Property and Casualty Insurance. Minnesota. State Law Supplement

Transcription

1 Property and Casualty Insurance Minnesota State Law Supplement

2

3 Property and Casualty Insurance 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. Minnesota Effective July 1, 2013

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. MINNESOTA PROPERTY AND CASUALTY INSURANCE LAW SUPPLEMENT, EFFECTIVE JULY 1, Kaplan, Inc. The text of this publication, or any part thereof, may not be reproduced in any manner whatsoever without written permission from the publisher. If you find imperfections or incorrect information in this product, please visit and submit an errata report. Published in October 2013 by Kaplan Financial Education. Printed in the United States of America. ISBN: / PPN:

5 Minnesota Law Supplement 1 INTRODUCTION This supplement focuses on statutes regarding Minnesota 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 Property and Casualty License Exam Manual. Thorough preparation for the exam requires the complete study of both the License Exam Manual and the supplement. I. MINNESOTA LAWS, RULES, AND REGULATIONS COMMON TO LIFE, HEALTH, PROPERTY, AND CASUALTY INSURANCE A. POWERS AND DUTIES OF THE COMMISSIONER [45; 60A ; 60K; 72A ; 62A.02; 61A.02; ; 72C ] The Department of Commerce is the regulatory authority for the Minnesota insurance industry. The governor appoints the Commissioner of Commerce, who has the power to examine and investigate the affairs of every person doing insurance business in Minnesota to determine whether the person has engaged in any unfair method of competition or any unfair or deceptive practice. 1. Broad Powers The Commissioner is assigned broad powers and responsibilities regarding the regulation of insurance. a. The Commissioner is empowered to: enforce insurance laws; create rules that assist with the enforcement of insurance laws; conduct investigations and hold hearings to determine if any person has violated any insurance law or rule; examine and approve policy forms; examine the books, records, and documents of any person or entity engaged in regulated activity; publish information collected from investigations, hearings, and examinations; require reports of all sales or transactions that are regulated; and appoint a staff to assist with enforcement duties. 2. Examination of Records The Commissioner may examine the affairs and conditions of any licensed producer, license applicant, or foreign or domestic insurance company. This may be done at any time for any reason related to the enforcement of insurance laws or to ensure that companies are operating in a safe and sound manner and protecting the public interest. The Commissioner shall examine the affairs and conditions of every insurer licensed in Minnesota at least once every five years. a. Who may be examined The Commissioner, or person designated by the Commissioner, may examine any: company authorized to do business in Minnesota; person who is involved in the formation of an insurance company;

6 2 Minnesota Law Supplement licensed producer or solicitor or any person seeking a license; or person engaged in the business of adjusting losses or financing premiums. b. Purpose, scope, and notice of examination In order to examine the records, the Commissioner must provide notice of the scope of the examination. A copy of the notice is sent to the examinee. c. Access to examinee Once notice of the scope has been given, the insurer (or producer) must give free access to all books, records, and documents in question. Failure to submit to an examination is grounds for suspension, refusal, or nonrenewal of a producer s license or an insurer s authority to transact business in Minnesota. When conducting an examination, the Commissioner may retain attorneys, appraisers, independent actuaries, or independent certified public accountants as examiners; the cost is paid by the company being examined. d. Examination report Once the records have been examined, the Commissioner will issue an examination report. This report must contain a statement of findings and a summary of important points, recommendations and suggestions. Once issued, this report can be used as evidence in any legal proceeding. e. Order After the examination report has been issued, the Commissioner may also issue an order, which must be adhered to within the time specified. One or both of the following orders will be issued. 1.) Restore any deficiency This order is issued if an insurance company s capital, surplus, or reserves becomes impaired. 2.) Cease and desist This order is issued to prevent an insurer from transacting business that may harm the company s policyholders or the public. f. Penalty Any person who violates or aids and abets any violation of a written order may be fined up to $10,000 for each day the violation continues. 3. Notice and Hearing If the insurer (or producer) disagrees with the Commissioner s findings, the insurer (or producer) has the right to request a hearing within 30 days of the order. Once the hearing has been requested, the Commissioner has another 30 days to hold the hearing. 4. Forms and Rate Review All schedules of policy premium rates, policies, certificates of insurance, notices of proposed insurance, applications for insurance, and endorsements and riders used in Minnesota must be filed with the Commissioner. All accident and health insurance policies must be filed with the Commissioner at least 60 days prior to use. B. DEFINITIONS Insurance companies can be defined various ways based on where they are incorporated, what types of policies they sell, and who owns the company.

7 Minnesota Law Supplement 3 1. Domestic and Foreign [60A.02] Insurers are defined based upon the state in which they are incorporated. a. Domestic Any company that is incorporated or organized in the state of Minnesota. b. Foreign Any company that is incorporated or organized in another state that does business in Minnesota. 2. Reciprocal [71A.01; 72A ] Members of an unincorporated group insure each other and share the losses with each other. A reciprocal is managed by an attorney-in-fact who is empowered to handle all of the business of the reciprocal. Life insurance and ocean marine insurance are not acceptable risks for reciprocal exchanges. 3. Stock and Mutual [60A; 67A] Private insurance is sold by private sector insurance companies. This category of insurance includes most of the major types of insurance sold today and includes life, health, property, and casualty policies. Stock and mutual insurers are the two main types of private insurers. a. Stock insurers Stock insurance companies sell insurance to the general public. Many stock insurers are large multi-national companies. 1.) Stock companies are for-profit corporations that are owned by their shareholders. 2.) Stock companies are managed by a board of directors. 3.) Stock companies typically sell non-par (non-participating) policies. Policyholders are not eligible to receive insurance dividends. However, if the company is profitable, shareholders may receive taxable stock dividends. Occasionally, stock insurers will issue PAR policies to compete with mutual companies. 4.) Stock companies issue non-assessable policies. They are required to set money aside in reserve in the event their claims experience is higher than anticipated. Non-assessable insurers are referred to as legal reserve companies. b. Mutual insurers Mutual insurance companies sell insurance to the general public. Like stock insurers, many mutual companies are also large multi-national organizations. 1.) Mutual companies are not-for-profit corporations that are owned by their policyholders. 2.) Mutual companies are managed by a board of directors.

