Property and Casualty Insurance. West Virginia. State Law Supplement

Transcription

1 Property and Casualty Insurance West Virginia State Law Supplement

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3 Property and Casualty Insurance Law Supplement West Virginia Effective March 1, 2014 State Law Supplement Important: Check for Updates States sometimes revise their exam content outlines unexpectedly or on short notice. To see whether there is an update for this product because of an exam change, go to and check the Insurance Licensing Blog. If there is an update, it will be clearly noted in the blog entries for this state.

4 At press time, this edition contains the most complete and accurate information currently available. Owing to the nature of license examinations, however, information may have been added recently to the actual test that does not appear in this edition. Please contact the publisher to verify that you have the most current edition. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional should be sought. WEST VIRGINIA PROPERTY AND CASUALTY INSURANCE LAW SUPPLEMENT, EFFECTIVE MARCH 1, Kaplan, Inc. The text of this publication, or any part thereof, may not be reproduced in any manner whatsoever without written permission from the publisher. If you find imperfections or incorrect information in this product, please visit and submit an errata report. Published in April 2014 by Kaplan Financial Education. Printed in the United States of America. ISBN: / PPN:

5 West Virginia Law Supplement 1 INTRODUCTION This supplement focuses on statutes regarding West Virginia insurance law. Key aspects of each statute are discussed to help the student pass the state law portion of the licensing examination. In order to understand the content of this supplement, the student should first study the national insurance License Exam Manual. Thorough preparation for the exam requires the complete study of both the national License Exam Manual and the supplement. I. WEST VIRGINIA LAWS, RULES AND REGULATIONS PERTINENT TO PROPERTY AND CASUALTY INSURANCE A. INSURANCE COMMISSIONER [33-2-1] The head of the Insurance Commission in West Virginia is the Insurance Commissioner. The Commissioner is appointed by the governor, with the advice and consent of the senate, for a term of six years. Before taking the oath of office the Commissioner must sever all connections with any insurers subject to his supervision. 1. Broad powers [33-2-3; , 9] a. The Commissioner is required to: enforce the provisions of West Virginia Insurance Code and perform all pursuant duties; affix the Commissioner s seal to all documents and papers filed by domestic insurers in other states; and pay all fees and monies received monthly into the state treasury. b. The Commissioner is empowered to: acquire any legal services, including representation, necessary to carry out the Commissioner s duties; call upon the attorney general for legal assistance and representation; review any documents necessary to verify the information contained in an application; and contract with nongovernmental entities, including the National Association of Insurance Commissioners (NAIC). 2. Investigations and proceedings [33-2-4] a. For the purpose of any investigation or proceeding under this chapter, the Commissioner may: administer oaths and affirmations; subpoena witnesses; compel their attendance;

6 2 West Virginia Law Supplement take evidence; and require the production of any books, papers, correspondences, memoranda, agreements, or other documents or records that the Commissioner considers relevant or material to the inquiry. b. A business entity that receives a subpoena must designate one or more of its officers or other authorized persons familiar with the subject matter specified in the subpoena to respond to the subpoena on its behalf. Subpoenas may be issued to any person and may require that person, among other things, to: testify under oath; answer written interrogatories under oath; produce documents and tangible things; and permit inspection and copying of documents. c. Effect of other proceedings The institution of administrative or judicial proceedings against a person by the Commissioner does not relieve the person of his obligation to respond to a subpoena issued under this section. 3. Examination of records [33-2, 9] One of the Commissioner s more important duties is to periodically examine the records of individuals and companies transacting business in West Virginia. a. The Commissioner may at any time examine the affairs, records, accounts, assets, and any related documents of any: authorized insurer; agent; broker; rating bureau; holding company; solicitor; or consultant. b. To guard against insurer insolvency (an insurer going out of business), the Commissioner is authorized to examine each insurer licensed to transact business in West Virginia at least once every five years. c. At the end of these examinations the Commissioner must prepare full, written examination reports and furnish a copy of the reports to the examined party at least 30 days before filing them as complete. These 30-day periods are intended to give the companies the opportunity to file objections to the reports. d. When making an examination, the Commissioner may retain attorneys, appraisers, independent actuaries, independent certified public accountants, professionals, or other specialists, the cost of which is borne by the company being examined or, in the Commissioner s discretion, paid from the Commissioner s examination revolving fund. The Commissioner may recover costs paid from such fund from the company for which the examination is conducted.

7 West Virginia Law Supplement 3 e. No later than 60 days following completion of the examination, the examiner in charge must file with the Commissioner a written report of examination. Upon receipt of the report, the Commissioner must transmit the report to the examined company, which has 30 days to make a written submission or rebuttal. Within 30 days of the end of the period allowed for submissions or rebuttals from the examined company, the Commissioner must enter an order: adopting the examination report as filed or with modification or corrections; rejecting the examination report with directions to the examiners to reopen the examination; or calling for a hearing to begin with at least 20 days notice to the company. f. The Commissioner may revoke the license of any company, agent, broker, or solicitor who refuses to submit to an examination. g. While the Commissioner may withhold the results of any examination from public inspection for a limited time, reports must become open for public inspection after 90 days, unless such publication has been stayed by the court. 4. Notice and conduct of hearing [ , ] The Commissioner may call and hold hearings for any purpose he deems necessary for the performance of his duties. a. Any licensed person or company that has been penalized by the Commissioner may request a hearing to review the charges. The aggrieved party must specify the grounds on which his defense will be based. b. The Commissioner must conduct the hearing within 45 days of the application for the hearing (a longer delay is permitted if agreed to by all parties). Notice of the hearing date and location is sent within 15 days by US mail to the licensee s last recorded address. c. At or before the hearing, the Commissioner may administer oaths, issue subpoenas, require evidence to be displayed, and receive oral or documented evidence. Likewise, the aggrieved party also may request witnesses to be subpoenaed. d. The Commissioner must report his findings and judgment within 45 days after the end of the hearing. 5. Penalties As part of his broad powers of enforcement, the Commissioner assesses penalties for any violation of West Virginia insurance laws or regulations. a. Enforcement of code [ ] 1.) The Commissioner may conduct an examination or investigation to: determine whether any person has violated any provision of the West Virginia Insurance Code; or secure information useful in the lawful administration of his duties.

8 4 West Virginia Law Supplement 2.) If the Commissioner determines, after notice and hearing, that any person is transacting insurance in an illegal, improper, or unjust manner or is failing to pay losses and obligations when they become due, he may order such person to discontinue (cease and desist) such behavior or order such person to pay his obligations as they become due. 3.) If any person fails or refuses to obey this order, the Commissioner may: revoke the person s license; and apply to the circuit court to enforce the order by injunction or by appointment of a receiver. b. Refusal to license [33-3-9] There are instances in which the Commissioner need not issue a cease and desist order before revoking a license. This is true in cases of blatant refusal to submit to a legal order of the Commissioner. For instance, the Commissioner may revoke the license of a person or firm that refuses to submit to an investigation. c. Discretionary refusal, revocation, or suspension [ ; ] 1.) Any person engaged in any act that constitutes the unauthorized transaction of insurance may be fined up to $20,000 for each unauthorized act and may be assessed restitution in an amount sufficient to reimburse any insureds for unpaid claims in accordance with the terms of the contracts. Other violations for which the Commissioner may, after proper notice and a hearing, revoke the license of an individual, agency, firm, or insurer include: violating any provision of the Insurance Code, other than those in which suspension, revocation, or refusal to renew is mandatory; failing to comply with a legal request of the Commissioner; operating in an unsound condition that could be hazardous to policyowners or the people of West Virginia; engaging in unfair claims practices; commingling premiums with personal funds; failing to pay insurance fines within 30 days; failing to pay taxes, dues, or charges; or refusing to cooperate with an investigation or examination. 2.) The Commissioner may reissue any suspended or revoked license when satisfied that the violations have ceased. d. License suspension, revocation, or nonrenewal [ ] 1.) The Insurance Commissioner may place on probation, suspend, revoke, or refuse to issue or renew an insurance producer s license, solicitor s license, or excess line broker s license or may levy a civil penalty or any combination of actions, for: providing false information in the license application;

