Tennessee Insurance Agents Secure Investigation Protections, Lower Fines

Tennessee insurance agents who come under investigation by the state will enjoy some new due process protections and face lower financial penalties if found in violation of any laws under a measure just signed into law.

For years agents have complained that they are told little about any investigations into their conduct beyond being informed that an investigation is taking place. Now, they will have access to the complaint and other documentation and the state will be under a time limit to complete an inquiry.

Gov. Bill Haslam signed into law HB 1845/SB 1765, which establishes procedures that the Tennessee Department of Commerce and Insurance must follow when investigating complaints against agents. The new law also lowers the maximum financial penalties for violations.

Senator Bill Ketron, (R-Murfreesboro), sponsor of the bill and a former president of Professional Insurance Agents of Tennessee, said the bill protects an agent’s business reputation. “All it takes is running into one person at Sunday school or a basketball game who says someone’s under investigation to affect their business,” he said. “Agents should at least have the right to know about the complaint and the department shouldn’t be allowed to just sit on it.”

The Insurors of Tennessee, the state’s largest independent agents’ association, spearheaded the drive for the new law. Chuck Bidek, the association’s chief executive officer, said it has been a long time coming. “It’s taken six years, three insurance commissioners and two governors,” he said.

He said that the law defines what the state’s job is when conducting an investigation into agent’s conduct. “I told lawmakers that agents were fine being told what they could or couldn’t do, but the same requirements should be applied to the department,” Bidek said.

The law requires that any investigation must be “reasonable in scope.” It grants the insurance commissioner the power to subpoena witnesses and obtain other documentation. It says the agent who is the target of the investigation may obtain copies of inquisitorial orders and complaints and has the right of discovery if formal proceedings are instituted. Agents and other persons who are required to obtain records will be able to appeal the request to an administrative judge.

For the first time, insurance department investigations will be subject to a statute of limitations. The bill requires the department to conclude an investigation within two years and places a five-year limit on conducting an investigation after state officials become aware of a potential violation of the insurance code. Ketron said the statute of limitation will eliminate situations where agents have to work while having a “black cloud” indefinitely hanging over their head.

The new law also reduces the maximum penalty an agent might face for operating outside of the law. Under the old law, the insurance commissioner could fine an agent $25,000 per violation, not to exceed an aggregate penalty of $250,000 if the commissioner determined it was a knowing violation of the law. The new law allows a monetary penalty of not more than $1,000 for each violation, but not to exceed an aggregate penalty of $100,000.

Bidek said that the lower fines are more responsible since they are more commensurate with what agents could reasonably pay, adding that the higher fines amounted to coercion on the part of the state. “If you tell me you’re going to fine me $25,000 a day, I’m going to cop a plea today,” he said. “But if I am CNA, maybe it’s worth it to dispute the department’s charges.”

The House of Representatives voted unanimously for the bill (96-0) while in the Senate, it passed along party lines (20-10). Senator Roy Herron (D-Dresden) led the minority charge against the bill, arguing that it would “hamstring” Insurance Commissioner Julie Mix McPeak’s ability to protect consumers. As for the lowered fines, he said they provided little disincentive to abide by the law. “This is the bill that if you were the Bernie Madoff of insurance in Tennessee, this is your way to get out of jail and go home free,” said Herron.

But Ketron said he met with McPeak and she was fine with the bill. Senate Commerce and Insurance Committee Chair Jack Johnson (R-College Grove) said he asked department officials if they had any objections and they had registered none. Department spokesperson Christopher Garrett said the department doesn’t comment on legislation.