8 4 Minnesota Law Supplement 3.) Mutual companies sell PAR (participating) policies. PAR policies pay insurance dividends to policyholders if the insurer s revenue exceeds operating expenses and reserve requirements. These dividends are considered a refund of overpaid premium and are not taxable. 4.) Mutual companies are non-assessable insurers. As a result, they are considered to be legal reserve companies. 4. Fraternals [64B.01,.05,.19] A fraternal benefit society is not for profit and exists solely for the benefit of its members. It confines its membership to any one religious denomination, has a representative form of government, and is operated on a lodge system. Similar to other insurance companies operating in Minnesota, a fraternal benefit society must obtain a certificate of authority from the Commissioner and must abide by reserve and trade practice regulations. In addition, every society transacting business in Minnesota shall file an annual statement with the Commissioner reflecting its financial condition, transactions, and affairs for the previous year. Each contract owner will receive a certificate specifying the benefits provided. If the reserves drop below a certain level, or become impaired, the society may assess its members. 5. Certificate of Authority [60A.07; 72A.41] Insurance companies must obtain a certificate of authority to transact insurance business in the state of Minnesota. If an insurance company fails to do this, their insurance policies remain valid to protect the public but the company will face severe penalties. a. The following constitutes transacting insurance business: Issuing or delivering a policy or annuity Soliciting an application for insurance Collecting premiums, fees, or assessments for a policy Any other transaction related to an insurance policy b. An admitted carrier is an insurance company that has obtained a certificate of authority. c. Surplus lines companies may sell insurance in Minnesota without a certificate of authority, but they may only transact business through a licensed surplus lines agent. Companies without a certificate of authority are considered non-admitted carriers. C. LICENSING AND APPOINTMENTS [60K; ; 60A.198; ] An individual may not sell, solicit, or negotiate insurance in Minnesota for any class of insurance unless the person is licensed for that line of authority. The license should be on display in the producer s office, and any reference to the license used in advertising may not infer endorsement nor sponsorship by state government. 1. Education Requirements Prior to obtaining an insurance producer license, an individual must complete a program of studies approved by the Commissioner and pass an examination.

9 Minnesota Law Supplement 5 a. Prelicensing Individuals can complete their program of studies through classroom study or via the Internet. 1.) The course of study must consist of 20 hours per major line of authority in which the producer seeks to be licensed (Life, Accident and Health, Property, Casualty, Personal Lines). 2.) The following are exempt from the prelicense education requirement: Applicants with a two-year Minnesota vocational school degree in insurance Applicants with a four-year college degree in business with an insurance emphasis Life applicants with any of the following professional designations: CEBS, ChFC, CIC, CFP, CLU, FLMI, or LUTCF Health applicants with any of the following professional designations: RHU, CEBS, REBC, or HIA Property, casualty, or personal lines applicants with any of the following professional designations: AAI, ARM, CIC, or CPCU 3.) The course cannot by sponsored by, offered by, or affiliated with an insurance company. 4.) An applicant who has been previously licensed for a particular line of insurance in the state of Minnesota does not need to repeat their prelicensing education for that line. 5.) A certificate of compliance from the education provider must accompany the applicant s license application. 6.) Applicants must pass a written exam with a minimum passing score of 70%. The exam will test the knowledge of the individual concerning the lines of authority for which the application is made, the duties and responsibilities of an insurance producer, and the insurance laws and rules of Minnesota. 7.) An applicant for a resident insurance producer license or a new line of authority must submit fingerprints for a criminal history background check and pay an associated fee. 8.) Exam results are valid for three years from the date of the exam. 9.) After completing prelicensing education and passing the applicable exam, applicants complete the license application online through Sircon. Two fees apply: a license fee of $50 per line of authority and a $25 technology fee. b. Continuing Education Continuing education is required of producers licensed to sell lines of insurance for which an exam is required.

10 6 Minnesota Law Supplement 1.) Producers must complete a minimum of 24 credit hours of Commissioner-approved courses during each two-year licensing period. At least three of those hours must be in a class or classes in the area of ethics. 2.) Only half the credit hours may be obtained through company-sponsored courses. 3.) Producers may take all continuing education hours via the Internet or via other verifiable self-study. 4.) The education provider will provide the producer with a certification of compliance and also report the producer s continuing education hours to Sircon. c. License Expiration 1.) Initial licenses issued to an individual producer on or after August 1, 2010 are valid for at least 12 months, but not more than 24 months; the license expires on the last day of the birth month within that 12- to 24-month period. Subsequent license periods are two years, and the license expires on the last day of the producer s birth month. 2. Types of Licenses Unless denied, individuals who have met the licensing requirements will be issued a two-year insurance producer license. a. Producer A resident producer s license shall be issued to a person who resides in Minnesota or maintains their principal place of business in Minnesota. Individuals must: be at least 18 years of age; complete the necessary prelicensing education; pay the applicable fees; successfully pass the examination; not have committed any act that is grounds for license denial; and consent to a criminal history background check and fingerprinting. 1.) An individual insurance producer may receive a license in one or more of the following major lines: Life insurance policies that insure human lives. Accident and health insurance policies that provide coverage for sickness, income loss due to disability, and long-term care. Property insurance policies that provide coverage for direct loss or damage to real property and personal property. Casualty insurance policies that cover the insured s legal liability for injury to others and property damage of others. Personal lines policies sold to individuals and families for primarily noncommercial purposes.

11 Minnesota Law Supplement 7 Variable life and variable annuity products insurance policies that provide coverage under variable life insurance contracts and variable annuities. 2.) An individual insurance producer may receive a license in one or more of the following limited lines: Limited line credit insurance Farm property and liability insurance Title insurance Travel insurance (new rules as of 2012) Bail bonds 3.) The license must contain the licensee s name, address, producer license number, date of issuance, lines of authority, expiration date, and any other information the Commissioner considers necessary. 4.) The producer license remains in effect, unless revoked or suspended, as long as the fees are paid, continuing education requirements are met, and all necessary documentation is provided to the Commissioner by the renewal date. 5.) A licensed producer who is unable to comply with license renewal procedures due to military service or some other extenuating circumstance, such as a long-term medical disability, may request a waiver of those procedures. The producer may also request a waiver of any examination requirement or any other fine or sanction imposed for failure to comply with renewal procedures. 6.) The Commissioner may issue a temporary producer license, not to exceed 180 days, without requiring an exam in the following circumstances: To the surviving spouse or court-appointed personal representative of a deceased or disabled licensed producer to allow adequate time for the sale of the business, or the producer s recovery, or the licensing of a replacement To an employee of a business entity licensed as a producer, upon the death or disability of the individual designated on the license To the designee of a licensed producer entering active service in the armed forces of the United States In any other circumstance that serves the public interest b. Nonresident [60K.39] A nonresident of Minnesota shall receive a nonresident producer license if the person is currently licensed as a resident and in good standing in their home state; has submitted the proper request for a license and paid the required fees; has submitted to the Commissioner the license application submitted to their home state, or in lieu of that, a completed Uniform Application; and the person s home state awards nonresident producer licenses to Minnesota residents on the same basis.

