Property and Casualty Insurance. Tennessee. State Law Supplement

Transcription

1 Property and Casualty Insurance Tennessee State Law Supplement

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3 Property and Casualty Insurance Tennessee Effective November 10, 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. TENNESSEE PROPERTY AND CASUALTY INSURANCE LAW SUPPLEMENT, EFFECTIVE NOVEMBER 10, 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 October 2014 by Kaplan Financial Education. Printed in the United States of America. ISBN: / PPN:

5 Tennessee Law Supplement 1 INTRODUCTION This supplement focuses on statutes regarding Tennessee 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. INSURANCE REGULATION To protect the public interest, the insurance industry is highly regulated. It must meet federal, state, and self regulation. A. REGULATORY OVERVIEW 1. Paul v. Virginia (1869) This case involved one state s (Virginia s) attempt to regulate an insurance company domiciled in another state (New York). The Supreme Court sided against the company, ruling that the regulation of the sale and issuance of insurance was the right of each state. 2. The Armstrong Investigation (1905) Public concern over abuse by insurers caused the New York state legislature to investigate the marketing practices of insurance companies operating in that state. The recommendations resulting from that investigation were adopted by the New York legislature resulting in the New York Insurance Code, which set a precedent and pattern for insurance regulation by other states. 3. US v. Southeastern Underwriters Association (SEUA) (1944) The 1869 decision of Paul v. Virginia held for 75 years before the Supreme Court again addressed the issue of state versus federal regulation of the insurance industry. In the 1944 SEUA case, the court ruled that the insurance industry was subject to a series of federal laws, many of which were in conflict with existing state laws. This ruling held that insurance was a form of interstate commerce subject to regulation by the federal government. The result of this ruling was to shift the balance of regulatory control from the states to the federal government. 4. McCarran-Ferguson Act (1945) The turmoil caused by the SEUA case prompted Congress to enact Public Law 15, the McCarran-Ferguson Act. This law specified that continued state regulation of the insurance industry was in the public s best interest. However, the act stated that the federal government had the right to regulate the business of insurance when state law did not. This act led each state to revise its insurance laws to conform to the federal law and helped eliminate conflicts between state and federal law. Today, the insurance industry is considered to be state regulated because of this law. 5. Fair Credit Reporting Act (1970) This consumer protection bill requires fair and accurate reporting of information about consumers, including applicants for insurance. Insurers must inform applicants about any investigations being made. If any consumer report is used to deny coverage or charge an applicant a higher rate, the insurer must furnish the applicant with the name of the reporting agency conducting the

6 2 Tennessee Law Supplement investigation. The proposed insured has the right to contact the reporting agency in order to review their personal file. The reporting agency must also inform the proposed insured of all reports released in the last six months. Agencies maintain seven years of records (with the exception of bankruptcies, which are maintained for 14 years). Most insurance companies use retail credit reports and/or Equifax reports in applicant investigations. When misinformation has been uncovered, the reporting agency is allowed up to three months to correct the file. 6. Privacy Act of 1974 The Privacy Act of 1974 requires written consent by the applicant before personal information can be released by any reporting agency. The purpose of this act is to: be fair and impartial in collecting, analyzing, and presenting information and reports; and make it known that the public can expect personal information to be handled in a confidential manner. 7. Disclosure Authorization Applicants for insurance must be given advance notice of the insurer s practices regarding collection and use of personal information. Notice must be given in writing at the time of application. 8. Norris v. State of Arizona (1978) This court decision prohibits the use of sex discrimination in pricing insurance and annuity benefits payable on employer-sponsored benefit plans. B. NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS (NAIC) Created shortly after passage of the McCarran-Ferguson Act, the NAIC is made up of the Commissioners of all 50 states. The NAIC s objectives are to: preserve state regulation of the insurance industry; encourage uniformity in state insurance laws and regulations; assist in the efficient administration of those regulations; and protect the interest of policyowners. The NAIC has been instrumental in developing guidelines and model legislation that assist the industry in conducting its business in a professional and diligent manner, thus creating a higher level of public trust. If a producer s license is suspended or revoked by a Commissioner, the NAIC is informed, then the NAIC downloads the information into its computer and has it available for other states where the producer may apply for licensure. C. STATE REGULATION The state insurance department is generally responsible for: issuing rules and regulations (the Commissioner enforces laws and issues rules based on law only the legislature enacts or passes laws); licensing and supervising insurance companies that operate within the state; licensing and supervising insurance producers and brokers; controlling the types of insurance contracts that may be sold; determining the amount of reserves an insurer must maintain (reserves are the monies the company must set aside to pay future claims and guarantee financial solvency); overseeing insurance marketing practices; and investigating consumer complaints.

7 Tennessee Law Supplement 3 II. TENNESSEE LAWS AND DEPARTMENTAL RULES COMMON TO ALL LINES OF INSURANCE A. POWERS OF THE COMMISSIONER The Department of Commerce and Insurance and the Commissioner of Commerce and Insurance are responsible for administering Tennessee s insurance laws. The Commissioner of Commerce and Insurance, the chief officer of the Tennessee Department of Commerce and Insurance, is appointed by the Governor. 1. Hearings and judicial review [ ] The provisions of the Uniform Administrative Procedures Act will govern all matters and procedures respecting any hearing, and judicial review of any contested case. Details regarding license probation, suspension, and revocation are outlined in further detail later in this book. a. The Commissioner may authorize any regular salaried employee of the Department to serve as an administrative judge or hearing officer in any contested case arising under this part. b. The Commissioner may serve a notice or order in any contested case arising under this part by registered or certified mail to the licensee s current address of record in the files of the Department. 2. Investigations [ ] For the purpose of making investigations, the Commissioner has inquisitorial powers and is empowered to subpoena witnesses and examine them under oath provided that all testimony, documents, and other evidence obtained by the Commissioner pursuant to this part will be absolutely privileged and not be admissible as evidence in any private civil proceeding. The Department will provide the person with a copy of the inquisitorial order or complaint and copies of statements given by the complainant within 30 days of issuance of the order or receipt of the complaint. Fourteen days written notice of the Commissioner s intent to take testimony is required, and the Commissioner must notify both parties within 30 days of completing or closing an investigation. Investigations must be completed within a two-year period with annual tracking reporting to the Commissioner. 3. Regulatory authority [ ] The Commissioner retains the authority to enforce the provisions of and impose any penalty or remedy against any person under investigation for or charged with a violation even if the person s license has been surrendered or has lapsed by operation of law. a. The Commissioner may serve a notice or order in any action arising under this part by registered or certified mail to the insurance producer or applicant at the address of record in the files of the Department. b. Notwithstanding any provisions of law to the contrary, service in the manner set forth herein is deemed to constitute actual service on such insurance producer or applicant. c. The Commissioner oversees licensing of resident and nonresident producers acting in Tennessee. Please refer to later sections for details.

8 4 Tennessee Law Supplement 4. Penalties [ (e), ] a. If the Commissioner finds that a licensee has violated any statute, rule, or order, the Commissioner may order: the insurer, person, or entity to cease and desist from engaging in the act or practice giving rise to the violation; payment of a monetary penalty of not more than $1,000 for each violation, but not to exceed an aggregate penalty of $100,000 for a violation committed unknowingly, or $25,000 for each violation, not to exceed an aggregate penalty of $250,000 for a violation committed knowingly; and the suspension or revocation of the insurer s, person s, or entity s license. Fines will be used by the state to defray expenses and for consumer awareness programs. b. In determining the amount of penalty to assess, or in determining whether the violation was committed with knowledge and intent, the Commissioner may consider any evidence relative to the following criteria: whether the insurer, person or entity could reasonably have interpreted its actions to be in compliance with the obligations required by a statute, rule, or order; whether the amount imposed will be a substantial economic deterrent to the violator; whether the amount imposed would put the violator in a hazardous financial condition; the circumstances leading to the violation; the severity of the violation and the risk of harm to the public; the economic benefits gained by the violator as a result of noncompliance; and the interest of the public. c. In addition, the Commissioner may consider the insurer s, person s, or entity s efforts to cure the violation. d. No aggregate penalty limits apply to: B. DEFINITIONS failure to file audited statements; failure to file quarterly financial statements; failure to file actuarial opinions; failure to file annual reports; failure to file a risk-based capital report; and violations of orders issued after a contested case hearing. 1. Insurance producer [ ] An insurance producer is a person required to be licensed under the laws of this state to sell, solicit, or negotiate insurance.