9 West Virginia Law Supplement 5 violating any insurance laws or violating any regulation, subpoena, or order of the Insurance Commissioner or of another state s Insurance Commissioner; obtaining a license through misrepresentation or fraud; misappropriating any monies or properties received in the course of doing insurance business; intentionally misrepresenting the terms of an insurance contract; felony conviction; misdemeanor conviction in connection with activities as an agent, solicitor, or excess line broker; committing an insurance unfair trade practice or fraud; using fraudulent, coercive, or dishonest practices or demonstrating incompetence, untrustworthiness, or financial irresponsibility in the conduct of business; having an insurance license denied, suspended, or revoked in any other state or jurisdiction; forgery; cheating on a licensing examination; knowingly accepting insurance business from an individual who is not licensed; failing to comply with an administrative or court order imposing a child support obligation; having a statutory lien recorded for failing to pay state income tax; or obtaining a license for the purpose of writing controlled business. 2.) The Insurance Commissioner must notify the applicant or licensee and explain the reason for the denial or nonrenewal. The applicant or licensee may, within 10 days, request a hearing to determine the reasonableness of the Insurance Commissioner s action. The hearing must be held within 45 days and pursuant to West Virginia law. 3.) The producer s license of a business entity may suffer the same sanctions as those listed above if the Insurance Commissioner finds, after hearing, that an individual licensee s violation was known or should have been known by one or more of the partners, officers, or managers, and the violation was neither reported to the Insurance Commissioner nor corrective action taken. 4.) In addition to or in lieu of any applicable license sanction, a person may, after hearing, be subject to a civil penalty of up to $5,000. Failure to pay this sanction within 30 days will result in license revocation or suspension.

10 6 West Virginia Law Supplement e. Cease and desist order [ ] 1.) Engaging in any unfair trade practice will result in issuance of a cease and desist order and the following penalties: A fine of up to $1,000 for each violation Fines amounting to $10,000 for all violations 2.) If the person knew or should have known that he was violating the law, the penalty will be: a fine of $5,000 for each violation; fines totaling $100,000 for all violations committed within a sixmonth period; and suspension or revocation of his license. f. Penalty for violation of cease and desist orders [ ] If, after notice and hearing, the Commissioner determines that any person has violated a cease and desist order issued by the Commissioner and such order is still in effect, the Commissioner may at his discretion: require the payment of a penalty of up to $10,000 for each violation; revoke or suspend the license of such person; or both. B. DEFINITIONS, RESTRICTIONS, AND RESPONSIBILITIES 1. Licensed and unlicensed companies a. License required [33-3-1] No person may act as an insurer, and no insurer may transact insurance in West Virginia except as authorized by a valid license issued by the Commissioner, with the following exceptions. 1.) No license is required for an insurer, formerly holding a valid license, to enable it to investigate and settle losses under its policies lawfully written in West Virginia while the license was in effect, or to liquidate the assets and liabilities of the insurer as may have resulted from its former authorized operations in West Virginia. 2.) No license is required for an insurer not transacting new insurance business in West Virginia but collecting premiums on and administering policies in force for residents or risks located in West Virginia, but originally issued on nonresidents of or risks located outside of this state. b. Unauthorized insurer [ ] An unauthorized insurer is: a person or insurer engaged in the transaction of insurance without a license; or any person assisting an unauthorized insurer.

11 West Virginia Law Supplement 7 c. Admitted and nonadmitted insurer [33-12C-3] 1.) An admitted insurer is an insurer licensed to do insurance business in West Virginia. 2.) A nonadmitted insurer is an insurer not licensed to do insurance business in this state. 2. Domestic, foreign, alien, nonadmitted, and unauthorized companies Insurance companies involved in the business of negotiating or soliciting contracts of insurance may be classified in several ways including but not limited to the following. a. Domestic insurance company [33-1-6] A domestic insurance company is an insurance company incorporated in and organized under the laws of West Virginia and has its home office located in this state. For instance, Wheeling Mutual Insurance Company of Wheeling, West Virginia is a domestic company in West Virginia because it is incorporated in and has its principal or home office in this state. b. Foreign insurance company [33-1-7] A foreign insurance company is a company incorporated or organized under the laws of another state but licensed (granted a certificate of authority) and permitted to conduct the business of insurance in West Virginia. For instance, the Travelers Insurance Company of Hartford Connecticut is also licensed to solicit the business of insurance in West Virginia. Therefore, in the state of West Virginia, the Travelers Insurance Company is viewed as a foreign company. c. Alien insurance company [33-1-8] An alien insurance company is a company incorporated or organized outside the United States but licensed in the state of West Virginia. For instance, Continental Reinsurance Company of London, England is incorporated in another country (England) but is licensed to conduct the business of insurance in this state. 3. Stock and mutual companies a. Stock insurance company [ ] A stock insurance company is a company owned by the holders of the company s capital stock. This type of company s main motivation is profits. Policyholders of a stock company are not entitled to dividends, do not own stock in the company, and are not liable for any assessments that may be necessary. b. Mutual insurance company [ ] A mutual insurance company is a company owned by its policyholders with the policyholders sharing in the company s profits in the form of dividends. They may also vote to elect company management. Some mutual companies issue assessable policies and others issue nonassessable policies.

12 8 West Virginia Law Supplement 4. Selling, soliciting, and negotiating insurance [ ] a. Transacting insurance includes: making or proposing to make an insurance contract; making or proposing to make, as guarantor or surety, any contract of guaranty or suretyship as a vocation and not merely incidental to any other legitimate business or activity of the guarantor or surety; taking or receiving an application for insurance; receiving or collecting any premium, commission, membership fees, assessments, dues, or other consideration required for obtaining or renewing insurance; issuing or delivering certificates or contacts of insurance; soliciting, negotiating, procuring, or effecting insurance; disseminating information as to coverage or rates, forwarding applications, delivering policies or contracts, inspecting risks, or any other manner of representing or assisting a person or insurer in the transaction of insurance; transacting any kind of insurance business specifically recognized as transacting an insurance business within the meaning of the statutes relating to insurance; offering insurance; or offering an agreement or contract that purports to alter, amend, or void coverage of an insurance contract. b. Placement of coverage [ ] Coverage must be placed with a solvent insurer. No agent or excess line broker may knowingly place any coverage with an insolvent insurer. 5. Producer/agent [ ] An insurance agent is an individual appointed by an insurer to solicit, negotiate, effect, or countersign insurance contracts in its behalf. 6. Surplus lines [33-12C] Surplus lines insurance refers to business that is not available from admitted insurers. Surplus lines brokers place business with nonadmitted carriers and are required to report to the Commissioner all such transactions an annual basis. a. Policies issued by nonadmitted insurers are valid and enforceable on all parties, the same as those obtained from admitted insurers. b. Any licensed agent or broker may function as an surplus lines broker. c. Surplus lines brokers may transact insurance on behalf of any licensed agent or broker and may receive commission from the insurer, part of which may be paid to the originating agent or broker. d. Surplus lines brokers are required to remit applicable premium taxes to the state for all business transacted with nonadmitted insurers.