12 8 Minnesota Law Supplement 1.) The Commissioner may verify the producer s licensing status through the NAIC producer database. 2.) A nonresident producer who moves from one state to another must file a change of address and provide certification from the new resident state within 10 days of legal residence. No fee or license application is required. 3.) A nonresident producer license terminates automatically when the person s resident license is terminated for any reason. 4.) A person licensed as a surplus lines producer in their home state will receive a nonresident surplus lines producer license in Minnesota, and a person licensed as a limited lines producer in their home state will receive a nonresident limited lines license in Minnesota. c. Agency A business entity acting as an insurance producer is required to obtain an insurance producer license using the Uniform Business Entity Application. 1.) The business must: pay the applicable fees; and designate an individual licensed producer responsible for the business entity s compliance with Minnesota insurance laws and rules. 2.) Each person that is affiliated with the agency and who is personally engaged in the sale or solicitation of insurance must also be licensed individually. d. Managing General Agent A managing general agent (MGA) hires producers, supervises a territory, is responsible for agent activities, and must be licensed as an insurance producer. e. Surplus Lines [60A.198] A surplus lines license allows the producer to place insurance risks with eligible surplus lines insurers. 1.) A Minnesota-licensed producer may obtain a surplus lines license by completing an application, registering with the Surplus Lines Association of Minnesota, and paying a fee. 2.) Prior to placing insurance with an eligible surplus lines insurer, a surplus lines licensee must inform the insured that coverage is being placed with an insurer not licensed in Minnesota and that payment of a loss is not guaranteed in the event of insolvency of the surplus lines insurer.

13 Minnesota Law Supplement 9 f. Exceptions to licensing The following entities are not required to be licensed as an insurance producer: 1.) Any officer, employee, or secretary of a fraternal benefit society who devotes substantially all their time to other activities and who receives no commission. 2.) An officer, director, or employee of an insurer or producer who does not receive commission on policies sold in Minnesota and: whose duties are executive, managerial, or clerical in nature and are indirectly related to the sale, solicitation, or negotiation of insurance; whose job function relates to underwriting, loss control, or adjusting claims; or who serves in the capacity of a special producer where the person s activities are limited to providing technical assistance to licensed producers. 3.) A person who collects information, takes enrollments, issues certificates, or performs administrative services for group life, property and casualty, annuities, or accident and health insurance and receives no commission for the services. 4.) An employer or association or its officers, directors, employees, or the trustees of an employee trust plan who administer its employee benefit program and who are not compensated by the insurer issuing the contracts. 5.) Employees of insurers who inspect, rate, or classify risks or train producers and who do not sell, solicit, or negotiate insurance. 6.) A person whose activities are limited to advertising and not selling, soliciting, or negotiating insurance. 7.) A salaried full-time employee who advises an employer on insurance matters if the employee does not sell or solicit insurance or receive commission. 8.) Formerly, employees of rental car companies offering insurance when renting a car did not need to be licensed. New definitions of travel insurance (SF2069) now ask entities to be licensed and follow certain procedures. 3. Termination of License a. Expiration An individual producer may voluntarily surrender a license by choosing not to renew it.

14 10 Minnesota Law Supplement b. Revocation or Suspension [60K.43] The Commissioner may restrict, censure, suspend, revoke, or refuse to issue or renew an insurance producer s license, or levy a civil penalty or any combination of actions. 1.) The Commissioner may take action against an individual for any one or more of the following: Providing incorrect, misleading, incomplete, or materially untrue information on an application for an insurance license Violating the insurance laws or regulations of the State of Minnesota or any other state Attempting to obtain an insurance license through fraud or misrepresentation Improperly withholding, misappropriating, or converting money or property received in the course of doing insurance business Misrepresenting the terms of an actual or proposed insurance policy Being convicted of, or pleading guilty to or no contest to, a felony, gross misdemeanor, or misdemeanor involving moral turpitude Committing any unfair trade practice or fraud Using fraudulent, coercive, or dishonest practices Demonstrating incompetence, untrustworthiness, or financial irresponsibility Having an insurance license in any jurisdiction denied, suspended, revoked, or subject to fine, and being disciplined for any reason Committing forgery, whether or not the forgery is related to an insurance transaction Cheating on an insurance license exam Knowingly accepting insurance business from an individual who is not licensed Failing to make court-ordered child support payments Failing to pay state income taxes Being enjoined by any court of competent jurisdiction from engaging in any aspect of the insurance business Making any communication to a potential buyer that the producer is acting on behalf of a government agency Violating any notification, disclosure, or recordkeeping requirement, or any standard of conduct imposed by Minnesota statute while performing residential mortgage activity 2.) The Commissioner may issue an order for a hearing, requiring the licensee to show why the license should not be censured, suspended, or revoked or why a civil penalty should not be imposed. 3.) If the Commissioner non-renews or denies a license application, the Commissioner must notify the person in writing of the reason.

15 Minnesota Law Supplement 11 a.) The applicant or licensee has 30 days to file a written request for a hearing to determine the reasonableness of the Commissioner s action. b.) The hearing must be held within 30 days and will be in front of an administrative law judge. c.) The applicant or licensee may appeal the judge s decision directly to the Minnesota Court of Appeals. 4.) The license of a business entity may be suspended, revoked, or refused if the Commissioner finds, after a hearing, that an individual licensee s violation was known or should have been known by one or more of the partners or managers and the violation was not reported to the Commissioner in a timely manner. 5.) A license is suspended for any period of not less than three months. The producer may not sell or service insurance policies during the suspension. 6.) A person whose license is revoked is prohibited from license reapplication for at least two years from the effective date of the revocation. As a condition of reapplication, the producer must obtain a performance bond of at least $20,000 with the state of Minnesota as obligee. The bond must be filed with the Commissioner. 7.) If the Commissioner suspends, revokes, or terminates a license, the Commissioner must notify the producer and all appointing insurers. Upon notification the producer must immediately deliver their license to the Commissioner. 8.) A person whose license has been revoked, suspended, or denied may not transact any insurance business during that time. 9.) In addition to taking action against a producer s license, the Commissioner may fine a producer up to $10,000 per violation. 4. Appointment [60K ] A licensed producer is at all times the agent of the insurer, not the insured, and has a fiduciary responsibility to the insurer. The producer must always protect the insurer s interests and follow any lawful instructions from the insurer. When insurance companies appoint producers to act on their behalf, they are responsible for all acts of the producer when that producer is acting within the scope of the producer s authority. a. A licensed insurance producer shall not transact insurance business on behalf of an insurer unless the producer either has: 1.) been appointed by the insurer; or