9 Tennessee Law Supplement 5 2. Business entity [ ] A business entity is a corporation, association, partnership, limited liability company, limited liability partnership, or other legal entity. 3. Limited lines producer [ , 110] A limited lines producer is a person authorized by the Commissioner to sell, solicit, or negotiate limited lines insurance. 4. Unauthorized insurer [ ] An unauthorized insurer has not applied for or has not qualified for a certificate of authority and is not authorized to transact insurance business in Tennessee. A person will be held personally liable (premiums paid and claims) for all insurance contracts unlawfully made in Tennessee with or on behalf of an insurance company that is not authorized to do business in Tennessee. 5. Illegal compensation [ ] a. A person must not accept or share a commission, service fee, brokerage, or other valuable consideration for selling, soliciting, or negotiating insurance in this state if that person is required to be licensed under this part and is not properly licensed. b. Renewal or other deferred commissions may be paid to a person for selling, soliciting, or negotiating insurance in this state if the person was required to be licensed at the time of the sale, solicitation, or negotiation and was properly licensed at that time. c. An insurer or insurance producer may pay or assign commissions, service fees, brokerages, or other valuable consideration to persons who do not sell, solicit, or negotiate insurance unless the payment would violate code. d. An unlicensed person may make a referral to a licensed producer provided that the person does not discuss the specific insurance policy terms and conditions. Except as prohibited by federal law, the unlicensed person may be compensated for the referral. However, an unlicensed person who is neither employed by nor affiliated with the insurance producer may be compensated only if the compensation is a fixed dollar amount, not to exceed $25. An unlicensed person who is either employed by or affiliated with the insurance producer may be compensated only if the compensation is a fixed nominal dollar amount. In either event, the referral compensation shall not depend on whether the referred customer purchases an insurance product from the licensed producer. 6. Fiduciary [ ] When a producer receives premiums in the process of selling insurance, these funds are considered to be held in a fiduciary or trust capacity. They may not be misappropriated, converted, or improperly withheld. Any violation will be grounds for disciplinary action which may include suspension or revocation of the producer s license, sanctions, and penalties. C. LICENSE REQUIREMENTS [ , , , ] No company or individual may conduct insurance business in Tennessee without being properly licensed and supervised by the Commissioner or exempt from such licensing or supervision. Insurance companies must obtain a certificate of authority to transact business in Tennessee. Individuals must be licensed as producers before selling insurance.

10 6 Tennessee Law Supplement 1. Insurance producer [Dept. Rule , , , ] An individual seeking a resident insurance producer s license must file an application with the Commissioner and declare under penalty of refusal, suspension, or revocation of the license that the statements made in the application are true and complete to the best of the individual s knowledge. a. Before approving the application, the Commissioner must be satisfied that the applicant: is at least 18 years old; has not committed any act that is a ground for denial, suspension, or revocation of a license issued in Tennessee; has completed a prelicensing course of study for the lines of authority for which the person has applied that consists of a minimum of 20 hours of coursework for life, accident and health, property, casualty, personal lines, or title insurance; has paid the required fee; and has successfully passed the examination(s) for the line(s) of authority for which the individual has applied. b. A business entity acting as an insurance producer must obtain an insurance producer s license. The entity must file a uniform business entity application with the Commissioner, pay the required fee, and designate an individual licensed producer who will be responsible for the entity s compliance with Tennessee s insurance laws and regulations. c. As stated above, the Commissioner will take appropriate actions in cases requiring license probation, suspension, revocation, or the Commissioner will refuse to renew a license. d. Nonrefundable fees [ ] The following fees are required for licensure: $50 for an insurance producer or limited lines producer license $60 for the renewal of an insurance producer license $30 for the renewal of a limited lines producer license $15 for the appointment or termination of appointment of an insurance producer or limited lines producer by an insurer 2. Agency contracts [ ] An insurance producer must not act as an agent of an insurer unless the insurance producer becomes an appointed agent of that insurer. a. An insurance producer who solicits or negotiates an application for insurance will be regarded, in any controversy arising from the application for insurance or any policy issued in connection therewith between the insured or insured s beneficiary and the insurer, as the agent of the insurer and not the insured or insured s beneficiary. This provision does not affect the apparent authority of an agent.

11 Tennessee Law Supplement 7 b. To appoint a producer as its agent, the appointing insurer files, in a format approved by the Commissioner, a notice of appointment within 15 days from the date the agency contract is executed or the first insurance application is submitted. c. Upon receipt of the notice of appointment, the Commissioner will verify within a reasonable time not to exceed 30 days that the insurance producer is eligible for appointment. If the insurance producer is determined to be ineligible for appointment, the Commissioner notifies the insurer within five days of the determination. d. An insurer will pay an appointment fee for each insurance producer it appoints. The fees under this section may be paid by the insurer on a quarterly basis. e. An individual not duly licensed as an insurance producer or limited lines producer who solicits a policy of insurance on behalf of an insurer becomes liable for all the duties, requirements, liabilities, and penalties to which an insurance producer of such insurer is subject. 3. Agency contract termination [ ] a. For terminations with or without cause, the company must notify the Commissioner within 30 days, with the cause as applicable, and notice to the producer. A termination fee must be paid. b. The fine for not reporting ranges from $100 to $1,000 per violation. 4. Resident/nonresident [ , ] An individual living outside Tennessee seeking a nonresident insurance producer s license must file an application with the Commissioner. a. The Commissioner may issue an insurance producer s license to any duly qualified nonresident individual as follows. 1.) The person is currently licensed as a resident insurance producer in good standing in his resident state. 2.) The person has submitted the proper application and paid the applicable fees. 3.) The person s home state awards insurance producer licenses to residents of Tennessee on the same basis (a reciprocal agreement). b. A nonresident producer who moves from one state to another or a resident insurance producer who moves from Tennessee to another state must file a change of address and provide certification from the new resident state within 30 days of the change of legal residence. No fee or license application is required.

12 8 Tennessee Law Supplement 5. Exemptions [ , , ] a. Exceptions to licensing requirements No license as an insurance producer or limited insurance representative is required of: any officer or employee of an insurance company who is paid a salary; persons who administer group plans, annuities, and health plans, where no commission is paid; any officer, director, or employee who assists insurance producers by providing technical advice or assistance not including the sale, solicitation, or negotiation of insurance contracts; any officers or employees engaged in the administration of employee benefit plans for their own employees provided that they are not compensated, directly or indirectly, by the insurance company issuing such insurance; salaried employees of a creditor who enroll debtors under a group credit life or accident and health policy; members of a fraternal benefit society who provide benefits in the case of death or disability resulting from accidents without receiving compensation for enrolling those members; or employees selling insurance incidental to motor vehicle or self-service storage rentals. b. Exemptions from examination The following individuals do not have to take the written examination in order to be licensed as an insurance producer: nonresident producers whose current resident licenses are valid and have been issued a nonresident license by the Tennessee Insurance Department; and nonresident producers who move to Tennessee from a reciprocal state and apply within 90 days to become resident licensees. 6. Pre-licensing education [ , ; Dept. Rules , ] Applicants for an insurance producer license are required to complete an online or classroom course of study prior to taking the license examination. Courses must be approved by the Commissioner. a. The total hours which an insurance producer is required to take are: 20 hours for life; 20 hours for accident and health; 20 hours for property; 20 hours for casualty; and 20 hours for personal lines. b. The following persons are exempt from the prelicensing education requirements: Persons holding a Chartered Life Underwriter (CLU ) designation for a life line of authority Persons holding a Chartered Property and Casualty Underwriters (CPCU ) designation for property, personal lines, and casualty lines of authority

13 Tennessee Law Supplement 9 Persons holding a Certified Insurance Counselors (CIC) designation for life, health, property, personal lines, and casualty lines of authority Persons holding a Certified Employee Benefit Specialist (CEBS), Chartered Financial Consultant (ChFC ), Certified Financial Planner TM (CFP ), Fellow of Life Management Institute (FLMI), or Life Underwriter Training Council Fellow (LUTCF) designation for a life line of authority Persons holding a Registered Health Underwriter (RHU), Certified Employee Benefit Specialist (CEBS), Registered Employee Benefit Consultant (REBC), or Health Insurance Advisor (HIA) designation for a health line of authority Persons holding an Accredited Advisor in Insurance (AAI) or Associate in Risk Management (ARM) designation for property, personal lines, and casualty lines of authority Persons holding an insurance degree from an accredited college or university for all lines of authority 7. Temporary license [ ] a. The Commissioner may issue a temporary license as an insurance producer for a period not to exceed 180 days without first requiring an examination, if the Commissioner deems that such temporary license is necessary for the servicing of an insurance business in the following cases: to the designee of a licensed insurance producer entering active service in the armed forces of the United States; to the surviving spouse or next of kin, or to the administrator, executor, or employee of a licensed insurance producer who dies or becomes disabled; and to an applicant who replaces, whether because of retirement, withdrawal, cancellation, or otherwise, a licensed insurance producer in this state. b. The Commissioner will issue a temporary license to the applicant for each company represented. c. A temporary license is non-renewable and expires at the end of the 180-day period. If the producer wishes to remain in a sales capacity beyond the 180th day, it will be necessary for him to be certified for, take, and pass the state s regular license examination. 8. License renewal [ ] An insurance producer license remains in effect for a period of 24 months unless revoked or suspended. a. At the end of the 24 months, the insurance producer license may be renewed by paying the applicable fee and submitting the renewal form prescribed by the Commissioner. b. An insurance producer license will not be renewed unless the insurance producer has completed all continuing education requirements, as established by rule (unless specifically exempt from the requirements).

