam trap: A policy dividend and an experience-rated group discount are contractual and are NOT rebates. A cash kickback always is.

Twisting vs. Churning

Both involve harmful replacement, and the exam loves to make you distinguish them.

Twisting is using misrepresentation or incomplete comparison to induce a client to drop a policy with one insurer and buy from another. Churning is the same abuse but the replacement is into another policy of the same insurer (or the same producer's book), purely to generate a new commission and a fresh surrender-charge period.

Both require a Maryland replacement form and a side-by-side comparison. A new policy restarts the two-year contestability and suicide clauses and a new surrender-charge schedule, which is why unjustified replacement harms the client. Penalties escalate from fines and suspension on a first offense to license revocation and restitution for a pattern of conduct.

Unfair Claim Settlement Practices (Sections 27-303/304, COMAR 31.15.07)

Maryland prohibits insurers and producers from handling claims in bad faith. Under COMAR 31.15.07.03, the regulator targets conduct that, when committed with such frequency as to indicate a general business practice, becomes an unfair claim settlement practice. Prohibited acts include:

• Misrepresenting pertinent facts or policy provisions to a claimant
• Failing to adopt reasonable standards for prompt investigation of claims
• Refusing to pay a claim without a reasonable investigation
• Compelling insureds to litigate by offering substantially less than amounts ultimately recovered
• Failing to promptly explain in writing the basis for a denial

Maryland Claim-Handling Timeframes

Memorize: The recurring Maryland number is 15 working days, not calendar days. Bad-faith denial can also expose an insurer to enhanced damages under Maryland's bad-faith statute.

Unfair Discrimination (Section 27-501)

Maryland forbids unfair discrimination between individuals of the same class and equal expectation of life or risk. A producer or insurer may not refuse coverage, cancel, or alter terms based solely on:

• Race, color, creed, national origin, or religion
• Sex, marital status, sexual orientation, or gender identity
• Genetic information or a genetic test result, or a request for genetic services
• Blindness, partial blindness, or physical/mental disability unless actuarially justified

Permitted vs. Prohibited

The distinction the exam wants: risk-based classification supported by data is legal; classification on a protected characteristic is not. Charging two same-risk applicants different rates because of national origin is unfair discrimination; charging a smoker more than a non-smoker is sound underwriting.