16 12 Minnesota Law Supplement 2.) the insurer s permission to transact business on its behalf and obtains an appointment within 15 days after submitting the first application to the insurer. b. To appoint a producer as its agent, the insurer must file a notice of appointment within 15 days from the date the agency contract is executed or submission of the first insurance application. Insurers may only appoint licensed producers and must pay an appointment fee for each producer appointed. c. Upon receipt of the notice, the Commissioner will verify within 30 days that the producer is eligible for appointment. If the producer is ineligible for appointment, the Commissioner shall notify the insurer within five days. d. A company appointment will remain in force until voluntarily terminated by the insurer or producer, or until the producer s license has been terminated for any reason. e. An insurer may not knowingly appoint a producer whom the insurer knows has committed misconduct or is otherwise unqualified or unfit. Upon discovery of this, the insurer must immediately terminate the appointment and notify the Commissioner. No insurer shall employ a producer whose license has been revoked. f. The agency agreement is the legal agreement that establishes the relationship between the insurer and producer, and outlines the powers and responsibilities of the producer. While acting on behalf of the insurer, the producer has three levels of authority: 1.) Express authority is extended to the producer as part of the agency agreement and allows the producer to complete all necessary job functions. 2.) Implied authority is authority not extended to the producer as part of the agency agreement but is authority necessary to complete the functions allowed in the agency agreement. 3.) Apparent authority is authority not extended by the agency agreement but is authority that a reasonable person would presume the producer has. 5. Termination of Appointment [60K.51] a. An insurer that terminates a company appointment for any reason must notify the Commissioner within 30 days following the effective date of the termination. b. Within 15 days of notifying the Commissioner, the insurer must send written notice of the termination to the producer. c. Within 30 days after receiving notice of the termination, the producer may file written comments concerning the termination with the Commissioner. The

17 Minnesota Law Supplement 13 comments become part of the Commissioner s file and must accompany every report distributed or disclosed about the producer. d. Any insurer that fails to file a company appointment is penalized $25 per offense. Each sale of a policy by an unappointed producer is a separate offense. The maximum penalty per unappointed producer is $300. e. If the insurer fails to pay a penalty within 10 days after notice from the Commissioner, the insurer s authority to transact business in Minnesota will be revoked until the penalty is paid. 6. Maintenance and Duration of License Insurance producer licenses are valid for a period of 24 months. The license remains in effect unless revoked or suspended as long as the producer meets continuing education requirements and pays the applicable renewal fees. a. Notification requirements A licensee is required to give written notice to the Commissioner in the following situations: 1.) Change of name or address The producer must notify the Commissioner within 10 days of a change of name, address, or any other information that was provided on the initial license application. 2.) Administrative actions The producer must notify the Commissioner of any administrative action taken against the producer in another jurisdiction or by another Minnesota governmental agency within 30 days of the final disposition of the matter. The report must include a copy of the order and any other relevant legal documents. 3.) Criminal prosecutions The producer must notify the Commissioner of any criminal prosecution against the producer in any jurisdiction. This notification shall be made within 30 days of the initial pre-trial hearing date and shall include a copy of the initial complaint and any other relevant legal documents. 4.) Criminal convictions and guilty pleas The producer must notify the Commissioner within 10 days of any conviction, guilty plea, or plea of no contest to any felony, gross misdemeanor, or misdemeanor involving moral turpitude. 5.) Assumed names A producer doing business under any name other than the legal name (e.g., Summit Insurance Services) must properly file the name with the Secretary of State. Once the assumed name has been filed, the producer must provide the Commissioner with documentation showing the proper filing before using the name. b. Reinstating a lapsed license An individual producer whose license lapses may, within 12 months from the due date of the renewal fee, reinstate the license

18 14 Minnesota Law Supplement without having to pass a written exam. However, a penalty of twice the unpaid renewal fee must be paid to reinstate the license. D. TRADE PRACTICES [60K; 72A.20; 2790; ] Several statutes regulate and prohibit unfair trade practices in the insurance industry by defining all practices that constitute unfair methods of competition or unfair or deceptive acts or practices. Penalties levied against insurers and producers include action against the license, fines, and criminal penalties. 1. Prohibited Practices Methods, acts, and practices that are defined as unfair or deceptive. a. Rebating [72A.08] offering or giving any rebate of premiums, dividends, stock, bonds or securities, or anything else of value as an inducement to buy insurance. A promotional advertising item or gift of $25 or less per year is not a rebate if the receipt of the item or gift is not conditioned on purchase of a policy or product. The penalty is $60 to $200 per violation. b. Misrepresentation making statements that misrepresent the policies, dividends, or financial condition of any insurer, particularly for the purpose of inducing a policyholder to lapse, forfeit, or surrender an insurance policy. c. Defamation making, publishing, or circulating any oral or written statement that is false, or is maliciously critical of or derogatory to the financial condition of an insurer, and that is intended to injure any person engaged in the business of insurance. d. Discrimination making or permitting any unfair discrimination between individuals in the same class of insureds when setting rates or refusing to offer, sell, or renew coverage, or limiting coverage on the basis of marital status, gender, a disability, or because the proposed insured is a victim of domestic abuse. e. Discrimination of military personnel refusing to insure or continue to insure the life of a National Guard or armed forces reserve member due to that person s status as a member is an unfair and deceptive act unless the individual has received an order for active duty. In addition, if coverage for a National Guard or armed forces reserve member was terminated, cancelled, or nonrenewed while that person was on active duty, an insurer may not refuse to reinstate coverage for the insured or any covered dependents under an individual or group life or health policy. The person shall apply for reinstatement within 90 days after removal from active duty. f. Misappropriation of funds improperly withholding, misappropriating, or converting funds belonging to a policyholder, beneficiary, or other person. g. False advertising making any oral or written statement with respect to the business of insurance or with respect to any person in the conduct of the person s insurance business that is untrue, deceptive, or misleading.

19 Minnesota Law Supplement 15 h. Boycott, coercion, and intimidation any act of boycott, coercion, or intimidation resulting in an unreasonable restraint of, or monopoly in, the business of insurance. i. False financial statements making or filing any false financial statement of an insurer with the intent to deceive. j. Twisting replacing insurance to the detriment of the insured. k. Forgery committing forgery, whether or not the forgery is related to an insurance transaction. l. Suitability when recommending the purchase of insurance, the producer must make reasonable inquiries to determine suitability. m. Penalties [72A.03,.04] In addition to administrative penalties levied by the Commissioner, the following criminal penalties apply when violating insurance laws. 1.) The first offense is a misdemeanor; each subsequent offense is a gross misdemeanor. 2.) The following offenses are a gross misdemeanor on the first offense: Acting as an insurance producer without a valid license Making false statements on an insurance application Forging the signature of another person n. Unfair claims settlement methods and practices [72A.201] 1.) The insurer may not delay or refuse to settle a claim because the claimant retains an attorney or public adjuster. 2.) The insurer may not demand irrelevant information that has nothing to do with the loss. 3.) The insurer must adopt reasonable standards for the prompt investigation of a claim. 4.) The insurer may not refuse to pay a claim unless the insurer conducts a reasonable investigation. 5.) The insurer may not compel an insured to commence litigation by offering an inadequate settlement. 6.) The insurer may not make the settlement of one part of a claim contingent upon the insured s agreement to settle another part of the claim.

