4.1 Unfair Trade Practices
Key Takeaways
- The Maine Unfair Trade Practices in the Business of Insurance Act sits in Title 24-A, sections 2151-2186, and is enforced by the Superintendent of Insurance
- Rebating means offering anything of value not stated in the policy; items of nominal value (now defined by Maine as roughly $100 or less) are the main exception
- Twisting uses misrepresentation to induce a replacement, while churning is a pattern of replacements that mainly generates new commissions and surrender charges
- Maine's Unfair Claims Settlement Practices statute (24-A MRSA 2436-A) gives consumers a private right of action plus interest on late claim payments
- Unfair discrimination between individuals of the same class and risk is prohibited; risk-based factors such as age, health history, and tobacco use are allowed
The Maine Unfair Trade Practices Act
Maine codifies its consumer-protection rules for insurance in Title 24-A, sections 2151-2186 of the Maine Revised Statutes. The statute borrows from the NAIC Unfair Trade Practices Model Act but adds Maine-specific enforcement and penalty provisions administered by the Superintendent of Insurance at the Maine Bureau of Insurance.
The Act lists defined unfair methods of competition and unfair or deceptive acts. A practice is illegal even if no consumer was actually harmed, and even if the producer did not intend to deceive. On the exam, watch for the distinction between willful and non-willful violations: a willful violation can draw a civil penalty of up to $15,000, while a non-willful violation is capped at $1,500 per act.
Misrepresentation and False Statements
Producers and insurers may not misstate the terms, benefits, dividends, or conditions of any policy. Common prohibited statements include:
- Claiming a policy "covers everything" or has "no exclusions"
- Misrepresenting nonforfeiture or surrender values
- Using a deceptive policy illustration that overstates future dividends
- Describing a life policy as a "savings plan," "retirement plan," or "deposit" to disguise its insurance character
Misrepresentation Quick Reference
| Prohibited Statement | Why It Violates Title 24-A |
|---|---|
| "This whole life policy is a tax-free savings account" | Misrepresents the nature of the transaction |
| "Your premium can never increase" (on a term-convertible plan) | Misstates policy terms |
| "The dividends are guaranteed" | Dividends are never guaranteed |
| "You must sign today or lose this rate" | Creates false urgency |
Defamation and False Advertising
Maine separately prohibits defamation — making or circulating a false statement that is calculated to injure another insurer's business or financial condition. Telling a prospect that a competing carrier is "about to go bankrupt" without substantiation is defamation, not mere opinion.
False advertising rules require that any advertisement be truthful, clearly identifiable as an insurance ad, and not imply government endorsement. Testimonials must be genuine, and the insurer's full name must appear. Boycott, coercion, and intimidation aimed at restraining trade are also enumerated violations.
Rebating
Rebating is offering or giving any valuable consideration or inducement to buy insurance that is not specified in the policy. Maine treats both the producer who offers a rebate and the consumer who knowingly accepts one as violating the law.
What Counts as Rebating
- Returning part of the producer's commission or the premium to the insured
- Paying a non-licensed person a fee for referring buyers (a true "finder's fee")
- Sharing commission with anyone not properly licensed for that line
- Giving stock, securities, dividends, or anything of value not stated in the contract
Permitted Items
- Marketing items of nominal value — Maine generally treats articles of roughly $100 or less (pens, calendars, branded mugs) as acceptable advertising
- Dividends actually declared and specified in a participating policy
- Bona fide group experience discounts filed with the Bureau
- Premium financing arranged through a licensed lender
Exam Tip: If the inducement is written into the filed policy or is a low-value advertising item, it is not rebating. If it is cash, a gift card, or a referral fee paid to an unlicensed person, it is rebating.
Twisting vs. Churning
Both involve replacement, but the exam tests the difference precisely.
Twisting uses misrepresentation or incomplete comparison to convince a policyowner to lapse or surrender existing coverage and buy a new policy — for example, falsely claiming the in-force policy has "no cash value" or hiding new surrender charges.
Churning is a pattern of replacements — often using the cash value of one policy from the same insurer to fund another — primarily to generate fresh first-year commissions and restart surrender-charge periods, regardless of client benefit.
| Practice | Trigger | Core Harm |
|---|---|---|
| Twisting | Misstatement to induce replacement | Consumer deceived into a worse policy |
| Churning | Repeated internal replacements | New surrender charges, lost build-up |
Penalties and Enforcement
| Violation Type | Likely Outcome |
|---|---|
| Non-willful unfair practice | Civil penalty up to $1,500 per act |
| Willful unfair practice | Civil penalty up to $15,000 per act |
| Pattern of harm | License suspension or revocation, restitution |
| Fraudulent intent | Referral for criminal prosecution |
The Superintendent may issue a cease-and-desist order after a hearing; violating that order multiplies the penalties.
Unfair Claims Settlement Practices
Maine's Unfair Claims Settlement Practices Act (24-A MRSA 2436-A) is one of the most heavily tested ethics topics because it gives consumers a private right of action — a policyholder can sue an insurer directly for an unfair practice, recover interest, and in some cases attorney's fees.
The statute lists prohibited insurer conduct:
- Misrepresenting policy provisions or facts to a claimant
- Failing to acknowledge and act reasonably promptly on communications
- Failing to adopt reasonable standards for prompt investigation
- Refusing to pay a claim without conducting a reasonable investigation
- Failing to affirm or deny coverage within a reasonable time after proof of loss
- Offering substantially less than the amount ultimately recovered
- Compelling insureds to litigate by lowballing settlements
Maine Timeframes and Interest
| Action | Maine Standard |
|---|---|
| Acknowledge receipt of a claim | Promptly after notice |
| Affirm or deny coverage | Within a reasonable time after proof of loss |
| Pay an undisputed claim | Promptly after agreement |
| Overdue claim | Interest at 1.5% per month accrues on amounts unpaid 30 days after proof of loss |
That 1.5%-per-month (18% annual) interest penalty is a Maine-specific number worth memorizing.
Unfair Discrimination
Maine prohibits unfair discrimination between individuals of the same class and equal expectation of life or risk. The key phrase is "same class" — charging two identical risks different rates is illegal; charging different rates for genuinely different risks is lawful underwriting.
| Cannot Use Unfairly | May Use as a Risk Factor |
|---|---|
| Race, color, national origin | Age |
| Religion | Documented health history |
| Sex (solely, for rate-setting) | Tobacco / nicotine use |
| Genetic test results (unfavorable use restricted) | Hazardous occupation or avocation |
Maine Specific: Insurers may not require or use the results of genetic testing to deny or rate coverage in an unfairly discriminatory way. Lawful underwriting still relies on actuarially justified, individually relevant risk factors.
A worked scenario: a producer quotes a 45-year-old non-smoker a higher life rate than an otherwise identical 45-year-old non-smoker solely because of the applicant's national origin. That is unfair discrimination — the two applicants share the same class and risk.
A Maine producer convinces a client to surrender a 10-year-old whole life policy by falsely telling her it has "no cash value left," then sells her a new policy with a fresh surrender-charge period. What practice is this?
Under Maine's Unfair Claims Settlement Practices Act, what is the consequence for an insurer that leaves an undisputed claim unpaid more than 30 days after proof of loss?
Which of the following is a PERMITTED activity rather than prohibited rebating in Maine?