13 West Virginia Law Supplement 9 7. Valued policy law [ ] a. All insurers issuing policies in the state that provide coverage on real property against damage by fire are required to pay the face amount of the insurance policy in the event of a total loss to the property. b. The purpose of a valued policy law is to prevent insurers from overinsuring property to collect higher premiums and later dispute the value of the property if there is a loss. 8. Comparative negligence West Virginia is a comparative negligence state for tort actions brought within the state. a. Under the comparative negligence doctrine, a plaintiff is not entitled to recover from a negligent tortfeasor if the plaintiff s own contributory negligence equals or exceeds the combined negligence or fault of the other parties involved in the accident or occurrence. b. Under this legal doctrine, any amount of injury or damage caused by the plaintiff reduces the amount that can be obtained from others but does not bar recovery. C. LICENSING 1. Qualifications a. Producer 1.) License application [ ] a.) An individual applying for a resident insurance producer license must make application to the Insurance Commissioner on the uniform application and declare under penalty of refusal, suspension, or revocation of the license that the statements made in the application are true, correct, and complete to the best of the individual s knowledge and belief. b.) To obtain a producer s license in West Virginia, an applicant must: be at least 18 years old; live in West Virginia, if applying for a resident s license; be appointed by a licensed insurance company if applying as an agent (an appointment is legal authorization for an agent to act upon the insurer s behalf of the insurance company); not intend to use the license primarily for controlled business (purchasing insurance only for oneself, one s family, or one s business);

14 10 West Virginia Law Supplement complete 30 hours of approved prelicensing education for either the life or accident and sickness license or 40 hours for a combination life and accident and sickness license; and pass a license examination. 2.) Licensure [ ] a.) Lines of authority An insurance producer may receive qualification for a license in one or more of the following lines of authority: Life Accident and health or sickness Property Casualty Variable life and variable annuity products Personal lines Limited line credit Any other line of insurance permitted under state laws or regulations b.) Maintenance An insurance producer license will remain in effect unless revoked or suspended as long as the fee is paid and education requirements for resident individual producers are met by the due date. An individual insurance producer who allows his license to lapse may, within 12 months from the due date of the renewal fee, reinstate the same license without the necessity of passing a written examination. However, a penalty in the amount of double the unpaid renewal fee will be required for any renewal fee received after the due date. An individual licensed insurance producer who is unable to comply with license renewal procedures due to military service or some other extenuating circumstance (e.g., a long-term medical disability) may request a waiver of those procedures. The producer may also request a waiver of any examination requirement or any other fine or sanction imposed for failure to comply with renewal procedures. c.) Contents of license The license will contain the licensee s name, address, personal identification number, the date of issuance, the lines of authority, the expiration date, and any other information the Insurance Commissioner considers necessary. d.) Change of address Licensees must inform the Insurance Commissioner of a change of address or residency within 30 days of the change. Failure to timely inform the Insurance Commissioner of a change in legal name, residency, or address may result in a penalty.

15 West Virginia Law Supplement 11 b. Nonresident licensing [ ] A nonresident may receive a nonresident producer license if he: is currently licensed as a resident and in good standing in his home state; has submitted the proper request and paid the required fees; holds a similar license that is awarded on the same basis in his home state and for the same line or lines of authority applied for in this state; has submitted the appropriate application; and lives in a state that awards nonresident producer licenses to residents of this state on the same basis. c. Company requirements [ d] For the purpose of providing additional revenue for municipal policemen s and firemen s pension and relief funds, the teachers retirement system reserve fund, and volunteer and part-volunteer fire companies, an additional premium tax equal to 1% of taxable premiums is imposed for fire insurance and casualty insurance policies. 2. Expiration and renewal [ ] a. All producers licenses, new and existing, will be two-year licenses. This applies to producers, solicitors, and adjusters. The license will expire every two years ending at midnight on the last day of the licensee s birth month. The application fee and renewal fee for the two-year license is $50. It is the responsibility of the producer and solicitor to have the required continuing education requirements completed. b. All producer licenses of insurance agencies expire annually at midnight on June 30 following the date of issuance. The Commissioner renews annually the license of all licensees who qualify and have paid the applicable fees. 3. Limitation of license a. Controlled business [ (a)(7)] A producer may not use the license principally for the purpose of procuring insurance upon his property or insurable interests of those of his family or business interests. b. Transaction of insurance without license [ (b)] The act of any person to directly or indirectly act as an agent on behalf of an unauthorized insurer in the unauthorized transaction of insurance is illegal and is associated with penalties set forth by the state. c. Appointment of producer as agent [ ] An individual insurance producer may not act as an agent of an insurer unless the individual insurance producer becomes an appointed agent of that insurer. An individual insurance producer who is not acting as an agent of an insurer is not required to become appointed. 1.) To appoint an individual insurance producer as its agent, the appointing insurer must file, in a format approved by the Insurance Commissioner, a

16 12 West Virginia Law Supplement notice of appointment within 15 days from the date the agency contract is executed or the first insurance application is submitted. 2.) An insurer may also elect to appoint an individual insurance producer to all or some insurers within the insurer s holding company system or group by the filing of a single appointment request. 3.) Upon receipt of the notice of appointment, the Insurance Commissioner will verify within a reasonable time (not to exceed 30 days) that the individual insurance producer is eligible for appointment. If the individual insurance producer is determined to be ineligible for appointment, the Commissioner will notify the insurer within five days of its determination. 4.) Each insurer must maintain a current list of individual insurance producers appointed to accept applications on behalf of the insurer. Each insurer must make a list available to the Commissioner upon reasonable request for purposes of conducting investigations. 5.) Insurance agencies licensed as producers are not subject to these provisions. d. Limitation on solicitor s powers [ ] 1.) A solicitor may solicit and receive applications for insurance only for the duly licensed agent who appointed him and must report all business through the agent. 2.) The expiration, cancellation, suspension, or revocation of the license of the appointing agent will automatically expire, cancel, suspend, or revoke the solicitor s license in like manner, and the appointing agent may cancel a solicitor s license at any time by written request to the Commissioner. 3.) No agent may apply for licenses for more than two solicitors. e. An adjuster license must be obtained if the individual who, for compensation, fee, or commission, investigates and settles claims arising under property, casualty, or surety insurance contracts on behalf of either the insurer or the insured. As used in this rule, the term adjuster includes public adjusters, company adjusters, and crop adjusters. Pre-licensing education is not required of adjusters. A legal resident of West Virginia must apply as a resident adjuster. The license fee is $ Appointment [ (d)] No insurer may accept any business from or pay any commission to any individual insurance producer who does not then hold an appointment as an individual insurance producer for such insurer.

17 West Virginia Law Supplement Fingerprinting [ ] Note: This statute authorizes the Commissioner to require fingerprinting for criminal background checks. However, at this time, the fingerprinting requirement has not been implemented. a. Every applicant must submit a full set of fingerprints, in order for the Commissioner to obtain a national criminal history on the applicant. b. The Commissioner collects a fee from each applicant. The amount of the fee is established by rule and must be sufficient to cover all applicable fingerprinting costs. c. The Commissioner is required to treat all applicants fingerprints and criminal history records obtained confidential and secure. 6. Educational requirements a. Continuing education [ , ] 1.) West Virginia s continuing education law requires agents and solicitors to complete 24 hours of continuing education instruction every biennium (two-year period). 2.) The continuing education requirement applies to solicitors and resident agents who are engaged in the sale of the following lines of insurance: Life, annuity contracts, variable annuity contracts, and variable life Sickness, accident, and health All lines of property and casualty Pre-need burial insurance contracts All other lines of insurance for which an examination is required to be licensed Producers appointed on behalf of a licensed health maintenance organization Producers engaged in telemarketing insurance products b. Exemptions [Regulation ] Continuing education requirements do not apply to: persons holding a license that does not require an examination; persons who sell credit life or credit accident and health insurance; persons who have been issued limited or restricted licenses; inactive agents; agents whose licenses have expired; agents who have voluntarily cancelled their licenses; nonresident agents; and adjusters.