20 16 Minnesota Law Supplement 7.) The insurer may not deny a claim without disclosing the specific policy provision that applies to the claim denial. 8.) The insurer must have reasonable evidence and documentation to support any comparative negligence assignment. 9.) The insurer may not deny a claim because the insured did not officially report it or use the proper forms, nor settle based on an application that was altered without notice, knowledge, or consent of the insured. 10.) The insurer may not refuse to pay a claim because the insured might collect for damages under a different policy. 11.) The insurer may not require inspections at specific places or distances unreasonable for the insured to travel. 12.) The insurer must reply to customer claims and inquiries within 10 days. 13.) The insurer must identify the coverage under which all claim payments are made. 2. Compensation of Licensees [60K.48] a. An insurer or producer may not pay a commission or other valuable consideration to a person for selling or negotiating insurance in Minnesota if that person is required to be licensed and is not licensed. b. A person may not accept a commission or other valuable consideration for selling or negotiating insurance in Minnesota if that person is required to be licensed and is not licensed. c. Renewal or other deferred commission may be paid to a retired producer for policies that were sold while the person was licensed. d. A licensed producer may not charge fees for service unless all fees are reasonable and fully disclosed in writing. Before providing services, the producer must provide a written statement disclosing the amount of the fees, the services for which fees are charged, and if the fees are charged in addition to premiums. 3. Advertising and Marketing Standards [60A; 72A.20; 2790; 61B.28 subd. 4] Minnesota statutes regulate insurance advertising and marketing to ensure that communication of insurance products is clear and complete. a. Advertising is defined to include the following: Printed and published material Audiovisual material Descriptive literature Radio and television

21 Minnesota Law Supplement 17 Billboards Circulars and leaflets Form letters Prepared sales talks and presentations b. Advertising and marketing standards Advertisements or representations may not contain deceptive words, phrases, or illustrations. In addition, producers must abide by certain sales practices when transacting business to avoid misleading or deceiving the public. 1.) No written or oral advertisement may omit words, phrases, statements, references, or illustrations. 2.) An advertisement may not use words or phrases such as all, full, complete, comprehensive, unlimited, up to, or as high as to exaggerate any benefits beyond the terms of the policy. 3.) Also prohibited are the phrases this policy will help pay your medical bills, or replace your income, or fill the gaps of your current insurance when expressing loss of time benefits. 4.) Words such as extra cash or extra income may not be used to imply the receipt of benefits in excess of medical expenses. 5.) Advertisements may not use words such as free, no cost, or no additional cost with respect to any benefit unless true or accurate. 6.) Dividends are a return of premium and may not be referred to as tax-free. 7.) A policy covering only one disease or a list of specified diseases must not imply coverage beyond the policy terms. A particular disease may not be referred to by more than one name to imply broader coverage. 8.) All policy limitations must be disclosed. 9.) Maximum benefits may not be emphasized with the intent to minimize any limits or other policy conditions. 10.) Benefit examples must be clear and must be shown only for losses from common illnesses or injuries rather than exceptional or rare conditions. 11.) An advertisement must not state that the insurer pays for financial needs, safeguards your standard of living, guarantees your paycheck or income, or uses similar words or phrases unless true.

22 18 Minnesota Law Supplement 12.) Advertisements may not state that premiums will not change unless it is true. 13.) If the policy states benefits and premiums, it must also state policy deductibles. 14.) The advertisement must clearly define how other insurance may apply and disclose any overlapping benefits. 15.) Publications must fully disclose the costs of premium financing (annual, semi-annual, quarterly, or monthly). 16.) Any waiting period due to preexisting conditions must be disclosed. 17.) It is unfair and deceptive to use the terms investment, investment or expansion plan, profit, or profit-sharing in connection with life insurance, annuities, or endowment contracts. 18.) The term life insurance must appear on the policy name or title to clearly indicate the policy is a life insurance, annuity, or endowment contract. 19.) Insurers may not infer that the insured is also a stockholder in the insurance company or will acquire stock ownership. 20.) No statement or reference may imply that by purchasing an insurance policy the insured will become a member of a limited group of persons who may receive special advantages or additional dividends, unless such benefits are provided in the policy. 21.) Insurers may not state or imply that only a limited number of persons are eligible to buy a particular policy unless the limitation is verified by the insurer s underwriting practices. 22.) An advertisement must not state or imply that the insurer and its products are approved, endorsed, or accredited by the state or federal government. 23.) No one may publish in any way an advertisement, announcement, or statement, written or oral, which uses the existence of the Minnesota Insurance Guaranty Association for the purpose of sales, solicitation, or inducement to purchase any form of insurance. It is not a violation of this subdivision to explain verbally to an applicant the coverage provided by the Minnesota Insurance Guaranty Association at any time during the application process or thereafter. 24.) An advertisement must not make unfair or incomplete comparisons of policies or unfairly disparage competitors or their products.

23 Minnesota Law Supplement Agent and Insurance Company Conduct [2700; 2790; 2795; 72A; 72C] a. Agent conduct 1.) When recommending the purchase of insurance, the producer must make reasonable inquiries to determine suitability. The customer s income, insurance needs, and any existing policies compared to recommended policies must be analyzed. 2.) Producers may accept a loan from an individual with whom the producer met in the course of the producer s business, provided the loan agreement is in writing. All records relating to the loan must be kept on file for at least six years after repayment. 3.) Policies must be delivered or mailed to the insured within 30 working days of the producer s receipt from the insurer. 4.) A written receipt must be issued any time a producer takes possession of an insured s or potential insured s policies, certificates, or other insurance documents. The signed and dated receipt must contain an itemized list of the materials received and the producer s name, address, and telephone number. 5.) A producer who is convicted of a felony, gross misdemeanor, or misdemeanor involving moral turpitude must report it to the Commissioner within 10 working days of the conviction. 6.) Any producer whose insurance, securities, or real estate license is suspended or revoked in another state, or has been ordered to pay a civil penalty because of misconduct in those industries, must report the disciplinary action to the Commissioner within 10 working days of the effective date of the action. 7.) Every producer must observe high standards of commercial honor in the conduct of their business. 8.) Every licensed resident producer must maintain a registered office for service of process. The address must be specified on all license and renewal applications. 9.) A license must be displayed in the licensee s office in a place where it can readily be viewed and inspected. 10.) A producer holding client funds must provide an itemized statement showing the amount of money held. 11.) Financial and complaint records must be kept on file for six years.