14 10 Tennessee Law Supplement c. An insurance producer who allows the license to lapse may, within 12 months from the due date of the renewal fee, reinstate the same license without passing a written examination. However, a penalty of double the unpaid renewal fee will be required for any renewal fee received after the due date. d. A licensed insurance producer who is unable to comply with the license renewal procedures of this section due to military service or some other extenuating circumstance (e.g., a long-term medical disability) may request a waiver of such license renewal procedures. The producer may also request a waiver of any examination requirement or any other sanction imposed for failure to comply with such renewal procedures. e. The license will contain the licensee s name, address, insurance producer number, and the date of issuance, the lines of authority, the expiration date, and any other information the Commissioner deems necessary. f. A licensed insurance producer must inform the Commissioner by any means acceptable to the Commissioner of a change of address within 30 days of the change. Failure to timely inform the Commissioner of a change in legal name or address may result in a disciplinary action. g. In order to assist in the performance of the Commissioner s duties, the Commissioner may contract with non-governmental entities, including the NAIC, to perform any administrative functions, including the collection of fees, related to producer licensing that the Commissioner and the non-governmental entity may deem appropriate. 9. General requirements [ , ] It is illegal to act as an insurance producer or limited lines producer without a license. Individuals cannot sell, solicit, or negotiate insurance in Tennessee for any class of insurance for which they are not specifically licensed. 10. Continuing education [Dept. Rule ; ] All insurance producers licensed or renewed on or after January 1, 1997 must complete 24 hours of approved continuing education courses every two years they are licensed. Three hours shall have course concentration in ethics during each biennium. Note: Producers continually licensed since January 1, 1994, do not need to submit continuing education credits at renewal. a. Insurance producers must biennially submit a signed statement on a form approved by the Commissioner listing the continuing education program in which the producer has participated. Producers are required to retain such documents for at least two years after submitting the statement to the Commissioner. Previously approved continuing education courses may not be repeated for two years. A producer may carry over a maximum of 12 hours of excess continuing education credit from one biennium to the next with the exception of ethics courses. b. An instructor of an approved subject is entitled to receive continuing education credit.

15 Tennessee Law Supplement 11 c. The Commissioner may extend the time to complete the continuing education requirements up to 180 days for reasons of poor health, military service, or other reasonable cause. Producers wishing an extension must apply to the Commissioner in writing. d. Resident producers who are authorized to sell property or property and casualty insurance shall take a one-time approved three-hour course on Federal Flood Insurance. This course will count toward completion of the required 24-hour biennial continuing education requirement when taken and must be completed by the first renewal following January 1, Proof of satisfactory completion of such a course after January 1, 2008 may exempt the producer from this requirement. D. LICENSE SUSPENSION/REVOCATION 1. General provisions [ ] The Commissioner can place on probation, suspend, revoke, or refuse to issue or renew the license of a producer who has: provided incorrect, misleading, incomplete, or materially untrue information in the license application; violated any law, rule, regulation, subpoena, or order of the Commissioner or of another state s Commissioner; obtained or attempted to obtain a license by fraud or misrepresentation; improperly used notes or any other reference material to complete an examination for an insurance license; improperly withheld, misappropriated, or converted any monies or properties received in the course of doing insurance business; intentionally misrepresented the terms of an insurance contract or application for insurance; was convicted of a felony; admitted to or was found to have committed any insurance unfair trade practice; used any fraudulent, coercive, or dishonest practices, or demonstrated incompetence, untrustworthiness, or financial irresponsibility in the conduct of business; had an insurance producer license or its equivalent denied, suspended, or revoked in any other state, province, district, or territory; forged another person s name to an insurance application or any document related to an insurance transaction; or knowingly accepted insurance business from an individual who is not licensed. 2. Notice [ ] If the Commissioner decides to deny an application for a license, he must notify the applicant and give written notice that the application has been denied within 30 days. a. In addition, the license of a business entity may be suspended, revoked, or refused renewal if the Commissioner finds, after a hearing, that an individual licensee s violation was known or should have been known by any partner, officer, or manager acting on behalf of the partnership or corporation and the violation was not reported to the Commissioner and the business entity did not take any corrective action.

16 12 Tennessee Law Supplement b. Fines In addition to any license denial, suspension, or revocation, the Commissioner may also fine violators between $100 and $1,000 for each violation of a statute, rule, or order pertaining to the sale, solicitation, or negotiation of insurance in Tennessee. The Commissioner may also impose penalties against any person who is under investigation or charged with violating this section of the insurance code, even if the person s license has been surrendered or has lapsed. E. UNFAIR TRADE PRACTICES 1. False advertising [ ] It is illegal for any producer to formulate or use an advertisement or statement which is untrue, deceptive, or misleading regarding any insurance company or persons associated with that company. 2. Defamation [ ] Making any statement, written or oral, which is false or maliciously critical of the financial condition of an insurance company or a producer representing that company is illegal. 3. Boycotting [ ] It is illegal for any person or organization to try to create a monopoly or restrict fair trade transactions of insurance. 4. Unfair discrimination [ ] Making or permitting any unfair discrimination between individuals of the same class and equal expectation of life or hazard is illegal. a. Requiring information regarding other family members who will not be covered under this plan and basing the rating on the entire family rather than the insured is not allowed. b. Exception Companies are allowed to discriminate when it comes to rating smokers vs. non-smokers. 5. Rebating [ , ] Offering valuable consideration, other than that which is offered in the contract, as an inducement to purchase a policy is illegal. a. Rebating includes kickbacks of commission, extraordinary gifts, payment of consulting fees, or offering to pay the insured s premium. b. Exceptions Companies are allowed to offer: across-the-board reductions in premiums by class of individual; reduced premiums on industrial debit plans reflecting a savings in collection expenses; and readjustments in group rates based on loss or expense experience. 6. Unfair claims settlement practices [ ] Unfair claims settlement practices include: misrepresenting insurance policy provisions relating to coverages provided; failing to acknowledge or act promptly in respect to claims; failing to affirm or deny coverage in a reasonable time following proof of loss;

17 Tennessee Law Supplement 13 offering substantially less remuneration than the amount ultimately recovered through litigation; attempting to settle a claim for less than the policy provides or printed advertising material implies; and failing to settle a claim when the insurer s liability and responsibility has been clearly established. 7. Other topics [ ] Other unfair trade practices for which the commissioner may take action include: being demonstrably incompetent, untrustworthy, or financially irresponsible; being convicted of a felony in a court of competent jurisdiction; and violating or failing to comply with any insurance law or lawful rule of order of the Commissioner. F. CREDIT INFORMATION [ TO 407] 1. An insurer authorized to do business in Tennessee that uses credit information to underwrite or rate risks for personal insurance must not: take an adverse action against a consumer based on credit information, unless an insurer obtains and uses a credit report issued or an insurance score calculated within 90 days of the date the personal insurance policy is first written or renewal is issued (an insurance score is a number or rating derived from an algorithm, computer application, model, or other process that is based in whole or in part on credit information for the purposes of predicting the future insurance loss exposure of an individual applicant or insured); use credit information unless the insurer recalculates the insurance score or obtains an updated credit report no later than 36 months following the last time the insurer obtained current credit information for the insured; the insurer is not required to comply with this rule if: the insured is in the most favorably priced tier of the insurer or within a group of affiliated insurers, for the type of policy covering the insured; the insurer has determined not to use credit information in its reevaluation of the insured upon renewal; or the insurer provides a notice to the insured on an annual basis of the insured s right to voluntarily request that their insurance credit score be rerun and reevaluated based on the current information available for the next effective renewal date of the insured s policy; use the following as a negative factor in any insurance scoring methodology or in reviewing credit information for the purpose of underwriting or rating a policy of personal insurance: credit inquiries not initiated by the consumer or inquiries requested by the consumer for each person s own credit information; inquiries relating to insurance coverage, if so identified on a consumer s credit report; multiple lender inquiries, if coded by the consumer reporting agency on the consumer s credit report as being from the home mortgage industry and made within 30 days of one another, unless only one inquiry is considered; multiple lender inquiries, if coded by the consumer reporting agency on the