18 14 West Virginia Law Supplement c. Proof of completion [Regulation ] 1.) Upon completion of a continuing insurance education course, each provider must certify to the Commissioner the names of all individual insurance producers who satisfactorily completed the continuing insurance education course. 2.) The continuing education attendance roster must be mailed by the provider to the Commissioner within 30 days after the continuing insurance education course is completed. 3.) The provider of the continuing insurance education will furnish a certificate of completion to the individual insurance producer attending the course, and the individual insurance producer must retain a copy of the certificate for not less than four years from the date the course is completed. 4.) The provider must retain a copy of the attendance roster for not less than four years from the date the course is completed. 5.) Providers of continuing insurance education courses and individual insurance producers must furnish copies of certificates upon request of the Commissioner. 7. Mandatory reporting requirements a. Criminal prosecution and administrative action [ ] 1.) A producer must report if any administration action is taken against him by another government agency in West Virginia or in another jurisdiction. The Insurance Commissioner must be notified within 30 days of the final disposition of the matter. 2.) The report to the Commissioner shall include: a copy of the order; consent to order; or other relevant legal documents. 3.) The producer must also report to the Insurance Commissioner any criminal prosecution that arises out of the administrative action. The producer must report this information within 30 days of the initial pretrial hearing date. 4.) The report to the Commissioner shall include: the initial compliant; the order resulting from the hearing; and any other relevant legal documents.

19 West Virginia Law Supplement 15 b. Fraud [ ] 1.) Any individual in the insurance industry that has a reasonable belief or knowledge of fraud or another crime that is occurring or will occur in the insurance industry must notify the Commissioner in the prescribed manner. 2.) To facilitate the reporting of fraud or other related crimes, the Insurance Commissioner may prescribe a certain form. D. UNFAIR TRADE PRACTICES 1. Unfair claims methods and practices [ ; Reg , 6] The West Virginia Insurance Code clearly identifies certain claim settlement practices as illegal. While most of these regulations affect the behavior of the insurer, many affect the individual producer. It is important for the ethical agent to be familiar with the following practices that are considered unfair and illegal: Misrepresenting to claimants the coverage available to them under their policy, either at policy issue or upon the filing of a claim Attempting to settle a claim for less than the claimant had a right to expect based on sales literature presented during the sales process, even if the actual contract provides less than the sales literature implies Settling claims for less than the amount a claimant deserves under the contract or forcing claimants to sue the insurer because the insurer attempts to settle a claim for less than is owed Unnecessarily delaying claim investigations or failing to adopt and implement reasonable standards for the prompt investigation of claims Failing to pay a claim after determining that the claim is payable Failing to attempt to settle a claim in good faith Failing to maintain complete records of all claim-related complaints from insureds Concealing pertinent policy provisions Coercive statements Requesting a claimant to sign a release that extends beyond the subject matter which gave rise to the claim payment 2. Excessive charges [Info. Letter No. 6] Producers who are compensated on a sales commission basis may not charge any type of fee for the sales or servicing of those policies. To do so amounts to an overcharge of premium and constitutes unfair discrimination against any insured so charged. 3. Rebating [ (8), ] Nothing of value may be given to a prospective applicant to induce the purchase of a policy. a. The Insurance Code specifically describes the following as illegal inducements to buy: Paying or offering to pay any part of a policy premium

20 16 West Virginia Law Supplement Promising to provide special favor or advantage in the dividend or other benefits received under a policy Offering anything of value not specified in the contract b. It is not considered rebating for a company to: pay bonuses fairly to all nonparticipating policyholders out of surplus, provided it is in the best interests of the policyholders and the company (owners of participating policies commonly receive policy dividends out of a mutual company s surplus); or readjust group premium rates based on the current year s loss or expense experience. c. It is sometimes difficult to judge what constitutes rebating. Two important questions to ask are: Does the item have meaningful value? and Is it being offered directly in return for the purchase of the policy I m selling? If the answer to both is yes, it can probably be regarded as a rebate. d. It does not matter whether or not a policy or contract is purchased; the phrases valuable consideration and anything of value shall not include: educational materials; promotional materials; or merchandise that costs $25 or less. e. In order to determine an item s value, the producer or insurer must keep all original invoices for five years past the date the last item was given or until the last date the discount is offered. 4. Boycott, coercion, and intimidation [ (4), ] Generally, it is illegal for an insurer or agent to engage in any activity that creates a monopoly, restrains a competitor s ability to compete, or in any way forces a person to believe he must buy insurance from that one agent or company. a. In addition, no person may require, as a condition for the lending of money or the extension of credit, that the borrower purchase life insurance from any particular producer. It is acceptable for lenders to generally require that borrowers have sufficient insurance to protect the subject of a loan such as fire insurance covering mortgaged property. b. Lenders cannot require borrowers to pay separate charges for handling insurance policies required as security for a loan. That is, they cannot charge a handling fee for assisting the borrower in completing a collateral assignment. c. Lenders may not in any way disclose to another party any information obtained on borrowers upon review of their life insurance policies. 5. Misrepresentation [ (1)] Insurance producers are expected to honestly represent the terms and conditions of their policies and the policies against which they may be competing.

21 West Virginia Law Supplement 17 a. Misrepresentation and false advertising of a policy or a company are illegal. This includes issuing false statements about: the provisions of a policy; dividends to be received; benefits or advantages of a policy; or the general condition of any insurer. b. A producer may not misrepresent a policy s true nature through use of false statements, a confusing policy name, or a confusing policy title to induce a policyholder to surrender an existing policy. c. Misrepresentation also includes the omission of relevant information during the sales process, about either the producer s own policies or those against which he is competing. 6. Defamation [ (3)] Oral or written statements that are false, maliciously critical, or derogatory to the financial condition of an insurer or intended to injure any person engaged in the insurance business are illegal. This is true even if the statements are accurate but have no relevance to the ability of the defamed person or company to transact insurance properly. 7. Advertising [ (2)] Providing false information or misleading advertising is an unfair and deceptive act and a violation of the Insurance Code. Specifically prohibited are publishing, distributing, or disseminating in a newspaper, magazine, pamphlet, or television or radio announcement any untrue, deceptive, or misleading assertion or statement about the insurance business, a competitor s conduct in it, or the product being advertised. 8. Unfair discrimination [ (7)] Unfair discrimination in the policy rates charged to individuals of the same risk classification is illegal. Two individuals of the same race and sex may represent very different risks to an insurer and will be charged different rates. Unfair discrimination exists when two people of equal risk are charged different rates solely because of a difference in race, religion, national origin, or where they live. 9. Undefined acts [ ] If, after notice and hearing, the Commissioner determines that any person transacting insurance in West Virginia is engaging in any practice or method of competition that is not defined in the law, and that practice or method of competition is unfair, the Commissioner will issue an order directing the person to cease and desist. E. BINDERS [ ] Binders and other evidence of temporary insurance may be made orally or in writing and are deemed to include all the usual policy provisions and endorsements of the policy to be issued. 1. A binder is not valid once a policy has been issued, nor is it valid for a period in excess of 90 days from the effective date of the binder. 2. The Commissioner may grant an extension beyond the 90-day period.

22 18 West Virginia Law Supplement F. APPROVAL OF RATES AND FORMS [33-6-8, , ] All property and casualty forms and endorsements must be filed with the Commissioner for approval prior to their usage. 1. The filing must be made at least 60 days before the insurer wishes to begin using the form. 2. If the Commissioner has not expressly approved or disapproved the form, it is deemed to be approved after the 30th day. 3. Insurers are also required to file all manuals of classifications, rating plans, rate modifications, and rating rules. a. The insurer may not deviate from these filed rates without the Commissioner s approval. b. All rate filings must be made 60 days before the insurer wishes to apply the new rates. c. If a rate filing for automobile insurance requests an increase of 15% or more, the Commissioner will provide notice of such pending increase and solicit comments of interested persons before approving or disapproving of the rate increase. G. COMPENSATION OF LICENSEES 1. Payment of commissions [ ] The entire commission payable by an insurer must be paid directly to the licensed resident agent who countersigns the policy. a. The countersigning agent may not pay any part of that commission amount to anyone who is not a licensed producer. b. When a countersigning producer pays commission to an originating producer, the countersigning producer s commission may not be less than 10% of the gross policy premium or 50% of the total commission payable by the insurer, whichever is less. c. This statute does not apply to: reinsurance; life, accident, or sickness insurance; excess lines insurance; limited line credit insurance; insurance covering rolling stock of a railroad; insurance covering vessels, aircraft, or motor carrier used in interstate or foreign commerce; or insurance covering property in interstate or foreign commerce or any incidental liability or risks.