24 20 Minnesota Law Supplement 12.) A producer who receives a policy cancellation request must make or initiate the refund within 10 days of the request. Refunds must be delivered or mailed to the insured within five days of the producer s receipt from the insurer. 13.) If the producer is a financial planner, the producer must disclose all professional licenses held and the producer s compensation method (e.g., commission or fee). b. Insurance company conduct 1.) Complaint records must be retained for four years after the complaint is made and must contain adequate information for easy retrieval. 2.) Policy forms, applications, and advertising must be retained for three years after the effective date. 3.) Claim records must be retained for three years after the claim is paid or denied. 4.) Automatic enrollment for any coverage in addition to that already in force is prohibited without the customer s consent. 5.) Discrimination due to a visual impairment is prohibited. 6.) Insurance policies must be readable and understandable to a person of average intelligence, experience, and education. A readable policy has: simple sentence structure and short sentences; commonly used and understood words; minimal legal terms; and minimal references to other sections or provisions of the policy. 7.) All policies must pass the Flesch scale analysis, which measures the ease of readability. Policies are analyzed for the number of syllables per word and the number of words per sentence. 8.) All advertisements are the responsibility of the insurer. Insurers must establish and maintain a system of control over the content, form, and method of advertisements. This system would include prior approval requirements for any advertising by its agents and representatives. 9.) Upon policy termination, all unearned premium must be delivered to the insured within 30 days following the insurer s receipt of the insured s cancellation request. 5. Required Disclosures [60K.46; 60A.08] Any time a licensed producer has contact with a prospective client, the producer is legally obligated to disclose certain information.

25 Minnesota Law Supplement 21 a. Personal solicitation of sales Prior to a personal solicitation, the producer, or a person acting on behalf of the producer, must disclose the following in writing: Their name The insurance company or agent they represent The fact that they are in the business of selling insurance 1.) If the initial personal contact is made by telephone, the producer can disclose the information verbally. 2.) A personal solicitation is defined as a sale or attempted sale by a producer or a person acting on behalf of a producer. This applies whether the contact is made in person, by telephone, or by electronic means. 3.) The best way to comply with the requirement is to have the necessary information printed on the producer s business cards. a.) If the producer does not use business cards, the required information can be added to applications or financial planner disclosure forms. b.) If the producer represents several companies, the producer can provide a business card that includes the producer s name and sufficient information for a reasonable person to determine the producer is in the business of selling insurance. 4.) Any material that relates to specific insurance products must include the identity of the insurer. This material includes applications, brochures, policy illustrations, and binders. 5.) Producers must obtain the explicit permission of the insured before disclosing to any other person that the insured is a customer of the producer. 6.) Oral binders must be followed up in writing to the insured within five business days. b. Fees for services All fees charged must be reasonable in relation to the services provided. Any producer who charges service fees must disclose the following in writing: The services for which the fees are charged The amount of the fees The fact that the fees are charged in addition to premiums That premiums include a commission

26 22 Minnesota Law Supplement c. Fair Credit Reporting Act 1.) With permission of the potential applicant, insurance companies use various sources of information in their underwriting process. In addition to the application, insurers use the applicant s: driving records provided by the Department of Motor Vehicles; medical records provided by the applicant s physician; and credit reports provided by a consumer reporting agency that include the applicant s credit standing, occupation, finances, and marital status. 2.) The Fair Credit Reporting Act protects consumers by requiring that the insurer notify the consumer when the insurer accesses the consumer s credit report and advise how the consumer can correct information on the report. It also ensures that credit reporting agencies exercise their responsibilities in a fair and impartial way. 3.) When a credit report is ordered, the applicant must be notified both verbally and in writing of the following. a.) The applicant has the right to request a copy of the report from the credit agency. b.) The applicant may request to be interviewed. c.) The applicant has the right to challenge any erroneous information contained in the report. Any challenge must be made directly to the credit agency, who must respond to the challenge within 30 days. d.) The applicant may make a written statement regarding any negative information in the credit report. The credit agency must include this statement in the credit report. 4.) Most adverse information remains in a credit report for seven years. Bankruptcy information remains in the report for 10 years. d. Gramm-Leach-Bliley Act The Gramm-Leach-Bliley Act requires insurance companies to disclose their privacy policy and how a customer s personal (nonpublic) information may be used and shared with affiliates and third parties. The Act requires companies to provide their privacy policy when a policy is issued and at least once a year thereafter. E. GUARANTY ASSOCIATION [61B ; 60C ; 60C.20] The purpose of the Minnesota Insurance Guaranty Association is to protect policyholders from an insurer s inability to pay claims due to insolvency or bankruptcy. The Association will pay unpaid claims up to certain maximums limited by Minnesota statute. The protection provided is

27 Minnesota Law Supplement 23 based on Minnesota law and the language of the insolvent company s policies at the time of insolvency. Funding of the Guaranty Association comes from contributions made by admitted carriers. 1. Notice of Policyholder Rights The notice of policyholder rights must be given either at the time of application; if the application is not taken in person, notice must be sent within 72 hours of taking the application, or may be given at delivery. 2. It is an unfair trade practice for any insurer or producer to use the protection afforded by the Guaranty Association as a reason for buying insurance. 3. The Guaranty Association applies to all types of insurance except: life; annuity; title; accident and sickness; credit; ocean marine; and service contracts. 4. The Association shall set up five accounts: Automobile account Township mutual account Fidelity and surety account Workers compensation account All other type of insurance account II. MINNESOTA LAWS, RULES, AND REGULATIONS PERTINENT TO PROPERTY INSURANCE ONLY [65A; 72B.02;2880, 60K.46] A. DEFINITION OF ADJUSTERS [72B.02] Adjusters investigate, evaluate, and settle insurance claims on behalf of the insurer or insured. Adjusters are paid a salary, commission, or fee. 1. An independent adjuster settles losses on behalf of more than one insurer. 2. A public adjuster acts solely to represent the interests of the insured. 3. A staff adjuster is an employee of the insurance company adjusting losses solely for that company. B. MINNESOTA STANDARD FIRE POLICY [65A.01,.08] A policy of fire insurance must be labeled Minnesota standard fire policy, provide the specified coverage, and conform to all provisions required by law.

