2.7 Unauthorized Insurers Act and Mandatory Fraud Reporting
Key Takeaways
Under W.Va. Code §33-44-4, it is unlawful to transact insurance without a license or to act in any capacity for an unauthorized insurer.
An unauthorized insurer remains bound by its insurance contract as if it had been lawfully issued (W.Va. Code §33-44-4(c)).
A person engaged in the business of insurance who knows or reasonably believes insurance fraud has been, is being or will be committed must report it to the Commissioner (W.Va. Code §33-41-5(a)).
Suspected fraudulent insurance acts must be reported in writing to the Insurance Fraud Unit within 14 days of the reporter's determination (114CSR71-3.2).
OIC Informational Letter 206 (November 2019) says there are no exceptions to mandatory fraud reporting, and failure to report can lead to license suspension or revocation.
Outline items II.I (Unauthorized Insurers Act, §33-44-4) and II.K (Fraud: §33-41-5, 114CSR71-3, Informational Letter 206) bring two general insurance-law topics into the bail exam. Both matter most to surety bondsmen, who are insurance producers acting for insurers. The outline expects every candidate to know them.
Part 1: The Unauthorized Insurers Act (W.Va. Code §33-44-4)
What is unlawful
- §33-44-4(a): It is unlawful for any person to engage in any act that constitutes the transaction of insurance under the article unless authorized by a license in force under West Virginia law, or exempted by the insurance laws. Violators are subject to Chapter 33 and the article's penalties.
- §33-44-4(b): It is unlawful to, directly or indirectly, represent, aid, counsel, opine, administer, assist in any manner or capacity, or otherwise act as an agent for an unauthorized insurer in the unauthorized transaction of insurance.
- §33-44-4(c): The unauthorized insurer is still bound by its contract, certificate or agreement as if lawfully procured. A policyholder does not lose rights because the insurer was unlicensed.
- §33-44-4(d) lists exclusions, such as lawful surplus lines and reinsurance, certain ocean marine risks, and qualifying group coverage issued in another state.
Why it matters in bail
A surety bondsman's bonds are guaranteed by an insurer. That insurer must be qualified to transact surety business in West Virginia (2.7). The qualifying power of attorney must come from an insurer in good standing and authorized to post criminal appearance bonds (3.2.2.c). Writing bail bonds on paper from a company without West Virginia authority aids an unauthorized insurer.
Penalties (see section 1.4)
| Section | Penalty |
|---|---|
| §33-44-7(a) | After notice and hearing, an administrative fine up to $20,000 per unauthorized act or transaction |
| §33-44-7(b) | Restitution for unpaid claims of insureds |
| §33-44-9 | The unauthorized insurer commits a felony: fine up to $20,000 per act, or 1–5 years imprisonment, or both |
Part 2: Mandatory fraud reporting
The statute: W.Va. Code §33-41-5
The West Virginia Insurance Fraud Prevention Act is Chapter 33, Article 41. Section 33-41-5 sets the duty:
- (a) Shall: a person engaged in the business of insurance who has knowledge or a reasonable belief that a fraudulent insurance act or another crime related to the business of insurance is being, will be, or has been committed shall give the Commissioner the information required, in the manner prescribed.
- (b) May: any other person with that knowledge or belief may provide the information.
- (c) The Commissioner may prescribe a reporting form for others to use.
- (d) A person engaged in the business of insurance shall furnish and disclose any information, including documents, about a fraudulent or suspected fraudulent act. Disclosures are confidential under §33-41-7.
Note the tenses: past, present and future ("is being, will be, or has been"). Reasonable belief is enough; proof is not required.
The rule: 114CSR71-3
| Rule | Requirement |
|---|---|
| 3.1 | Everyone covered by §33-41-5(a) shall report in writing all suspected fraudulent insurance acts to the Insurance Fraud Unit |
| 3.2 | File the report within 14 days of the reporter's determination that a suspected fraudulent act has been committed |
| 3.3 | Include, if known: report date; reporter details; date, location and estimated value of the loss; whether a claim was paid; names, roles, addresses, phone numbers, dates of birth and ID numbers of the parties; a detailed narrative; a list of supporting documents; and any other agency the reporter has told |
| 3.4 | The report is signed and dated by the reporter or an authorized representative |
| 3.5 | Use the form prescribed by the Commissioner |
OIC Informational Letter 206 (November 2019)
Addressed to insurers, agencies, individual producers and all persons engaged in the business of insurance, Informational Letter 206 states:
- reporting is mandatory; there are "no exceptions nor reasons to refrain" when fraud or insurance-related crime is known or suspected;
- the report can use the OIC's form (on the website under Popular Forms and Documents) or the NAIC Online Fraud Reporting System;
- failure to report can lead to license suspension or revocation or other action authorized by law;
- earlier guidance appears in Informational Letter 154; the OIC Fraud Division can be reached at 304-558-5241 or 1-800-779-6853.
Bail-flavoured examples
- A cosigner gives a bondsman a title for collateral that appears altered.
- An agent of another bondsman countersigns bonds on a power of attorney that the insurer says it never issued.
- A defendant's family offers a bondsman a forged cashier's check for the bonding fee.
In each case the bondsman should document the facts and report in writing within 14 days of concluding that fraud is suspected. Waiting until certain, or until a police report is filed, does not satisfy the rule.
Exam traps
- "Shall" for insiders, "may" for others (§33-41-5(a) versus (b)).
- 14 days, in writing, to the Insurance Fraud Unit (114CSR71-3.2).
- Knowledge or reasonable belief about fraud that is being, will be or has been committed. Certainty is not required.
- An unauthorized insurer's contract is still binding on the insurer.
Under 114CSR71-3.2, how soon must a person covered by W.Va. Code §33-41-5(a) file a written report of a suspected fraudulent insurance act?
Within 14 days of the reporter's determination
Within 30 days after a criminal charge is filed against the suspect
Within 60 days after the end of the calendar quarter
Only after the insurer confirms a financial loss
Which statement correctly describes W.Va. Code §33-41-5?
Only insurers must report fraud; producers and bondsmen are encouraged but not required to
Fraud must be reported only after it has been proven in court beyond a reasonable doubt
Reports go to the county prosecutor, not to the Insurance Commissioner
Those in the insurance business shall report suspected fraud; others may
A surety bondsman writes bail bonds for a company that has no authority to transact surety business in West Virginia. Under W.Va. Code §33-44-4, what is true?
Acting for it is unlawful, and the insurer stays bound by its contracts
The bonds are lawful as long as the bondsman discloses the insurer's home state
Only the insurer violates the law, because the bondsman merely countersigned
The bonds become void and the insurer escapes all liability under them
Sections you finish are checked off in the contents.