18 14 Tennessee Law Supplement consumer s credit report as being from the automobile lending industry and made within 30 days from one another, unless only one inquiry is considered; or collection accounts with a medical industry code, if so identified on the consumer s credit report; deny, cancel, or nonrenew a policy of personal insurance solely on the basis of credit information, without consideration of any other applicable underwriting factor independent of credit information; base an insured s renewal rates for personal insurance solely upon credit information, without consideration of any other applicable factor independent of credit information; take an adverse action against a consumer solely because the consumer does not have a credit account, without consideration of any other applicable factor independent of credit information; consider an absence of credit information or an inability to calculate an insurance score in underwriting or rating personal insurance, unless the insurer either treats the consumer as if the consumer had neutral credit information as defined by the insurer or unless the insurer treats the consumer in a manner otherwise approved by the Commissioner of Commerce and Insurance; or use an insurance score calculated using income, gender, address, ethnic group, religion, marital status, nationality, education, or occupation of the consumer as a factor. 2. Notice of adverse action If an insurer takes an adverse action based on factors that include credit information, the insurer must provide notice to the consumer that an adverse action has been taken. a. That notice must contain the reason or reasons for the adverse action, described in sufficiently clear and specific language so that a person can identify the basis for the insurer s decision to take an adverse action. b. The notice must include a description of up to four factors that were the primary influences of the adverse action. c. The use of generalized terms such as poor credit history, poor credit rating, or poor insurance score does not meet the explanation requirements of this section. d. Standardized credit explanations provided by consumer reporting agencies or other third-party vendors are deemed to comply with this section. 3. Producers not liable: liability, fees, and costs An insurer will indemnify, defend, and hold an insurance producer harmless from and against all liability, fees, and costs arising out of or relating to the actions, errors, or omissions of an insurance producer who obtains or uses credit history, insurance scores, or both for an insurer, provided the insurance producer follows the instructions of or procedures established by the insurer and complies with any applicable law or act.

19 Tennessee Law Supplement Filing of scoring models and processes Insurers that use insurance scores to underwrite or rate risks must file their scoring models or other scoring processes with the Department of Commerce and Insurance. a. A filing that includes insurance scoring must include loss experience justifying the use of credit information. b. Such filings will be kept confidential by the Commissioner of Commerce and Insurance and will not be construed to be a public record. 5. Use of incorrect or incomplete credit information If it is determined through the dispute resolution process in the federal Fair Credit Reporting Act that the credit information of a current insured was incorrect or incomplete, and if the insurer receives notice of such determination from either the consumer reporting agency or from the insured, the insurer must re-underwrite and re-rate the consumer within 30 days of receiving the notice. 6. Disclosure of use of credit information If an insurer writing personal insurance uses credit information in underwriting or rating a consumer, the insurer or its agent must disclose, either on the insurance application or at the time the insurance application is taken, that it may obtain credit information in connection with such application. G. RATE FILING a. Such disclosure may be either written or provided to an applicant in the same medium as the application for insurance. b. Use of the following sample disclosure statement constitutes compliance with this section: In connection with this application for insurance, we may review your credit report or obtain or use a credit-based insurance score based on the information contained in that credit report. We may use a third party in connection with the development of your insurance score. 1. Rate filing by personal risk insurers (property insurance only) [ ] a. Every insurer of personal risk insurance must file all rates, supplementary rate information, supporting information, policy forms, and endorsements at least 30 days before the proposed effective date. b. The Commissioner may give written notice, within 30 days of the receipt of the filing, that the Commissioner needs additional time, not to exceed 30 days from the date of such notice, to consider the filing. c. Upon written application by the insurer, the Commissioner may authorize rates to be effective before the expiration of the waiting period or an extension thereof.

20 16 Tennessee Law Supplement d. A filing will be deemed effective unless disapproved by the Commissioner before the expiration of the waiting period or extension. e. Whenever a filing is not accompanied by sufficient supporting information, the Commissioner will inform the insurer of what information is required to complete the filing. The filing will not be deemed to be made until such information is furnished. 2. Rate filing by commercial risk and workers compensation insurers [ ] a. Every insurer of commercial risk insurance must file all rates, supplementary rate information, policy forms and endorsements, not later than 15 days after the effective date. Upon request of the Commissioner, supporting information must also be filed. b. The Commissioner may, after a hearing providing not less than 20 days written notice to the insurer, disapprove any policy form or endorsement already in effect if it does not comply with the law or with rules adopted pursuant to this part or if it contains any provision which is unfair, deceptive or misleading. Any such disapproval order must specify the reasons for the Commissioner s findings and the date, not less than 30 days after issuance of the order, when the disapproval is effective. c. With respect to workers compensation insurance, a rate service organization designated by one or more insurers will develop and file for approval with the Commissioner in accordance with the provisions of this section, a filing on behalf of authorized insurers containing advisory prospective loss costs and supporting actuarial and statistical data for workers compensation insurance. d. Each workers compensation insurer, or group of insurers under common ownership, must individually file the multiplier and supporting information not later than 15 days after the effective date, and at least annually thereafter on March 1. Multipliers must apply to the most recently approved, currently effective advisory prospective loss cost. H. COMMERCIAL RISK INSURANCE 1. Request for loss runs [ ] Within 10 business days of receipt of a written request from an insured or an insured s designee, a commercial lines insurer must furnish, directly to the person designated in the request, a copy of the insured s loss run history for up to the previous three years or complete loss run history with the insurer if the history is less than three years. A written request includes communications made by or fax. a. If the insurer fails to provide the requested information within the time allowed, the failure will be a violation of the Tennessee Unfair Trade Practices and Unfair Claims Settlement Act, and any requestor may seek enforcement and any remedies allowed under Tennessee law.

21 Tennessee Law Supplement 17 b. Notwithstanding this part to the contrary, no insurer shall charge any fees to prepare and furnish one three-year loss run history. However, if the insurer provides the loss run history via electronic means, then the insurer may charge a reasonable fee to provide a hard copy of the same report. III. TENNESSEE LAWS AND DEPARTMENTAL RULES PERTINENT TO PROPERTY INSURANCE ONLY A. FIRE INSURANCE 1. Fair value, inspection, and loss [ to 803] Fair value is also known as the valued policy law. This law states that the amount listed on the fire insurance policy will be the amount upon which a claim is settled. It was enacted to protect the insured if the insurer contends that a building is over-insured and wants to settle a claim for less than the policy amount. It gives the insurer an incentive to inspect risks and assist insureds in setting the proper insurance amount on the building. Every producer, within 90 days after writing any contract of fire insurance on any building, must personally inspect the property. As a result, no company will knowingly issue, continue, or renew a fire insurance policy on property which exceeds the fair value of the property. If the inspection determines that the fair value is less than the policy amount, the company must adjust that policy amount within 90 days of the policy inception. If no inspection is made and/or no coverage amount is adjusted, the value shown by the policy at the time a loss occurs will be conclusively presumed to be reasonable, and settlement must be made on that basis. a. If buildings insured against loss by fire are totally destroyed by fire, the company will not be liable beyond the actual value of the insured property at the time of the loss or damage. b. If the insured has paid premiums on an amount in excess of the actual value, he will be reimbursed the proportionate excess or premiums paid on the difference between the amount named in the policy and said actual value, with interest at 6% per annum from the date of issue. B. PERSONAL RISK INSURANCE 1. Reason for nonrenewal [ , 1902] Any Notice of Nonrenewal is due to the insured 30 days prior to expiration. Unless the nonrenewal notice contains a reason for nonrenewal action, such notice must advise the insured that upon written request of the named insured, mailed or delivered to the insurer not later than 15 days after the effective date of the nonrenewal, the insurer will within 20 days mail to the named insured a written statement specifying a reason for such nonrenewal action. There will be no liability on the part of, and no cause of action of any nature will arise against, any insurer, its authorized representative, its producers, its employees, or against any firm, person, or corporation furnishing information to the insurer, as to reason for nonrenewal.