23 West Virginia Law Supplement Payment of commissions under assigned risk plan [ ] Insurers may pay commissions to the agent of record on business placed with the state automobile assigned risk plan. H. WEST VIRGINIA PROPERTY AND CASUALTY INSURANCE GUARANTY ASSOCIATION 1. Purpose [ ] The purpose of West Virginia Insurance Guaranty Association Act is to provide a mechanism for the payment of covered claims, to avoid delays, and to avoid financial loss to claimants or policyholders due to the insolvency of an insurer. It also is meant to detect and prevent insurer insolvency and to provide an association to assess the costs of such protection among all licensed insurers. 2. Scope of provisions [ ] The act does not apply to the following lines of insurance: Life Title Surety Disability Credit Mortgage guaranty Ocean marine 3. Association [ ] a. The West Virginia Insurance Guaranty Association is composed of all licensed insurers transacting business in the state in the lines of business covered by the act. b. Claims covered by the act include unpaid claims owed by insolvent insurers as well as unearned premiums due policyholders. c. To participate, the claimant or insured must be a resident of the state at the time of the insured event, or the property from which the claim arises must be permanently located in the state. d. For purposes of administration and assessment, the Association has established two separate accounts from which payments are made: Automobile insurance account Accounts for all other insurance (except as listed above) 4. Board of Directors [ ] The Association has a board of directors that consists of five to nine member insurers. The board members are selected by member insurers but need the final approval by the Commissioner. 5. Powers and duties [ ]

24 20 West Virginia Law Supplement a. The duties of the association include: paying covered claims of between $100 and $300,000; allocating claims and expenses among the two accounts and assessing members; investigating claims brought against the Association; keeping the Commissioner informed of the activities of the Association; handling claims; and reimbursing servicing facilities. b. The Association is also authorized to: employ persons to perform the Association s duties and obligations; borrow funds; sue or be sued; negotiate and become a party to contracts; refund excess amounts to members; and perform such other acts as are necessary to complete the Association s duties. II. PROPERTY WEST VIRGINIA SPECIFIC CONTENT OUTLINE A. INSURABLE INTEREST IN PROPERTY [33-6-3] No insurance contract issued to cover property is enforceable unless the policyholder possesses an insurable interest in the property. 1. For purposes of this provision, insurable interest is defined as any actual, lawful, and substantial economic interest in the safety or preservation of the subject of insurance. 2. Insurable interest is measured by the amount of financial injury or impairment that is suffered by the insured if the property is damaged or destroyed. B. WEST VIRGINIA ESSENTIAL INSURANCE COVERAGE ACT (FAIR PLAN) 1. Purpose [33-20A-2] The purpose of the West Virginia Essential Insurance Coverage Act is to provide a mechanism whereby the Commissioner can establish an insurance plan to make available necessary property insurance coverage for people who find coverage unavailable in the voluntary insurance market. 2. Association [33-20A-3] a. The act creates the West Virginia Essential Insurance Association, a nonprofit organization comprised of all licensed insurers who transact insurance of the kind provided by the plan. b. Coverage by the Association is available to any person having an insurable interest in habitational or commercial property situated in this state who is equitably

25 West Virginia Law Supplement 21 entitled to but unable to secure such insurance in the voluntary insurance market. Participation is required of all insurers doing any insurance business in this state of the kinds covered by the association as a condition of their authority to transact insurance in this state. 3. Policy forms [ ] a. All policies issued by the Association must conform with: the standard fire policy commonly known as New York Standard Fire Policy; and the total or partial fire loss provisions of West Virginia Code. b. All policies issued by the Association must be for a term of one year. 4. Coverage limits and types [ ] a. Coverage limits Coverage for risks found insurable by the Association will be provided in an amount up to the reasonable insurable value of the property but in no event may exceed the amount of $100,000 for any one habitational risk or $300,000 for any one commercial risk. b. Coverage types Coverage issued by the Association is limited to indemnification against loss caused by the perils of: fire; lightning; riot; explosion; vehicle; smoke; hail; aircraft; and wind. c. Application for insurance and policy issuance [ ] 1.) Method of application An eligible applicant must authorize an agent to apply to the Association for essential property insurance coverage. The application must be accompanied by proof of the applicant s effort and inability to obtain essential property insurance in the voluntary market. 2.) Policy issuance Upon approval by the Association of an application for coverage and upon receipt of the full amount of the premium due, the Association will issue a policy and a binding receipt. The Association may decline to issue a policy and binding receipt when the applicant owes premium monies to the Association for previous insurance coverage.

26 22 West Virginia Law Supplement d. Inspection of property [ ] Upon submission to the Association of a completed application for insurance, the property requested to be insured may be physically inspected. 1.) Cost of inspection Any physical inspection will be made without cost to the eligible applicant. 2.) Inspection report A written inspection report will be made for each property inspected and a copy provided to the eligible applicant. e. Appeal procedures [ ] 1.) Initial appeal to board Any applicant for insurance, person insured by the Association, or member insurer aggrieved by any action of the Association may appeal in writing to the board within 15 days of such action. The board or an appeals committee designated by the board must hear and make a decision on the appeal within 15 days of filing. 2.) Appeal to Commissioner The determination of the board may be appealed in writing to the Commissioner within 10 days of such determination. The Commissioner will render a decision concerning the appeal within 30 days. C. DECLINATION, TERMINATION, AND DISCLOSURE OF HOMEOWNERS INSURANCE [33-17A] Special declination, cancellation, and nonrenewal provisions apply to policies issued on residential property. 1. Declination [33-17A-3] Declination is the refusal of an insurer to issue a property insurance policy following receipt of an application or other written request for coverage. A declination must include the specific reason or reasons for the insurer to refuse to issue the policy. 2. Cancellation and nonrenewal [33-17A-4] At least 30 days before the end of a policy period, an insurer must notify the insured of its intention regarding the renewal. A notice of cancellation must be in writing and delivered or sent by first-class mail to the insured at his last known address. 3. Reasons for cancellation [33-17A-5] When a policy has been in effect for 60 days or longer, it may only be terminated for: nonpayment of premium; conviction of the insured of any crime having as one of its necessary elements an act increasing any hazard insured against; discovery of fraud or material misrepresentation made by or with the knowledge of the named insured in obtaining the policy, continuing the policy, or presenting a claim under the policy; the occurrence of a change in the risk that substantially increases any hazard insured against after insurance coverage has been issued or renewed;

27 West Virginia Law Supplement 23 a violation of any local fire, health, safety, building, or construction regulation or ordinance with respect to any insured property or the occupancy thereof that substantially increases any hazard insured against; a determination by the Commissioner that the continuation of the policy would place the insurer in violation of the insurance laws of the state; nonpayment of property taxes for two or more years; the insurer s discontinuance of the line of insurance contained in the policy; or substantial breach of the provisions of the policy. 4. Prohibited discriminatory practices [33-17A-6] No insurer may decline or terminate a policy if such decision is based on: the race, religion, nationality, ethnic group, age, sex, or marital status of the applicant or insured; the lawful occupation or profession of the applicant or insured; the age or location of the residence of the applicant or insured; the fact that another insurer previously declined or terminated the applicant or insured; the fact that the insured previously had coverage through a residual market mechanism; the fact that the insured was not previously insured or had a gap in insurance coverage; or solely an adverse credit report or credit score. 5. Violations; administrative procedure [33-17A-7] If the Commissioner finds that an insurer has violated these declination or termination provisions, he may require the company to issue or continue the policy. a. In addition, he may issue a cease and desist order to restrain the company from engaging in such practices in the future. b. A fine of up to $5,000 may be levied against anyone who willfully and knowingly violates these provisions. D. MINE SUBSIDENCE [ ] The state legislature has found that mine subsidence has resulted in great loss of home, shelter, and property to the state s citizens. 1. Purpose [ ] The purpose of the following provisions is to make mine subsidence insurance available in a reasonable and equitable manner to all residents of the state. 2. Administration of fund [ ] a. The mine subsidence program is administered by the state s Board of Risk and Insurance Management.

