4.1 Unfair Trade Practices

The Unfair Trade Practices Act (MCA 33-18-101 et seq.)

Montana's ethics rules are codified in Title 33, Chapter 18 of the Montana Code Annotated (MCA) and enforced by the Commissioner of Securities and Insurance (CSI), who is also the State Auditor. The statute defines specific acts as "unfair or deceptive" and authorizes cease-and-desist orders, fines, and license action. On the Life & Health exam, expect questions that ask you to name the violation from a fact pattern, so learn the definitions precisely.

Misrepresentation (MCA 33-18-202)

A producer or insurer may not knowingly misstate a policy's terms, dividends, or value, or misrepresent an insurer's financial condition. Two heavily tested sub-types:

• Defamation — making false or maliciously critical statements about a competitor's financial condition.
• Misleading illustrations — presenting non-guaranteed values as if guaranteed.

Defined unfair acts

Rebating — the most-tested prohibition

Rebating is offering anything of value not stated in the policy to induce a purchase — returning part of the commission, paying the first premium, or gifting a TV. It is barred for the buyer and the producer alike: a client who knowingly accepts a rebate commits a violation too. Montana allows narrow exceptions: dividends specified in the policy, promotional items of nominal value (commonly capped near $25 by rule), educational materials, and a statutory military discount for property or casualty insurance (MCA 33-18-217).

A worked example: a producer who waives the client's $40 first month "to close the deal" has rebated; a producer who hands over a $5 logo pen has not.

Unfair discrimination (MCA 33-18-206)

Unfair discrimination means treating insureds in the same actuarial class differently — charging two healthy 40-year-old nonsmokers different life rates, or denying coverage based on race, religion, national origin, or a disability unrelated to risk. What is permitted is genuine risk classification: age, sex (where allowed), tobacco use, medical history, occupation, and hazardous avocations all justify rate differences because they are actuarially supportable.

The exam loves the contrast: declining an applicant because of a blanket policy against a protected class is illegal; declining the same applicant for a documented terminal diagnosis is lawful underwriting.

Penalties under the Act

The CSI may issue a cease-and-desist order, and a person who violates such an order can be fined. Per MCA 33-18-1004, civil penalties commonly run up to $5,000 per non-willful act and up to $25,000 per willful act, in addition to license suspension or revocation. Restitution to harmed consumers can be ordered separately. Because fines accrue per act, a pattern affecting hundreds of policyholders compounds quickly — the practical lesson behind the State Farm matter discussed next.

Unfair Claims Settlement Practices Act (MCA 33-18-201)

This section governs how insurers handle claims. A single violation can support enforcement; a general business practice of violations is the more serious charge. Prohibited conduct includes:

• Misrepresenting policy provisions to a claimant.
• Failing to acknowledge and act reasonably promptly on claim communications.
• Failing to adopt reasonable standards for prompt investigation.
• Refusing to pay without conducting a reasonable investigation.
• Not attempting in good faith to settle where liability is reasonably clear.
• Compelling a claimant to litigate by offering substantially less than amounts ultimately recovered.

The third-party bad-faith remedy

Montana is notable: under MCA 33-18-242, a third-party claimant (not just the policyholder) may bring a private statutory bad-faith action directly against the insurer. The claimant generally must prove the underlying liability claim and a 33-18-201 violation. Damages can exceed policy limits, which is why insurers fear pattern findings.

Enforcement in practice — the State Farm settlement

In February 2024, CSI Commissioner Troy Downing announced a $2 million fine against State Farm (plus a suspended $2 million contingent on corrective action) after a two-year market-conduct exam found the insurer improperly applied comparative negligence to underpay third-party claimants between Nov. 1, 2018 and Apr. 15, 2022. State Farm later returned roughly $5.2 million to affected Montanans. The case illustrates the difference between an isolated error and a sanctionable business practice.

Twisting and Churning

Both involve replacement, but watch the actor and motive:

Penalty ladder

Common trap: churning is not the same as a legitimate replacement that is documented and in the client's interest — it is specifically the abuse of an existing policy's cash value to manufacture a sale. A lawful replacement requires delivering the proper replacement notice, comparing old and new coverage in writing, and giving the existing insurer the chance to conserve the policy.

Boycott, coercion, and intimidation (MCA 33-18-205)

Though more common in property/casualty, this prohibition appears on the Life & Health exam. It bars conditioning a loan, service, or transaction on the purchase of insurance from a particular producer or insurer. A lender who tells a borrower "approval depends on buying your life insurance through our affiliated agency" has illegally coerced. The borrower is free to choose any licensed insurer.

Filing a complaint

Consumers may complain to the CSI consumer hotline at (800) 332-6148 or (406) 444-2040, by email, or through an online form. The CSI's Market Conduct division investigates, can compel the insurer to respond, and may open a market-conduct examination — the same tool that produced the State Farm findings. Producers should treat a forwarded complaint as a regulatory matter and respond promptly and truthfully; an evasive or false response is itself an additional unfair practice.