28 24 Minnesota Law Supplement 1. The policy must list the insurer s name, the location of the home office, and the type of insurer: stock, mutual, reciprocal, or Lloyds Underwriters. 2. The policy begins and ends at 12:01am Standard Time. 3. Perils covered are fire, lightning, and damage to property removed from the premises for preservation. If a loss occurs, the insured must make reasonable and necessary repairs to protect the property from further loss. 4. Misrepresentation or concealment of a material fact will void the entire policy. 5. Partial losses are settled based on the actual cash value of the property at the time of the loss. Total losses are settled using valued policy law in which the full face amount of the dwelling coverage is paid. 6. In the event of a loss the insured shall give immediate written notice to the insurer, protect the property from further loss, and within 60 days provide a signed and sworn proof of loss statement. 7. Any disagreement between the insurer and insured over the value of damaged property will be resolved by appraisal. 8. If the insured wishes to pursue a lawsuit against the insurer, it must be initiated within two years after the loss. 9. The insured may not assign the policy without the written consent of the insurer. The insured may not abandon property to the insurer. 10. The insurer has the option to repair or replace damaged property, and will do so with like kind and quality. The insurer must give the insured notice of how it will handle the loss within 30 days after receipt of proof of loss. 11. Once a loss has been settled, payment for the claim must be made within five business days. 12. A township mutual fire company can be formed when there are at least 25 people living in adjoining counties who own $50,000 worth of property. The township mutual is an assessable insurance company, but it must maintain a minimum reserve of $300,000. C. FAIR PLAN [65A ] The FAIR plan refers to Fair Access to Insurance Requirements; it is administered by the Minnesota Property Insurance Placement Facility. 1. Purpose a. The purpose of the plan is to assure fair access to insurance requirements so that no property is denied property or liability insurance due to the condition of the property, except after a physical inspection and a fair evaluation of its individual underwriting characteristics.

29 Minnesota Law Supplement 25 b. Members of the Minnesota FAIR plan share equitably in the responsibility for insuring property for which insurance cannot be obtained through normal insurance markets. c. Each insurer authorized to write property and casualty insurance in Minnesota shall participate in the plan as a condition of its authority to write in Minnesota. The amount of claims each insurer receives is based on its market share. 2. Definitions The Minnesota FAIR plan is the organization formed by insurers to assist applicants in securing property or liability insurance. 3. Eligibility Eligible properties include homes, businesses, apartments, condominiums, factories, and farms that have been denied insurance. Reasons for denial include poor credit history, a high number of claims, and the condition of the property. 4. Application Procedure a. Anyone with an insurable interest in real property or tangible personal property who has been cancelled, nonrenewed, or otherwise rejected for coverage in the private market may apply for coverage. b. The FAIR plan will issue a policy if the risk meets preliminary underwriting requirements. The plan may request an inspection report to obtain further underwriting information, which is done at no cost to the applicant. The inspection report will summarize pertinent structural and occupancy features as well as the general condition of the property, and may include a photo of the property. c. Within 10 business days after the inspection, the FAIR plan will issue a completed inspection report, which lists any conditions subject to an additional charge. A copy of the report must be made available to the applicant or the applicant s agent. d. Evaluation of risk Agents are not permitted to bind coverage. The Minnesota FAIR plan shall issue a policy if the risk meets preliminary underwriting requirements. The plan may request an inspection report to obtain further underwriting information. If the inspection reveals that the applicant is not eligible for the coverage applied for, the plan shall inform the applicant within 59 days of the inception of the policy that the policy will be rescinded or cancelled. Before the 60th day after the inception of the policy, the FAIR plan shall advise the applicant that: the risk is acceptable with or without a condition charge or adjustment of policy limits (if a condition charge applies, the plan will tell the insured what improvements are necessary in order to remove the charge); the risk is not acceptable unless improvements noted by the plan are made by the applicant and confirmed by the plan; or the risk is not acceptable for the reasons stated by the plan.

30 26 Minnesota Law Supplement e. Premium invoice If the risk is accepted, an invoice will be delivered to the applicant requiring remittance of the appropriate premium. The policy term is one year. f. Declining a risk In the event a risk is declined because it fails to meet reasonable underwriting standards, the applicant must be so notified. Reasonable underwriting standards include, but are not limited to: the physical condition of the property, such as its construction, heating, wiring, evidence of previous fires, significant unrepaired damage, or general deterioration; the present use or housekeeping of the property such as vacancy, overcrowding, storage of rubbish, or flammable materials; or other specific characteristics of ownership, condition, occupancy, or maintenance, which are violative of public policy and result in increased exposure to loss. Neighborhood or area location or any environmental hazard beyond the control of the property owner are not acceptable criteria for declining a risk. g. Appeal of plan decision In the event that a risk is declined on the basis that it does not meet reasonable underwriting standards, or the coverage will be written on condition that the property be improved, the plan shall, within five business days, send copies of the inspection report to the applicant and the Commissioner, and shall advise the applicant of the right to and the procedure for an appeal to the governing board and to the Commissioner. h. Action on completed application The plan must, within five business days of the receipt of a completed application, advise the applicant that the risk has been declined, the risk has been accepted, or that the limit of coverage has been adjusted to reflect the insurable value of the subject property. i. If the Minnesota FAIR plan cancels a policy, it must provide the insured at least 15 days written notice, which includes the reason for cancellation. Any cancellation or nonrenewal notice must include a statement that the insured has a right to appeal the termination. A policy can only be cancelled for the following reasons: Nonpayment of premium For a reason which would have caused the risk to be declined had that reason been known to the plan at the time of acceptance With the approval of the FAIR plan governing board j. A licensed producer may submit applications to the Minnesota FAIR plan and receive a commission from the plan for premiums paid. However, the licensee is not an agent of the Minnesota FAIR plan and may not bind coverage. All forms of premium payments must be made payable to the Minnesota FAIR plan and not the producer. k. A licensed producer or broker shall not refuse to submit to the Minnesota FAIR plan an application for basic property insurance coverage.

31 Minnesota Law Supplement 27 D. HOMEOWNERS [65A.01, ; 72A.20, SUBD 13, 14; 2880] 1. Cancellation and Nonrenewal The insured may cancel their homeowners policy at any time and will receive a refund of any excess premium paid. The insurer may cancel or nonrenew a homeowners policy but must follow strict rules and regulations when doing so. a. Cancellation A policy may be cancelled by the insurer only for certain reasons, and the insurer must provide advance written notice to the insured. The cancellation notice must clearly specify the reason for cancellation, the possibility of coverage through the Minnesota FAIR plan, and the insured s right to complain to the Commissioner. The complaint must be filed within 30 days after receipt of the notice. 1.) A policy in effect for at least 60 days may not be cancelled except for one or more of the following reasons. The cancellation notice must be mailed to the insured at least 30 days before the effective cancellation date. Nonpayment of premium Misrepresentation or fraud in obtaining a policy or making a claim Omission of a material fact that increases the risk Physical changes in the insured property that are not corrected or restored within a reasonable time 2.) A policy in effect for less than 60 days can be cancelled for any reason. The cancellation notice must be mailed to the insured at least 20 days before the effective cancellation date. 3.) A policy can be cancelled at any time for nonpayment of premium with at least 20 days advance written notice to the insured. 4.) At the time of application, a written notice must be provided to all homeowners insurance applicants containing the following language: THE INSURER MAY ELECT TO CANCEL COVERAGE AT ANY TIME DURING THE FIRST 59 DAYS FOLLOWING ISSUANCE OF THE COVERAGE FOR ANY REASON WHICH IS NOT SPECIFICALLY PROHIBITED BY STATUTE. 5.) The insurer must provide the mortgagee 10 days written notice of cancellation. b. Nonrenewal In the event of nonrenewal, notice must be mailed to the insured at least 60 days before the effective date. The notice must contain the specific reason for nonrenewal. 1.) No insurer shall refuse to renew, or decline to offer or write, homeowners insurance coverage solely because the property houses day care services for five or fewer children.