28 24 West Virginia Law Supplement b. The board operates the Mine Subsidence Insurance Fund to provide coverage against losses arising out of or due to mine subsidence to any structure within the state. 1.) The money in the fund is derived from premiums charged to policyholders. 2.) Rates and premiums are established by the board and insurers may not deviate from those rates. 3. State support [ ] If the fund is insufficient to provide claims payments, the governor may authorize up to $500,000 in additional funding. 4. Coverage [ ] Every policy issued in West Virginia must include coverage for mine subsidence, unless the coverage is rejected by the applicant. In some counties no waiver is required, and coverage is only provided if requested by the insured. a. Losses paid must be in excess of 2% of the policy s total insured value. b. A deductible of no less than $250 and no more than $500 applies. c. In no event is the fund responsible for any policy amount in excess of $75, Insurer s right to refuse coverage [ ] An insurer may refuse coverage, subject to a hearing, in the following cases: On a structure evidencing unrepaired subsidence damage, until necessary repairs are made Where the insurer has declined, nonrenewed, or cancelled all coverage under a policy for underwriting reasons unrelated to mine subsidence 6. Reinsurance [ ] All companies authorized to write fire insurance in the state enter into a reinsurance agreement with the board in which each insurer agrees to reinsure 100% (up to a maximum of $75,000) of any subsidence insurance issued. 7. Payment of claim [ ] When the insurer pays a loss, the fund is responsible to reimburse the insurer within 90 days after receiving notification of the loss. Once proof of loss is presented to the insurer, all claims must be paid within 120 days unless the insurer and claimant have a different agreement in place. E. RISK RETENTION ACT OF WEST VIRGINIA 1. Purpose [ ] a. This act is intended to regulate the formation and operation of risk retention groups and risk purchasing groups in a manner similar to the federal Liability Risk Retention Act of 1986.

29 West Virginia Law Supplement 25 b. The Liability Risk Retention Act was designed to give manufacturers more options when insuring against product liability. To facilitate this process, the act allowed product manufacturers to establish self-insurance programs or group captive insurance companies called risk retention groups. 2. Definition [ ] A risk retention group is any corporation or other limited liability association: whose primary activity consists of assuming and spreading all, or any portion, of the liability exposure of its group members; that does not exclude any person from membership in the group solely to provide for members of such a group a competitive advantage over such a person; that has as its owner(s) only persons who comprise its membership and who are provided insurance by such group; and whose members are engaged in similar activities and exposed to similar risks. 3. Insurance representatives [ ] a. Unless a person is licensed as an insurance agent, that person cannot solicit, negotiate, or procure liability insurance in the state from: a risk retention group; a purchasing group from an unauthorized insurer or risk retention group chartered in the state; or any member of a purchasing group under a purchasing group s policy. b. Residence in West Virginia is not a requirement if an agent is working for a risk retention group or purchasing group. III. CASUALTY WEST VIRGINIA SPECIFIC CONTENT OUTLINE A. AUTOMOBILE INSURANCE Insurance on private passenger and commercial vehicles is a large and important part of the casualty insurance market. The following information pertains to insurance for motor vehicles issued in West Virginia. 1. Uninsured and underinsured motorists coverage [ ] Coverage must apply to the insured s use of nonowned automobiles. The minimum limit for bodily injury and property damage is the state financial responsibility limit. All policies of motor vehicle liability insurance must contain: a provision insuring the named insured and any other person legally responsible for the use of the motor vehicle against liability for death or bodily injury or property damage sustained as a result of negligence; a provision undertaking to pay all damages incurred by the owner or operator of an uninsured motor vehicle, within limits that must be no less than the financial responsibility requirements of West Virginia Insurance Code;

30 26 West Virginia Law Supplement optionally, a provision, with appropriately adjusted premiums, to pay all damages incurred by the owner or operator of an uninsured motor vehicle up to an amount of $100,000 for bodily injury or death of one person in any one accident, $300,000 for bodily injury or death of two or more people in any one accident, and $50,000 per accident for property damage in any one accident; and optionally, a provision, with appropriately adjusted premiums, to pay all damages incurred by the owner or operator of an uninsured or underinsured motor vehicle up to an amount not less than limits of bodily injury liability insurance and property damage liability insurance purchased by the insured. 2. Underinsured motorist a. An underinsured motor vehicle is a motor vehicle carrying liability insurance applicable at the time of the accident in amounts that are either: less than limits the insured carried for underinsured motorists coverage; or reduced by payments to others injured in the accident to limits less than limits the insured carried for underinsured motorists coverage. b. No sums payable as a result of underinsured motorists coverage may be reduced by payments made under the insured s policy or any other policy. 3. Uninsured motorist An uninsured motor vehicle is a motor vehicle that: does not carry liability insurance in the required amounts; carries such insurance, but the insurer denies coverage; carries such insurance, but damages are uncollectible due to the insurer s insolvency; is not covered by a certificate of self-insurance; or is operated or owned by an unknown person. 4. Proof of financial responsibility [17D-4-2] a. Proof of financial responsibility is proof of ability to respond to damages for liability due to a motor vehicle accident in the amount of 20/40/10: $20,000 for bodily injury or death of one person in any one accident; $40,000 for bodily injury or death of two or more people in any one accident; and $10,000 per accident for property damage in any one accident. b. Proof of financial responsibility may be provided to the state at the time of vehicle registration in one of the following ways: Evidence of liability insurance Evidence that the insured is a qualified self-insurer

31 West Virginia Law Supplement 27 A surety bond or other acceptable security in the amount of the financial responsibility limits 5. Verification of financial responsibility [17A-3-3] a. Intentional lapses of insurance coverage In the case of a periodic use or seasonal vehicle, the owner may provide a statement that liability insurance is in effect during the portion of the year the vehicle is in actual use, within required limits. b. Cancellation of coverage 1.) Any registrant who drops or cancels insurance coverage for any reason other than periodic or seasonal use must either surrender the registration plate or notify the Division of Motor Vehicles (DMV) of the cancellation. The notice must contain a statement that the vehicle will not be operated on the roads or highways of West Virginia. 2.) The registration of any vehicle upon which insurance coverage has been dropped or cancelled may be reinstated upon submission of current proof of insurance and payment of the duplicate plate fee. c. Verification process 1.) On an annual basis, the DMV will pull a random sample of the total number of motor vehicles that are registered in order to verify current insurance coverage. The DMV may also select an owner s statement of insurance submitted at the time of registration or registration renewal for verification. 2.) Random sample verification of current insurance coverage will be conducted on a monthly basis. The basis for each sample will be the entire registered motor vehicle base. The selection of a registration for random sample verification does not preclude the registration from being selected again in any subsequent month. 3.) If the DMV determines that there is no liability insurance in effect and the registrant has not complied with the provisions of intentional lapse of insurance, the Commissioner will order the suspension the registrant s motor vehicle registration until current proof of insurance is received and suspend the drivers license of the owner of the motor vehicle for a period of 30 days. d. Penalties for false statements If any person making an application for registration knowingly provides false information, false proof of security, or a false statement of insurance, or if any person, including an applicant s insurance agent, knowingly counsels, advises, aids, or abets another in providing false information, false proof of security, or a false statement of insurance in the application, he is guilty of a misdemeanor, and, upon conviction thereof, will

