4.1 Unfair Trade Practices

The Statutory Framework

Tennessee regulates conduct through the Unfair Trade Practices and Unfair Claims Settlement Act of 2009, codified at Tennessee Code Title 56, Chapter 8. The defined unfair methods of competition appear at Tenn. Code 56-8-104. The exam tests whether you can match a fact pattern to the correct named practice, so memorize the labels, not just the idea.

The Named Prohibited Practices

Misrepresentation in Detail

Producers and insurers may not make false or misleading statements about: policy benefits, conditions, or terms; dividends to be received; the financial condition of any insurer; or the true nature of an insurance contract. Calling a whole life policy an "investment plan" or a retirement savings account is a textbook misrepresentation because it hides the insurance character of the contract.

Rebating

Rebating is offering any premium reduction, special favor, dividend, or valuable consideration not stated in the policy to induce a sale. Sharing commission with an unlicensed person is also rebating.

• Returning part of the premium to the buyer
• Paying a finder's fee to an unlicensed referrer
• Promising a gift contingent on purchasing

A February 2015 Tennessee Department of Commerce and Insurance Rebating Bulletin clarified that giving a gift to a prospect regardless of whether they buy is not rebating, precisely because it is not an inducement tied to the policy. Dividends declared under a participating policy and policy-specified premium financing are permitted.

Twisting vs. Churning

These two are the most-confused pair on the exam.

• Twisting — using a misrepresentation or incomplete comparison to convince a policyholder to lapse or replace existing coverage (often with a different insurer). The defining element is the false or misleading statement.
• Churning — a producer repeatedly replacing a client's policies within the same agency or insurer to generate fresh first-year commissions, regardless of client benefit. The defining element is the self-serving pattern of replacement.

Worked example: Agent Dawson tells a client her current term policy "is worthless and pays nothing" to sell a new one. That false statement to induce replacement is twisting. If Dawson instead simply rolls the same client through three new policies in two years to bank commissions, that is churning.

Coercion, Boycott, and Intimidation

These three travel together in the statute. Coercion is forcing someone into an insurance transaction; boycott is refusing to deal as a group to restrain trade; intimidation is using threats to compel a purchase. The classic Tennessee fact pattern is a lender or car dealer who conditions financing on buying their insurance product. Federal and state law both bar tying credit to a specific insurer, so this surfaces on the exam as both coercion and an antitrust-style violation. Recognize the pressure element: the consumer is given no genuine free choice.

Defamation and False Advertising

Defamation punishes an agent who spreads a false, derogatory statement about a competing insurer's financial soundness to win a sale. False advertising covers any untrue, deceptive, or misleading statement in any medium — print, broadcast, web, or a single spoken comparison. Both are violations even if no policy is ultimately sold, because the harm is the deceptive communication itself, not the completed transaction.

Special Inducements and Free Insurance

Tennessee also prohibits offering free insurance to promote a non-insurance product (for example, "free travel insurance with every appliance purchase"). Like rebating, it distorts the price the consumer pays and gives an unfair competitive edge, so map any "free coverage" giveaway to a prohibited inducement rather than to legitimate marketing.

Unfair Discrimination

Tenn. Code 56-8-104 forbids unfair discrimination between individuals of the same class and essentially the same hazard in: the premium or rate charged; the dividends or benefits payable; or any policy term or condition. The key phrase the exam keys on is "same class, same hazard."

Permitted vs. Prohibited

Using valid actuarial data to set rates is sound underwriting; using a protected characteristic or treating identical risks differently is illegal.

Unfair Claims Settlement Practices

The same Act bars insurers from mishandling claims. A single act can be a violation; a general business practice triggers the harshest treatment. Prohibited acts include:

• Misrepresenting policy provisions relating to coverage
• Failing to acknowledge and act reasonably promptly on claim communications
• Refusing to pay without a reasonable investigation
• Not attempting a prompt, fair settlement once liability is clear
• Compelling insureds to litigate by offering substantially less than amounts ultimately recovered
• Delaying payment to pressure a low settlement

Penalties for Violations

The Commissioner of Commerce and Insurance may issue cease-and-desist orders and impose monetary penalties.

Common trap: candidates assume the first offense is always "just a warning." Tennessee can assess monetary penalties on a first, single violation, and the higher $25,000 tier attaches whenever the actor knew or reasonably should have known the act violated the law.