22 18 Tennessee Law Supplement 2. Mandated offer of coverage [ ] Every insurer offering homeowner property insurance in Tennessee must make coverage available for insurable sinkhole losses, including contents of personal property contained in the dwelling. The insurer may require an inspection of the property before issuance of sinkhole loss coverage. Nothing in this section mandates that sinkhole loss coverage be included in any homeowner property insurance policy but only that insurers offering homeowner property insurance make such coverage available for optional purchase on request by policyholders. Insurers must make a proper filing with the Department to comply with this section. The insurer may make sinkhole loss coverage available in the homeowner policy itself, by endorsement, or through other coverage that the insurer may arrange, and the insurer may make an additional charge for the coverage. a. Upon receipt of a claim for a sinkhole loss under a policy providing sinkhole loss coverage, an insurer must meet the following standards in investigating the claim: 1.) The insurer must make an inspection of the insured s premises to determine if there has been structural damage to the covered building resulting from possible sinkhole activity. 2.) If, upon the investigation, the insurer determines that there is no sinkhole loss, the insurer may deny the claim. Prior to denying the claim, the insurer must obtain a written certification from an engineer, a professional geologist, or other qualified individual stating that an analysis was conducted of sufficient scope to provide a professional opinion that sinkhole activity did not cause the observed structural damage. C. COMMERCIAL RISK INSURANCE 1. Definitions [ ] a. Commercial risk is all insurance not considered personal risk insurance. Exceptions include: fidelity and surety bonds; and insurance written with a surplus line insurer. b. Nonpayment of premium is failure of the named insured to meet his obligations in connection with the payment of premiums on a policy of commercial risk insurance or any installment of such premium, regardless of to whom it is mailed. 2. Grounds for cancellation [ ] After a commercial risk insurance policy has been in effect for 60 days, or, if the policy is a renewal, effective immediately, no notice of cancellation will be effective unless it is based on the occurrence of one or more of the following: nonpayment of premium, including nonpayment of any additional premiums, calculated in accordance with the current rating manual of the insurer, justified by a physical change in the insured property or a change in its occupancy or use; conviction of the named insured of a crime having as one of its necessary elements any act increasing any hazard insured against;

23 Tennessee Law Supplement 19 discovery of fraud or material misrepresentation on the part of either: the insured or his representative in obtaining the insurance; or the named insured in pursuing a claim under the policy; failure to comply with written loss control recommendations; material change in the risk which increases the risk of loss after insurance coverage has been issued; determination by the Commissioner that the continuation of the policy would jeopardize a company s solvency or would place the insurer in violation of the insurance laws of this state or any other state; violation or breach by the insured of any policy terms or conditions; or such other reasons that are approved by the Commissioner. 3. Notice of cancellation [ ] No notice of cancellation of a commercial risk insurance policy will be effective unless mailed by the insurer, its authorized producer, or employee, to the named insured as shown in the policy declarations at the address shown in such cancellations. a. If the cancellation is due to any of the items set forth in , or if the policy has been in effect less than 60 days and is not a renewal policy, such cancellations will be effective not less than 10 days after the date of mailing. b. The mailing of notice is sufficient proof of notice. The effective date and hour of cancellation stated in the notice will become the end of the policy period. c. Delivery of such written notice by the producer or the company is the same as mail. d. All notices of cancellation must state the reasons for cancellation. 4. Notice of nonrenewal [ ] a. Unless the insurer, at least 60 days in advance of the end of the policy period, mails or delivers to the named insured and producer at the address shown in the policy, notice of its intention not to renew the commercial risk policy or to condition its renewal on reduction of limits or elimination of coverages, the insurer is required to extend the existing policy 60 days from the date such notice is provided. The premium for the policy provided in such circumstances can be no more than a pro rata basis of the existing policy. b. Notice is not required if: the insurer has offered to issue a renewal policy; the named insured has obtained replacement coverage or has agreed in writing to obtain replacement coverage; or the insurer provides the notice described, and then extends the policy for 90 days or less. 5. Premium Increase [ ] In the event an insurance company intends to revise the rates of a commercial risk policy by more than 25%, and the increase in pre-

24 20 Tennessee Law Supplement mium is the result of comparing policies, the insurance company must mail or deliver to the named insured and producer at the address shown in the policy not less than 60 days notice of its intention to increase the rates and/or factors, specifying the percentage of increase. a. Unless notice is provided as described above, the insurer is required to extend the existing policy 60 days from the date such notice is provided. b. The premium for the policy provided in such circumstances can be no more than a pro rata basis of the existing policy. IV. TENNESSEE LAWS AND DEPARTMENTAL RULES PERTINENT TO CASUALTY INSURANCE ONLY A. FINANCIAL RESPONSIBILITY [ ] The minimum combined single limit that may be written in Tennessee to meet the financial responsibility law is $60,000. The liability requirements for the State of Tennessee are an example of split limits. The requirements are 25/50/15, with each number expressing a number of thousands $25,000/$50,000/$15,000. The first number indicates the maximum bodily injury coverage per person $25,000. The second number refers to the maximum bodily injury coverage per occurrence $50,000, which is the maximum payable per occurrence, regardless of the number of persons injured. The third number indicates the property damage limit per occurrence $15, Automobile liability insurance primary coverage [ ] In all cases arising out of the use of a motor vehicle on which the owner of the motor vehicle has any insurance coverages, the owner s policy is primary if the vehicle is being operated with the permission of the owner and within the scope of the permission granted. Any other coverages available to the person driving the owner s vehicle with permission (permittee) are not applicable unless and until the limits of all coverages provided by the owner s policy are exhausted. 2. Exception When the owner only has a garage policy, any other policy has priority and the coverage under the owner s garage policy is not applicable unless and until the limits of all coverage available to the permittee have been exhausted; further, when any non-owned vehicle is in the possession, custody, or control of a person who is in the business of storing, parking, servicing, or repairing vehicles, then any insurance available to the owner is not be applicable unless and until all insurance available under a garage policy of such person in possession has been exhausted. 3. When a claim arises out of the operation of a motor vehicle which is leased under a written lease agreement, and pursuant to which agreement the lessee provides coverage for the vehicle, then any other coverage available for the vehicle through the lessor is not applicable unless and until the limits of all coverage provided by the lessee for the vehicle are exhausted.

25 Tennessee Law Supplement 21 B. NONCANCELLABLE/GUARANTEED RENEWABLE POLICIES [ ] 1. Any insurer licensed to write automobile liability insurance in this state may issue a noncancellable and guaranteed renewable automobile liability insurance policy, which cannot be cancelled by the insurer and may be renewed at the option of the insured provided: the insurer remains licensed to write automobile liability insurance in this state; the insured and all other operators of the insured motor vehicle maintain valid operator s licenses; all premiums, premium balances, and renewal premiums are paid when due; and the insured motor vehicle is used for any purpose for which the insurer has a valid rate approved by the Commissioner. 2. If membership in any organization is a prerequisite for the issuance of all policies by an insurer, then such insurer may require active membership and continuation of active membership for the issuance of any such policy or renewal of such policy issued by such insurer. 3. Any insurer who issues an automobile liability insurance policy using approved rates with noncancellable and/or guaranteed renewable restrictions may not be bound by such restrictions if the Commissioner rejects the company s rate. C. UNINSURED MOTORIST COVERAGE [ TO 1206] 1. Requirements and types of coverage a. Every automobile liability insurance policy delivered, issued, or renewed in this state, covering liability arising out of the ownership, maintenance, or use of any motor vehicle designed for use primarily on public roads and registered or principally garaged in this state, must include uninsured motorist coverage for the protection of persons insured thereunder who are legally entitled to recover compensatory damages from owners or operators of uninsured motor vehicles because of bodily injury, sickness, or disease, including death resulting therefrom. 1.) The limits of such uninsured motorist coverage must be equal to the bodily injury liability limits stated in the policy. 2.) Any named insured may reject in writing such uninsured motorist coverage completely or select lower limits of such coverage but not less than the minimum coverage limits. 3.) In Tennessee, no UM/IUM insurance need be provided by an excess or umbrella policy. b. With respect to bodily injury to an insured at a time when such insured is not occupying any motor vehicle, the insurance on the vehicle owned by the insured that provides the highest limits of uninsured motorist coverage will apply.