32 28 West Virginia Law Supplement be fined not more than $500, be imprisoned in the county or regional jail for a period not to exceed 15 days, or both and in addition to the fine or imprisonment will have his operator s or chauffeur s license and vehicle registration suspended for a period of six months. 6. Renewal, nonrenewal, and cancellation [33-6A-1 thru 33-6A-4; 17D] Special provisions apply to policies issued to insure private passenger type automobiles. a. Permissible reasons for policy cancellation [33-6A-1] 1.) Once a policy has been in force for 60 days, it may only be cancelled for one of the following reasons on the part of the insured: Nonpayment of premium Obtaining the policy through material misrepresentation Violation of any of the material terms and conditions of the policy License suspension or revocation Becoming subject to epilepsy or heart attacks, without providing a physician s statement attesting to the ability to operate a motor vehicle Conviction of a serious moving violation or three or more moving violations in a 12-month period 2.) When an insurer wishes to effect cancellation in accordance with the above provisions, an advance notice of cancellation must be sent to the insured at least 30 days in advance. Cancellation for nonpayment of premium requires 10 days advance notice. 3.) Insurers must include in any notice of cancellation the reason or reasons. If such notice is not included with the cancellation, it must be provided if the insured makes a written request. b. Notice of cancellation to loss payee [33-6A-1a] 1.) A loss payee is the person other than the named insured designated on an automobile liability policy entitled to the proceeds of or payments under such policy. 2.) When an insurer notifies an insured of its intent to cancel or nonrenew an automobile liability insurance contract, the insurer must also provide notice to the loss payee in accordance with the same notice requirements established by West Virginia statute. c. The transfer of an insured [33-6A-2] The transfer of an insured between insurance companies within the same group is not considered a cancellation if the transfer is made based on a valid underwriting reason involving substantially increased risk associated with the policy.

33 West Virginia Law Supplement 29 d. Nonrenewal [33-6A-4] If an insurer wishes to refuse a renewal of a personal automobile policy, it must provide at least 45 days advance notice of nonrenewal. After a policy has been in effect for two consecutive years or longer, nonrenewal may only be based on: nonpayment of premium; obtaining the policy through material misrepresentation; the insured s violation of any of the material terms and conditions of the policy; the named insured or any other operator in the household has his drivers license suspended or revoked or is or becomes subject to epilepsy or heart attacks unless he can provide a physician s statement attesting to the ability to operate a motor vehicle; the named insured or any other operator in the household being convicted of a serious moving violation or two or more moving violations in a 12-month period; or the named insured or any other operator in the household being at-fault in a second vehicle accident within a 12-month period. B. WEST VIRGINIA AUTOMOBILE INSURANCE PLAN (WVAIP) [AUTO MANUAL] The West Virginia Automobile Insurance Plan (WVAIP) is an assigned risk plan created to provide insurance coverage for those people who cannot obtain insurance through the voluntary market. 1. The WVAIP ensures that applicants are shared equitably among all insurers licensed to write auto insurance in West Virginia. 2. Any insurance agent holding a valid property and casualty license for West Virginia is eligible to write business through the WVAIP. 3. All consumers possessing a valid West Virginia drivers license and a vehicle registered in West Virginia are eligible to be assigned through the WVAIP. C. MALPRACTICE POLICIES [33-20C] 1. When a policy of malpractice insurance has been in effect for at least 60 days or has been renewed once, it may only be terminated for: nonpayment of premium; the policy was obtained through material misrepresentation; the insured violates any of the material terms and conditions of the policy; or the insurer is unable to find suitable reinsurance. 2. Any notice of cancellation of malpractice insurance must contain the reason for such cancellation. Notice of cancellation must be sent to the insured via certified mail, return receipt requested, at least 30 days before the effective date of cancellation.

34 30 West Virginia Law Supplement 3. Nonrenewal of a malpractice policy requires 90 days advance notice to the insured via certified mail, return receipt requested. D. WORKERS COMPENSATION AND EMPLOYERS LIABILITY [23-2-1(a), (b), (i), (e)(14)] Workers compensation insurance, which is included under casualty insurance, offers a relatively quick and certain remedy to the employee who is injured on the job. 1. The state of West Virginia requires that all employers who carry on business in the state to subscribe and pay premium taxes into the workers compensation fund to protect their employees. 2. Covered employments a. Virtually all employers are subject to the act, except: domestic employees; agricultural employers with fewer than five full-time employees; casual employees (when the employer has less than three employees who are employed for no more than 10 days in any calendar quarter); employees of a church; professional athletes; and volunteers of a rescue squad or police auxiliary unit who are supported by county commission, municipality, or other government entity. b. Sole proprietors, partners, executive officers, and directors of corporations and associations are covered but may elect to exempt themselves from the law.

35 West Virginia Law Supplement 31 WEST VIRGINIA LAW SUPPLEMENT PRACTICE FINAL Student instructions: Following your thorough study of this supplement, take this 50-question sample examination. Grade your performance utilizing the answer key provided. Carefully review the topics pertaining to those questions answered incorrectly. I. General Insurance Laws Concepts 1. The Insurance Commissioner may perform all the following duties EXCEPT A. conduct hearings B. adopt rules and regulations C. pass insurance laws D. suspend or revoke licenses 2. The West Virginia Insurance Guaranty Association may do all of the following EXCEPT A. lend money to an impaired insurer B. assume the businesses of insolvent insurers C. reinsure the policies of West Virginia residents D. invest the assets of troubled insurers 3. If it is determined that a licensee knew, or reasonably should have known, that he was in violation of the Insurance Code, the Commissioner may levy a fine of up to how much per violation? A. $500 B. $1,000 C. $2,500 D. $5, The Insurance Commissioner may impose all of the following penalties when a person has violated a cease and desist order EXCEPT A. suspend his license B. revoke his license C. levy a fine of up to $10,000 D. imprison the person for up to 5 years 6. An insurer incorporated in West Virginia with its capital divided into shares and owned by its stockholders is known as A. a stock insurer B. a mutual insurer C. a foreign company D. a parent corporation 7. To qualify for a license, agents must do all of the following EXCEPT A. complete a course of prelicensing education B. pass an examination C. be appointed by an insurance company D. be a lifelong resident of West Virginia 8. Obtaining a license to sell insurance only to friends, relatives, and business associates is known as A. influence selling B. controlled business C. closed business D. leveraged business 9. All of the following are unfair claims practices EXCEPT A. misrepresenting the amount of coverage available B. investigating a claim in which the cause of death is uncertain C. attempting to settle a claim for less than the contract provides D. failing to maintain a claim-related complaint file 5. In West Virginia, an insurer formed under the laws of Massachusetts and authorized to do business in West Virginia is considered A. a domestic company B. a foreign company C. an alien company D. a reinsuring company

36 32 West Virginia Law Supplement 10. All of the following are forms of unfair discrimination EXCEPT A. refusing to sell a policy to someone because of his race or religion B. charging one person a higher premium than another person of equal risk to the company C. charging one person a higher premium than someone else of the same age and sex because of a higher risk represented by that person D. refusing to service the policy needs of a person because of where she lives 11. All of the following are unfair trade practices EXCEPT A. rebating B. any form of misrepresentation C. providing a comparison of coverages D. defamation 12. The Commissioner is given all of the following powers EXCEPT A. prosecuting people B. requiring papers and documents be produced for inspection in a hearing C. administering oaths D. suspending or revoking licenses 13. Which of the following statements is NOT an example of rebating? A. Offering a pair of tickets to a college football game in exchange for the purchase of a policy B. Offering to reduce the annual premium by an amount equal to one-half of the producer s commission C. Offering to pick up the tab for dinner at an expensive restaurant if the prospect signs an application D. Offering to take your top five clients to an end-of-the-year appreciation dinner 14. Which of the following statements regarding examinations of domestic insurers is CORRECT? A. These examinations must be conducted at least once every 5 years. B. Insurers are not required to fund these examinations if their examination reports are rated excellent. C. The Commissioner may not revoke the license of any agent or company that refuses to cooperate with an investigation. D. Examination reports are opened for public inspection 30 days after the Commissioner files the final report. 15. To be licensed as an excess lines broker, an agent must do all of the following EXCEPT A. submit an application to the Commissioner B. post a surety bond C. pay the appropriate fee D. cease operating as an agent 16. Under a valued policy law, the amount that must be paid by an insurer in the event of a total loss to insured property is A. the replacement cost B. the actual cash value C. the market value D. the face value of the policy 17. In West Virginia, the Insurance Commissioner is A. elected by the people B. chosen by the attorney general C. appointed by the governor D. selected by the legislature 18. When the Commissioner has conducted an examination of an insurer or producer, the results must be made available to the public how many days after the report is completed? A. 30 B. 60 C. 90 D. Whenever the Commissioner decides it is in the public interest

