DC Ethics and Unfair Practices in Insurance 2 — Questions and Answers
Question 1: Under DC's insurance code, what is 'defamation' as an unfair practice?
- Falsely denying a claim to avoid payment
- Making false oral or written statements that injure the reputation of another insurer or producer (Correct answer)
- Charging excessive premiums relative to risk
- Misrepresenting policy benefits in advertising
Correct answer: Making false oral or written statements that injure the reputation of another insurer or producer
Defamation as an unfair trade practice is making false, maliciously critical, or derogatory statements about another insurer's financial condition or products.
DC's unfair competition laws in insurance prohibit making false statements about competitors' financial condition, solvency, or business practices. Such defamation can mislead consumers into avoiding solvent, legitimate insurers. This is distinct from general advertising puffery.
Question 2: Which of the following agent behaviors is required under DC's duty of good faith and fair dealing?
- Placing coverage only with the insurer that pays the highest commission
- Fully disclosing all material facts about a policy to a prospective client (Correct answer)
- Refusing to explain policy exclusions to avoid discouraging a sale
- Guaranteeing a specific claim outcome to close a sale
Correct answer: Fully disclosing all material facts about a policy to a prospective client
Agents owe a duty of good faith and fair dealing, which includes full disclosure of material policy terms, including exclusions and limitations.
DC requires producers to deal honestly with clients and disclose material information about the policies they sell. This includes explaining exclusions, limitations, and any conflicts of interest. Guaranteeing claim outcomes or hiding material facts violates this duty.
Question 3: What is 'controlled business' in DC insurance licensing, and why is it restricted?
- Insurance sold to businesses; restricted to commercial lines producers only
- Insurance sold primarily to the producer's own family or employer; restricted to prevent licensing solely for personal gain (Correct answer)
- Insurance sold through controlled agency plants; restricted to protect independent agents
- Insurance sold to DC government entities; restricted due to procurement rules
Correct answer: Insurance sold primarily to the producer's own family or employer; restricted to prevent licensing solely for personal gain
Controlled business is insurance placed primarily for the producer's own benefit (covering themselves, family, or employer). DC limits this to prevent people from obtaining a license solely to earn commissions on their own coverage.
DC insurance law restricts producers whose business consists primarily of controlled business (their own personal lines, family, or employer coverage). Such a producer is not truly serving the public and may be abusing the licensing system. DISB can discipline or deny a license if controlled business dominates the book.
Question 4: A DC producer receives a $200 gift from an applicant as a thank-you after placing a policy. The producer keeps the gift. This most likely violates which rule?
- CE requirement
- Anti-rebating rules (Correct answer)
- Record-keeping requirements
- Surplus lines regulations
Correct answer: Anti-rebating rules
Accepting a gift of value from an insured in connection with an insurance transaction can constitute rebating in reverse (insured rebating the producer), though anti-rebating rules typically govern benefits flowing from producer to insured.
While classic rebating involves the producer giving value to the insured, accepting gifts from clients can implicate conflict-of-interest and rebating principles. DC ethics rules require producers to avoid arrangements that compromise their independent judgment. A $200 gift could be viewed as influencing the producer's future placement decisions.
Question 5: Which of the following is an allowable exception to DC's anti-rebating prohibition?
- Giving a $100 cash rebate for each referral
- Offering a free meal worth $200 to prospects who attend a sales presentation
- Providing a nominal promotional item worth under $25 with the insurer's name on it (Correct answer)
- Returning part of the first year's premium to the insured as a discount
Correct answer: Providing a nominal promotional item worth under $25 with the insurer's name on it
Nominal advertising or promotional items (typically under $25) bearing the insurer's or producer's name are generally permitted as exceptions to rebating rules.
DC and most states permit nominal promotional items (under $25) as advertising. These are considered de minimis and not actual inducements to purchase. Cash rebates, free meals above nominal value, and premium discounts outside filed rates are prohibited.
Question 6: Under DC insurance law, what is 'misrepresentation in advertising'?
- Using a competitor's logo without permission in an ad
- Making untrue statements about policy benefits, exclusions, or the insurer's financial condition in an advertisement (Correct answer)
- Advertising insurance products without a license number in the ad
- Running ads in out-of-state publications for DC residents
Correct answer: Making untrue statements about policy benefits, exclusions, or the insurer's financial condition in an advertisement
Misrepresentation in advertising involves making false or misleading statements in any form of public communication about insurance products or the insurer.
DC's unfair trade practices act explicitly prohibits false advertising in insurance, including misrepresenting coverage terms, policy benefits, premiums, or the insurer's financial strength. This applies to all media including digital, print, radio, and television.
DC Ethics and Unfair Practices in Insurance 2
Under DC's insurance code, what is 'defamation' as an unfair practice?