26 22 Tennessee Law Supplement 1.) With respect to bodily injury to an insured while occupying a motor vehicle owned by such insured, only the limits of uninsured motorist coverage on the vehicle in which the insured was an occupant will apply. 2.) The limits of uninsured motorist coverage cannot be increased because of multiple motor vehicles whether covered under a single policy or multiple policies, and in no event will the total amount of recovery from all policies and bonds, including any amount recovered under the insured s uninsured motorist coverage, exceed the limits of the insured s uninsured motorist coverage. 3.) With respect to bodily injury to an insured while occupying an automobile not owned by the injured party, the following priorities of recovery under uninsured motorist coverage will apply. a.) The uninsured motorist coverage in the vehicle in which the injured party was an occupant will be the primary uninsured motorist coverage. b.) Should the primary uninsured motorist coverage be exhausted due to the extent of compensatory damages, then the injured occupant may recover as excess from the insurance on the vehicle owned by the insured that provides the highest limits of uninsured motorist coverage. In no instance will more than one coverage from more than one uninsured motorist policy be available as excess over and above the primary coverage available to the injured occupant. c. Every insured purchasing uninsured motorist bodily injury coverage will be provided an opportunity to include uninsured motorist property damage coverage, subject to provisions filed with and approved by the Commissioner of Commerce and Insurance, applicable to losses in excess of $ ) The deductible of $200 will not apply if: the vehicle involved in the accident is insured by the same insurer for both collision and uninsured motorist property damage coverage; and the operator of the other vehicle has been positively identified and is solely at fault. 2.) No insurer is required to offer limits of such property damage coverage greater than the property damage liability limits purchased by the insured. After such uninsured motorist property damage coverage has been made available to an insured one time and has been rejected in writing, it need not again be made available in any continuation, renewal, reinstatement, or replacement of such policy, or transfer of vehicles insured thereunder, unless the insured makes a written request for such coverage. d. The limit of liability for an insurer providing uninsured motorist coverage under this section is the amount of that coverage as specified in this policy less the sum of the limits collectible under all liability and/or primary uninsured motorist insurance policies, bonds, and securities applicable to the bodily injury or death of the insured.

27 Tennessee Law Supplement 23 e. If the owner or operator of any motor vehicle which causes bodily injury or property damage to the insured is unknown, the insured will have no right to recover under the uninsured motorist provision unless: actual physical contact has occurred between the motor vehicle owned or operated by such unknown person and the person or property of the insured; or the existence of such unknown motorist is established by clear and convincing evidence, other than any evidence provided by occupants in the insured vehicle; the insured or someone in his behalf has reported the accident to the appropriate law enforcement agency within a reasonable time after its occurrence; and the insured was not negligent in failing to determine the identity of the other vehicle and the owner or operator of the other vehicle at the time of the accident. f. No insurer may increase the automobile insurance rate or premium of an insured with uninsured motorist coverage nor cancel such coverage due solely to the payment of any claim under uninsured motorist coverage. g. Failure of the motorist from whom the insured is legally entitled to recover damages to file the appropriate forms required by the Department of Safety pursuant to the Financial Responsibility Law within 90 days of the accident date creates a rebuttable presumption that such motorist was uninsured at the time of such accident. 2. Uninsured motor vehicle An uninsured motor vehicle is a motor vehicle whose ownership, maintenance, or use has resulted in the bodily injury, death, or damage to property of an insured, and for which the sum of the limits of liability available to the insured under all valid and collectible insurance policies, bonds, and securities applicable to the bodily injury, death, damage to property is less than the applicable limits of uninsured motorist coverage provided to the insured under the policy against which the claim is made. An uninsured motor vehicle does not include a motor vehicle: insured under the liability coverage of the same policy of which the uninsured motor vehicle coverage is a part; owned by or furnished for the regular use of the insured or any resident spouse or resident relative in the same household; self-insured within the meaning of the Tennessee Financial Responsibility Law or any similar state or federal law; owned by the governmental unit, political subdivision, or agency thereof; designed for use mainly off public roads except while on public roads; or while located for use as premises. a. Insolvency protection Insurer s insolvency protection becomes applicable only to accidents occurring during a policy period in which its insured s uninsured motorist coverage is in effect where the liability insurer of the tort-feasor becomes insolvent within one year after an accident.

28 24 Tennessee Law Supplement b. Subrogation The insurer making uninsured motorist claim payment will be subrogated to all of the rights of the person to whom such payment has been made, and is entitled to the proceeds of any settlement or judgment resulting from the exercise of any rights of recovery of such person against any person or organization legally responsible for the bodily injury or property damage for which such payment is made, including the proceeds recoverable from the assets of an insolvent insurer. c. Service of process Procedures exist whether the motorist at fault is known or not. D. ACCIDENT PREVENTION COURSE [ , ] 1. The rates and premiums for every policy of automobile insurance must include a provision for appropriate reductions, for motor vehicles and motorcycles when the regular operators are over age 55 and have successfully completed a motor vehicle accident prevention course approved by the Commissioner of Safety. There is no reduction in premiums for a self-instructed course. 2. The premium reduction will remain in effect for the qualifying insured for a period of three years from the date of successful completion of the accident prevention course, except that the insurer may elect to apply the premium reduction beginning at the next renewal date of the policy and continuing for a three-year period. 3. Any accident prevention course approved under this section must be taught by an instructor approved by the Commissioner of Safety, and such course will consist of at least eight hours of classroom instruction. a. Each operator who successfully completes an approved accident prevention course will be issued a certificate by the course s sponsoring agency. b. Records of completion will be maintained in a manner acceptable to the Commissioner of Safety and be the basis of qualification for the premium discount. 4. Any person claiming eligibility for a rate or premium reduction will be responsible for providing to his insurance company the information necessary to determine eligibility. 5. This section does not apply to: any motor vehicle which is a part of a fleet or is used for commercial purposes unless there is a regularly assigned principal operator; any motor vehicle subject to a higher rate or premium because of an operator s previous motor vehicle claims experience, or to any motor vehicle whose operator has been convicted or forfeited bond for the violation of any of the motor vehicle laws of this state, until that operator has maintained a driving record free of atfault accidents or violations for a continuous period of three years; any motor vehicle whose operator has had an operator s license revoked or suspended for any reason within the previous three years; or any motor vehicle whose operator is required by any court to take a defensive driver training course.

29 Tennessee Law Supplement 25 E. CANCELLATION OF AUTOMOBILE INSURANCE [ , 1303, 1304] 1. Grounds for cancellation Cancellation must be based on one or more of the following reasons. There was a nonpayment of premium. The policy was obtained through a material misrepresentation. The insured failed to fully disclose motor vehicle accidents and moving traffic violations for the preceding 36 months if called for in the application. The named insured failed to disclose in the written application or in response to inquiry information necessary for the acceptance or proper rating of the risk. Any insured violated any of the terms or conditions of the policy. Any insured made a false or fraudulent claim or knowingly aided or abetted another in the presentation of such a claim. If, after the effective date of the insurance, the policy is extended, with or without charge, to provide coverage for a person(s) not listed on the original application, the company shall be allowed 60 days, after written request to the company for insurance on such driver(s), to accept or reject the additional risk and, if the additional risk is not acceptable to the company, the policy may be canceled provided, that notice shall be mailed within 60 days from the date of such request. The named insured or any other operator, either resident in the same household, or who customarily operates an automobile insured under the policy has had a driver s license or motor vehicle registration suspended or revoked within the 36 months prior to notice of cancellation, is or becomes subject to epilepsy or heart attacks, and cannot produce a certificate from a physician testifying to such person s unqualified ability to operate a motor vehicle, or is or has been convicted of or forfeits bail, during the 36 months immediately preceding the effective date of the policy or during the policy period, for any felony, criminal negligence resulting in death, homicide, or assault, arising out of the operation of a motor vehicle; operating a motor vehicle while intoxicated or while under the influence of drugs; leaving the scene of an accident without stopping to report; theft of a motor vehicle; making false statements in an application for a driver s license; or a third violation committed within a period of 36 months of any ordinance, law, or regulation limiting the speed of motor vehicles; or any of the provisions in the motor vehicle laws of any state, the violation of which constitutes a misdemeanor, whether or not the violations were repetitions of the same offense or were different offenses. The insured automobile is altered so as to increase the risk substantially; used as an authorized emergency vehicle; or subject to an inspection law and has not been inspected or, if inspected, has failed to qualify. No automobile liability insurance policy may be canceled solely because the driver was involved in a collision not adjudicated the driver s fault. 2. Notice of cancellation a. No notice of cancellation of a policy will be effective unless mailed or delivered by the insurer, its authorized producer or employee, to the named insured as shown in the policy declarations at the address shown in such declarations,

30 26 Tennessee Law Supplement stating when not less than 20 days thereafter such cancellation will be effective; provided that if the cancellation is due to nonpayment or if the policy has been in effect less than 60 days and is not a renewal policy, the policy may be cancelled by the company by mailing to such insured written notice stating when not less than 10 days thereafter such cancellation will be effective. b. The mailing of such notice is sufficient proof of notice. c. The effective date and hour of cancellation stated in the notice is the end of the policy period. d. Delivery of such written notice either by the insured or the company is equivalent to mailing. e. If the reason or reasons for such cancellation are not included in the notice of cancellation, then at the written request of the named insured, mailed or delivered to the insurer not later than 15 days subsequent to the effective date of cancellation, the insurer must specify any and all reason for such cancellation. 1.) The previously listed cancellations provisions of this subsection will only apply to policies which have been in force 60 days beyond the initial effective date. 2.) Every renewal policy will be presumed to be in effect for at least 60 days. 3. Notice of intent not to renew Nothing in this part applies to nonrenewal, except that in the event the company does not intend to renew the contract, it must mail or deliver to the names insured, at the address shown in the policy, not less than 30 days notice of its intention not to renew. a. Proof of mailing of notice is sufficient proof of notice. b. Unless the nonrenewal notice contains a reason for nonrenewal action, such notice must advise the insured that upon written request of the named insured, mailed or delivered to the insurer not later than 15 days after the effective date of the nonrenewal, the insurer will within 20 days mail to the named insured a written statement specifying a reason for such nonrenewal action. c. There will be no liability on the part of and no cause of action of any nature may arise against any insurer, its authorized representative, its producers, its employees, or against any firm, person, or corporation furnishing information to the insurer, as to reason for nonrenewal. F. NOTICE OF ASSIGNED RISK ELIGIBILITY [ ] When a policy of automobile liability insurance is cancelled other than for nonpayment of premium, or in the event of failure to renew a policy of automobile liability insurance, the insurer must notify the named insured of his possible eligibility for automobile liability insurance through the automobile liability assigned plan.