37 West Virginia Law Supplement When the Commissioner issues a cease and desist order, the person who has committed the violation must refrain from engaging in the illegal practice within how many days of the order s issuance? A. Immediately B. 10 C. 20 D The Commissioner must first hold a hearing before revoking a license EXCEPT A. when a producer blatantly refuses to comply with a legal request of the Commissioner B. when an insurer refuses to submit to an investigation C. when an insurer operates in an unsound financial condition D. when a producer is convicted of more than two moving violations 21. Which of the following statements regarding nonresident agent licenses is NOT correct? A. The person must hold a valid license in her home state. B. The person must complete an application. C. The person must pay the appropriate fee. D. The person is not subject to the continuing education requirement. 22. How many hours of continuing education are required of property and casualty producers in a 2-year period? A. 6 B. 12 C. 18 D All of the following are exempt from the state s continuing education requirement EXCEPT A. an adjuster B. an agent who is at least 65 years of age C. an inactive agent D. a person who sells credit life insurance 24. Oral or written statements that are false or derogatory regarding an insurer s financial condition is considered A. rebating B. false advertising C. defamation D. coercion 25. A company that is unlicensed in the state of West Virginia must place business through A. a broker B. an agent C. an excess lines broker D. a managing general agent 26. A binder of insurance may be issued for a maximum of how many days? A. 30 B. 45 C. 60 D The West Virginia Insurance Guaranty Association covers which of the following lines of business? A. Title insurance B. Workers compensation insurance C. Ocean marine insurance D. Commercial liability insurance 28. The West Virginia Guaranty Association is responsible for paying covered claims up to a maximum of A. $100,000 B. $250,000 C. $300,000 D. $500, The duties of the West Virginia Guaranty Association include all of the following EXCEPT A. borrowing funds B. employing personnel C. entering into contracts D. monitoring insurer solvency

38 34 West Virginia Law Supplement II. Questions Regarding Property Laws 30. Insurers of residential property are required to notify policyholders of their renewal intentions A. 30 days before the renewal date B. within 60 days of issuing the policy C. within 60 days of the renewal date D. only if they wish to nonrenew 31. To effect a legal cancellation of property insurance in West Virginia, an insurer is required to A. personally deliver the cancellation notice to the insured B. provide a notice in writing sent by first class mail C. notify the insured by telephone and confirm in writing D. offer to issue another policy at higher rates 32. Once a policy insuring residential property has been in effect for at least 4 years, it may be cancelled for which of the following reasons? A. The insured has been convicted of a felony. B. The insured made an innocent error on the application. C. The risk insured has changed since the policy inception. D. The insured fails to pay property taxes for 2 or more years. 33. It is unlawful for an insurer to decline or terminate a property policy for any of the following reasons EXCEPT A. marital status of the insured B. age of the residence C. the fact that the insured filed numerous claims D. legal occupation of the insured 34. Willful violation of the state s property insurance cancellation provisions may result in a fine of up to A. $5,000 B. $10,000 C. $15,000 D. $25, The purpose of the West Virginia Essential Insurance Coverage Act is to provide A. necessary property insurance B. compulsory automobile insurance C. workers compensation coverage D. reinsurance for catastrophes 36. Participation in the West Virginia FAIR Plan is required of A. all insurers doing business in the state B. insurers who provide the kind of insurance provided by the plan C. only the three largest insurers in the state D. unlicensed insurers who transact business in the state 37. The maximum amount of protection provided by the Mine Subsidence Insurance Fund is A. $75,000 B. $100,000 C. $150,000 D. $300,000 III. Questions Regarding Casualty Laws 38. When a personal automobile policy has been in force for less than 60 days, it may be cancelled by the insurer A. only if the insured committed material misrepresentation in applying for the coverage B. only for nonpayment of premium C. for any reason D. with the approval of the agent 39. When a personal automobile policy is cancelled for a reason other than nonpayment of premium, the insurer is required to notify the insured at least how many days before the effective date of the cancellation? A. 10 B. 20 C. 30 D. 45

39 West Virginia Law Supplement To nonrenew a personal automobile policy, the insurer must provide the insured with a written notification at least how many days before the expiration of the policy? A. 10 B. 20 C. 30 D When a policy of malpractice insurance has been in effect for at least 60 days, it may be cancelled for which of the following reasons? A. The physician insured has been convicted of a crime. B. The insured has had two or more malpractice claims. C. The physician has had her license suspended. D. The insurance company is unable to secure reinsurance. 42. Malpractice insurance may only be cancelled if the insurer notifies the insured by certified mail at least how many days before the date of the cancellation? A. 30 B. 60 C. 90 D To nonrenew a malpractice policy, the insurer is required to notify the policyholder how many days before the policy s expiration? A. 30 B. 45 C. 60 D The bodily injury financial responsibility limit in West Virginia is A. $15,000 per person/$30,000 per accident/$5,000 per property damage B. $20,000 per person/$40,000 per accident/$10,000 per property damage C. $25,000 per person/$50,000 per accident/$15,000 per property damage D. $50,000 per person/$100,000 per accident/$20,000 per property damage 45. Proof of financial responsibility may be provided using any of the following methods EXCEPT A. evidence of automobile liability insurance B. qualifying as a self-insured C. providing a surety bond D. a bank statement 46. Which of the following statements regarding uninsured motorists coverage in West Virginia is CORRECT? A. Coverage is optional and must be requested by the insured. B. Coverage is mandatory but may be rejected by the insured. C. Coverage is only provided up to the financial responsibility limit. D. Coverage is for bodily injury and property damage. 47. The maximum amount an insurer is required to offer under uninsured motorists coverage is A. $50,000 per person/$100,000 per accident for bodily injury B. $100,000 per person/$300,000 per accident for bodily injury C. $50,000 per person/$100,000 per accident for bodily injury/$50,000 for property damage D. $100,000 per person/$300,000 per accident for bodily injury/$50,000 for property damage 48. In West Virginia, workers compensation insurance may be written A. only by private insurers B. only with the state fund C. by any licensed agent or broker D. only by qualified self-insurers 49. All of the following employers are exempt from the state s workers compensation law EXCEPT A. employers of domestic workers B. churches C. a professional sports team D. an employer with fewer than six full-time employees

40 36 West Virginia Law Supplement 50. Which of the following statements regarding workers compensation coverage for sole proprietors is CORRECT? A. It is provided but may be deleted by a sole proprietor. B. It is provided only at the option of the insurer. C. It is provided only for the owners of nonprofit organizations. D. It provides 24-hour health insurance for named individuals.

41 West Virginia Law Supplement 37 ANSWERS TO WEST VIRGINIA LAW PRACTICE FINAL 1. C 11. C 21. D 31. B 41. D 2. D 12. A 22. D 32. D 42. A 3. D 13. D 23. B 33. C 43. D 4. D 14. A 24. C 34. A 44. B 5. B 15. D 25. D 35. A 45. D 6. A 16. D 26. D 36. B 46. D 7. D 17. C 27. D 37. A 47. D 8. B 18. C 28. C 38. C 48. B 9. B 19. A 29. D 39. C 49. D 10. C 20. C 30. A 40. D 50. A

42 Notes