31 Tennessee Law Supplement Such notice must accompany or be included in the notice of cancellation or the notice of intent not to renew. 2. Tennessee assigned risk pool Also called the Automobile Insurance Plan, the Tennessee assigned risk pool provides automobile coverage for drivers who are such high risks that they cannot obtain coverage in the standard marketplace. a. The Tennessee assigned risk pool is not a guaranteed-issue plan. b. When a driver is unable to obtain coverage in the standard market, he may apply to the state s Automobile Insurance Plan, which is a pool of authorized insurers. The driver s application is assigned to one of the member insurers, and the insurer must provide at least minimum PD/BI liability coverage for the driver. c. If a private passenger automobile liability policy is non-renewed or cancelled for other than non-payment of premium, the insurer must include with the notice of non-renewal or cancellation a statement notifying the insured that he may be eligible for liability insurance through the assigned risk plan. G. WORKERS COMPENSATION LAW 1. Definitions [ , 102] a. An employee is: any person (including minors) lawfully or unlawfully employed; any president, vice president, secretary, treasurer, or other executive officer of a corporate employer; or any sole proprietor or partner who devotes full time to the proprietorship or partnership and elects to be included in the definition of employee by filing written notice at least 30 days before the occurrence of any injury or death. b. Any reference to an employee who has been injured will also include the employee s legal representatives, dependents, and other persons to whom compensation may be payable in the case of the employee s death. c. An employer is any individual, firm, association, or corporation, or the receiver or trustee of the same, or the legal representative of a deceased employer using the services of not less than five persons for pay, and, in the case of an employer engaged in the mining and production of coal, one employee for pay. d. Minimum and maximum total benefit 1.) For injuries occurring on or after July 1, 2005, the maximum weekly benefit for temporary disability benefits is 66 2 / 3 % of the employee s average weekly wage, up to 110% of the state s average weekly wage. 2.) For injuries occurring on or after July 1, 1993, the minimum weekly benefit is 15% of the state s average weekly wage.

32 28 Tennessee Law Supplement 2. Scope [ ] a. Every employer and employee subject to the Workers Compensation Law must, respectively, pay and accept compensation for personal injury or death by accident arising out of and in the course of employment without regard to fault as a cause of the injury or death, provided that any employee who is a corporate officer of the employer is not bound if the employee has given notice to be exempted from the provisions of the law. b. The election by any employee who is a corporate officer of the employer to be exempted from the provisions of the Workers Compensation Law does not reduce the number of employees of such employer for the purposes of determining the requirements of coverage of the employer under the law. Note that this rule will be repealed in July Rate fixing prohibited [ ] a. No insurer may agree with any other insurer, rate service organization, or advisory organization to adhere to any rate or supplementary rate information. b. Insurers having common ownership or operating under common management may act in concert among themselves as if they constituted a single insurer. c. A workers compensation insurer may apply for approval of a deductible plan where the insurer can be reimbursed by the policyholder, effective for a period of not less than one year, to be applied to the premiums produced by the rating system. d. The application must specify the basis for the modification, and a copy must be provided to the rate service organization. The Commissioner will not approve such modification if the resulting premiums would be excessive, inadequate or unfairly discriminatory. H. JOINT UNDERWRITING ASSOCIATIONS [ ] 1. Authorization Insurers participating in joint underwriting, pools or residual market mechanisms may, in connection with such activity, act in cooperation with each other in the making of rates, supplementary rate information, policy forms, underwriting rules, surveys, inspections and investigations, the furnishing of loss and expense statistics or other such information, and in the conduct of research. Joint underwriting, pools and residual market mechanisms are not considered rate service or advisory organizations. 2. Regulation Every pool must file: a copy of its constitution, articles of association or incorporation, bylaws, and any other rules or regulations governing its activities; and a list of its members; the name and address of a resident of this state upon whom notices or orders of the Commissioner or process may be served.

33 Tennessee Law Supplement 29 a. Any residual market plan must be submitted in writing for approval, together with such information as the Commissioner may reasonably require. b. If, after a hearing, the Commissioner finds that any activity or practice of insurers participating in joint underwriting, pool or residual market mechanisms is unfair, unreasonable or otherwise inconsistent with the provisions of this part, he will issue a written order specifying in what respects such activity or practice is unfair, unreasonable or otherwise inconsistent with the provisions of this part and require the discontinuance of such activity or practice. c. Every insurer, excluding self-insurers, undertaking to transact either workers compensation or employer s liability insurance, or both, and every rating organization which files rates or prospective loss costs for such insurance must participate in the plan. d. As part of the application for insurance coverage, an employer may elect whether to be excluded from the list provided for by this subsection. Every application for the assigned risk plan must include the following language: THE INSURED ELECTS TO BE EXCLUDED FROM THE LIST OF EMPLOYERS IN THE ASSIGNED RISK PLAN

34 30 Tennessee Law Supplement TENNESSEE LAW SUPPLEMENT PRACTICE FINAL Student instructions: Following your thorough study of this supplement, take this 50-question sample examination. Grade your performance using the answer key provided. Carefully review the topics pertaining to those questions answered incorrectly. I. General Insurance 1. Which of the following was established by the McCarran-Ferguson Act? A. The federal government has the right to regulate insurance if the state does not. B. Written consent is required before personal information can be released. C. Fair and accurate reporting of information about insurance consumers must be ensured by the states. D. Prohibition of the use of sex discrimination in the pricing of insurance must be ensured by the states. 2. Which of the following does an appointed insurance producer represent in an insurance transaction? A. Policyowner B. Insurer C. State of Tennessee D. Broker 3. For the purpose of conducting an investigation, the Tennessee Commissioner of Insurance has all of the following powers EXCEPT A. inquisitorial powers B. the power to subpoena witnesses C. the power to impose a jail sentence D. the power to examine witnesses under oath 4. Who administers all laws that relate to insurance in Tennessee? A. Department of Commerce and Insurance B. Insurance producers C. Federal Insurance Association D. Tennessee legislature 5. Which of the following is NOT a duty of the Commissioner of Commerce and Insurance? A. Employing actuaries B. Issuing certificates of authority to transact insurance business in Tennessee C. Writing the Tennessee insurance laws D. Establishing an office to assist older persons 6. All fines imposed and collected by the Commissioner of Insurance are paid to the A. Insurance Department B. state treasury C. Department of Commerce D. chancery court of Davidson County 7. If a producer were to write an insurance contract with a company that was not authorized to do business in Tennessee, he would A. be held personally liable B. be guilty of a felony C. be subject to a fine of not more than $1,000 D. have his license suspended immediately 8. A business entity may become licensed as a producer if A. business entities may not become licensed producers in Tennessee B. the Insurance Commissioner is granted power of attorney to act on behalf of the business C. it posts a $10,000 surety bond D. it designates a licensed producer who will be responsible for the entity s compliance with state laws and regulations 9. An insurer appointing a producer as its agent must file a notice of the appointment with the Commissioner within A. 15 days B. 30 days C. 45 days D. 60 days

35 Tennessee Law Supplement A resident producer who moves from Tennessee to another state must file a change of address and provide certification from the new state of residence within A. 15 days B. 30 days C. 45 days D. 60 days 11. What is an authorized insurer? A. A producer who is authorized by the Commissioner to transact business in Tennessee B. A company that is authorized by the Commissioner to transact insurance business in Tennessee C. A producer who has the authority to represent an insurance company D. A policyholder who has a legal contract with an insurance company 12. An insurance company s license to do business in Tennessee is called a A. notice of risk assignment B. certificate of authority C. mutual benefit card D. license to solicit registration 13. A licensed nonresident producer who moves to Tennessee and applies within 90 days of arrival to become a resident producer is exempt from A. all license fees for the first renewal period only B. all continuing education requirements for the first 2 renewal periods C. the insurance licensing examinations D. all license application requirements 14. The Commissioner may issue all of the following penalties to producers who engage in unfair or deceptive practices EXCEPT A. order violators to cease and desist from the prohibited practice B. order payment of a $1,000 fine for each nonwillful violation C. order a 2-year prison term for willful violators D. suspend willful violators licenses 15. Which of the following people must pass the producer s licensing examination? A. Applicants for limited insurance representative licenses B. Applicants who apply for property and casualty insurance licenses C. Applicants for licenses covering the same line of insurance for which they held a similar license in Tennessee in the last 12 months, if the license was not revoked D. Applicants who are employees of an insurance company 16. Applicants can receive limited insurance representative licenses, without examination, in all of the following lines of insurance EXCEPT A. credit life and health B. group life and health C. mortgage guaranty D. limited travel accident 17. Which of the following people could NOT be granted a temporary producer s license? A. Widow of a deceased producer B. Designee of a licensed producer who is entering active service in the US armed forces C. Employee of a licensed producer who becomes disabled D. An insurance client of a deceased producer 18. Temporary licenses are issued for which of the following terms? A. 1 month, renewable B. 1 month, nonrenewable C. 180 days, renewable D. 180 days, nonrenewable 19. Which of the following is NOT an unfair trade practice? A. Rebating premiums B. Discriminating against a blind applicant for insurance C. Issuing company stock to induce people to purchase insurance D. Readjusting the rate of premium for group insurance policies based on the insurer s expense experience

36 32 Tennessee Law Supplement 20. All of the following are considered to be unfair methods of competition EXCEPT A. making statements that could lead insureds to believe that, by purchasing a policy, they may gain stock ownership interest in the company B. stating that each stockholder is given the right to purchase a specific number of policies C. making statements that insurance benefits are guaranteed by the company regardless of economic conditions D. stating that a company makes a profit as a result of policy lapses or surrenders 21. An individual no longer licensed as a producer may receive which of the following types of compensation if they were properly licensed at the time of the original sale? A. New business commissions B. Shared commissions C. Commissions on surplus lines sales D. Renewal commissions 22. Which of the following statements is CORRECT concerning the requirements pertaining to a nonresident producer? A. Applicants must pass a complete licensing examination. B. Applicants must pass an examination covering Tennessee laws only. C. An application must be filed with the Commissioner. D. Nonresident producers must meet the Tennessee continuing education requirements. 23. To obtain a license to sell insurance in Tennessee, an individual must meet all of the following requirements EXCEPT A. the individual must be at least 21 years old B. the individual must be competent and have a good business reputation C. the individual must have experience or instruction in the general insurance business or specific class of license D. the individual must pass the licensing exam 24. Which of the following individuals is NOT exempt from the continuing education requirements? A. A person on extended active duty in the US armed forces B. A person who has been continuously licensed in Tennessee for 20 years C. A person holding a current producer s license before January 1, 1997 D. A person holding a license as a limited insurance representative 25. A producer s Tennessee insurance license will remain valid for how long after the date of issue? A. 1 year B. 18 months C. 2 years D. 3 years 26. All of the following statements about reinstating a producer s expired license are correct EXCEPT A. the producer has 18 months after the license expires to have the license reinstated without examination B. the producer must submit a request for reinstatement to the Commissioner C. the producer must pay a renewal fee D. the producer must pay a nonrefundable reinstatement fee equal to 50% of the renewal fee 27. The Commissioner may deny, suspend, or revoke an agent s insurance license for all of the following reasons EXCEPT A. violating any Tennessee insurance law B. making a false statement in the license application C. being convicted of a misdemeanor D. misusing funds belonging to insurers or policyholders

37 Tennessee Law Supplement All of the following constitute unfair trade practices EXCEPT A. making misleading statements about a competing agent s business in a direct mail letter B. offering an applicant an expensive briefcase as an inducement to purchase a policy C. omitting relevant information during the sales process D. paying bonuses to all policyholders out of surplus accumulated from nonparticipating insurance 29. A number or rating that is based in whole or in part on credit information for the purposes of predicting the future insurance loss exposure of an individual applicant or insured is called A. risk index rating B. an insurance score C. coverage eligibility score D. credit index score 30. A producer licensed after January 1, 1997 must complete how many hours of approved continuing education each year? A. 5 B. 12 C. 15 D Upon receipt of the notice of an agent appointment, the Commissioner will verify that the insurance producer is eligible for appointment within a reasonable time NOT to exceed A. 5 days B. 20 days C. 30 days D. 60 days II. Property Insurance 32. A producer who writes a fire insurance policy on a property must inspect that property within A. 7 days B. 30 days C. 60 days D. 90 days 33. An insurance company that does not intend to renew a personal risk insurance contract must provide notice of its intent to nonrenew at least 20 days in advance to A. the named insured B. any insured C. the mortgagee D. the property owner 34. If an insured suffers a total loss by fire on property that is actually over-insured, the insurance company is required to A. pay to the limits of the policy B. pay the actual value of the property damaged and reimburse the insured for the excess premiums paid C. pay the actual cash value of the property damaged only D. pay to the replacement cost of the property damaged 35. After a commercial risk insurance policy has been in effect for 60 days, it may be cancelled for all of the following reasons, EXCEPT A. nonpayment of premium B. a material misrepresentation C. excessive claims D. failure to comply with written loss control recommendations 36. If a commercial risk insurance policy is cancelled for nonpayment of a premium, the insurer must provide notice A. 60 days in advance B. 30 days in advance C. 15 days in advance D. 10 days in advance 37. Proof of notice of cancellation may be A. a signed return receipt B. written acknowledgment from the insured C. mailing of the notice D. a signed postal delivery receipt

38 34 Tennessee Law Supplement 38. The reason for a commercial policy cancellation A. need not be disclosed B. must be stated in the notice of cancellation C. will be disclosed only if requested by the named insured D. may be disclosed at the option of the insurer 39. If an insurer intends to increase the rate for a commercial risk policy by more than 25%, it must provide notice to the named insured at least A. 10 days in advance B. 30 days in advance C. 45 days in advance D. 60 days in advance 40. If an insurer fails to provide the proper notice to an insured of a rate increase that exceeds 25% for a commercial risk policy, it must A. extend the policy for 60 days following notice B. delay the rate increase until the next policy renewal C. the rate may be increased regardless of the notice requirement D. no further increase would be permitted 41. If an insurer intends to not renew an insured s commercial risk policy and the named insured has obtained replacement coverage, the insurer A. must provide notice of its intent to nonrenew at least 60 days in advance B. must provide notice of its intent to nonrenew at least 90 days in advance C. need not provide a notice of nonrenewal D. may not renew once in effect for more than 60 days III. Casualty Insurance 42. In the State of Tennessee, the minimum required automobile insurance liability limits are A. 25/50/5 B. 25/50/15 C. 10/20/5 D. 10/20/ If an insured elects to provide automobile liability insurance in the form of a combined single limit, the minimum amount of coverage required is A. $50,000 B. $20,000 C. $60,000 D. $100, How much notice of cancellation must be provided to an insured with a personal auto policy who does not pay a premium when due? A. No notice is required B. 60 days C. 30 days D. 10 days 45. Bill is driving Alice s car with her permission. Bill hits a pedestrian in a crosswalk by accident. Whose auto liability insurance would be considered primary to cover the bodily injury suffered by the pedestrian? A. Alice s policy B. Bill s policy C. The pedestrian s D. There would be no coverage because pedestrians cross a street at their own risk 46. The required automobile insurance policy uninsured motorist bodily injury coverage limits are A. 25/50 B. 10/20 C. 50/100 D. the same as the bodily injury liability limits stated in the policy 47. Which of the following statements is CORRECT concerning an accident prevention course? A. Self-study courses are available from the Department of Motor Vehicles. B. A total of 20 hours of study is required. C. Individuals over age 55 will qualify for an auto insurance premium reduction. D. Premium reductions apply to commercial as well as private passenger operators.

39 Tennessee Law Supplement When an auto policy is being cancelled for other than non-payment of premium, the insured must be provided with A. alternative coverage B. notice of eligibility for the assigned risk plan C. a complete premium refund D. at least 90 days advance notice 50. All employers in Tennessee are required to provide workers compensation insurance coverage, EXCEPT employers A. in the mining industry with no paid employees B. in a service industry C. not required to pay minimum wage D. that are government contractors 49. If an automobile policy is being cancelled by an insurer for other than nonpayment of a premium due, how much advance notice of the cancellation must be provided to the named insured? A. None B. 10 days C. 20 days D. 30 days

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