32 28 Minnesota Law Supplement 2.) A producer may not refuse to supply a requested application or refuse to transmit any completed application to the insurer. 3.) No insurer shall refuse to renew, or decline to offer or write, or charge different rates solely because of the below reasons. However, the insurer may apply the same underwriting or rating standards it applies in all other locations. The property is located in specific geographic locations. The primary structure was built prior to a particular year. The insured or prospective insured was cancelled, nonrenewed, or denied coverage by another insurer. The property has been insured under the Minnesota FAIR plan. The insured has inquired about coverage for a hypothetical claim or has made an inquiry regarding a potential claim. c. Grounds for nonrenewal An insurer may nonrenew a homeowners policy for one or more of the following reasons. 1.) The policy may be nonrenewed for the same reasons used to cancel a policy. 2.) The homeowner uses the premises for an illegal activity. 3.) The agency contract is terminated. However, the insurer may assign the book of business to another producer to enable continuation of coverage. 4.) The homeowner violates local laws or ordinances which increase the possibility of a loss. 5.) Refusal of the insured to eliminate hazards after notification by the insurer. Prior to nonrenewal, two written requests must be sent to the insured listing the condition to remove and the time limits for compliance. The second notice must state the insurer s intent to nonrenew the policy if the condition is not removed. 6.) A substantial change in the quality or availability of fire protection services. 7.) The insured has two or more losses during the three-year experience period not including: losses caused by natural causes, including but not limited to lighting, wind, or hail; losses for which no payment was made by the insurer; or losses for which the insurer recovers 80% or more of the payment through subrogation.

33 Minnesota Law Supplement 29 8.) The insurer no longer writes homeowners insurance policies in Minnesota. 9.) The named insured fails to provide the necessary underwriting information upon written request from the insurer. 10.) The insured has not paid property taxes for two or more years. 11.) The named insured no longer owns the property nor resides at the insured location. 12.) If an insurer has grounds to nonrenew a homeowners policy on a named insured s primary residence, homeowners policies on the insured s secondary residences may also be nonrenewed. If an insured fails to renew the primary residence policy with an insurer, the insurer may nonrenew the secondary residence policy. d. Nonrenewal notices Each insurer must retain a record of all nonrenewals and company initiated cancellations, except those for nonpayment of premium, for three years. The Commissioner must approve all nonrenewal notices, which must contain the following. 1.) The specific reasons for termination. If the reason is due to the number of losses, the notice must include the date of the loss, type of loss, and payment amount. 2.) The insured s right to complain. The notice must include a statement advising the insured of the right to file a written complaint with the Commissioner within 30 days of receiving the notice. 3.) Other insurance options. The notice must include a statement advising the insured of the availability of insurance through the Minnesota FAIR plan. e. Penalties Insurers who violate Minnesota statute regarding nonrenewal are subject to the following calendar year penalties: 1.) First violation: $100 2.) Second violation: $300 3.) Third and subsequent violations: $500 4.) The Commissioner will not levy a fine if it s determined the nonrenewal notice was based on the insurer s good-faith judgment supported by evidence. The Commissioner is not prohibited from applying additional penalties.

34 30 Minnesota Law Supplement 2. Coverage and Claims The standard experience period in Minnesota is three years. Any claims or losses that occurred before the experience period cannot be used by the insurer when making an underwriting decision. a. Every insurer shall establish the minimum number and amount of claims during the experience period that may result in nonrenewal. The insurer may not consider as a claim the insured s inquiry about a hypothetical claim or the insured s inquiry to their agent regarding a potential claim. b. No homeowners policy may be nonrenewed based on the insured s loss experience unless the insurer has sent a written notice that any future losses may result in nonrenewal. c. Coverage remains in force until the effective date and time of policy termination. E. BINDERS [65A.03; 60K.46] Binders are used prior to a policy being issued to provide the insured with immediate protection until the actual policy is issued. 1. Binders or other contracts for temporary insurance may be oral or written, and should include all the terms of a standard fire insurance policy and all applicable endorsements. Coverage begins at 12:01 am Standard Time unless superseded by the express terms of the temporary insurance contract. 2. Oral binders must be followed up in writing to the insured within five business days. The binder must be forwarded by mail unless the insured authorizes a fax or electronic copy. A binder must be provided by the insurer to the policyholder upon request. III. MINNESOTA LAWS, RULES, AND REGULATIONS PERTINENT TO CASUALTY INSURANCE ONLY A. AUTOMOBILE INSURANCE [65B; 2770; 72A.201] 1. Minnesota No-Fault Automobile Insurance Act Passed in 1974, this law governs the coverages insurers must offer on a private passenger automobile policy, as well as how injured parties are compensated and claims are handled in the event of a motor vehicle accident. a. Purpose The No-Fault Act was passed to do three main things: 1.) Remove fault as the basis for compensation for medical and wage loss benefits 2.) Provide immediate entitlement of benefits without the need for litigation

35 Minnesota Law Supplement 31 3.) Limit the parameters whereby a non-negligent person can bring a claim or lawsuit against the at-fault driver (tort thresholds). The law also requires vehicle owners to insure the vehicles they own and operate with certain coverages. b. Proof of insurance Every insurer shall provide an insurance identification card for each covered vehicle when the policy is issued and at policy renewal. The card must include the insured s name, policy number, coverage dates, year/ make/model of the covered vehicle, VIN number, and name of the insurer. Upon request, the insured is required to show proof of insurance. 1.) A vehicle required to be registered, licensed, or which is principally garaged in Minnesota must be insured with liability, basic economic loss, and uninsured/underinsured motorist coverages. The vehicle owner can obtain an insurance policy from a licensed insurer or qualify as a self-insurer. 2.) A motorcycle registered or required to be registered in Minnesota must be insured with liability coverage only. The application must advise that under state law, the policy must provide liability coverage only; there is not a requirement for personal injury protection (PIP) coverage. In the case of an injury sustained by the insured, no PIP coverage available on an automobile policy will extend to the motorcycle loss. c. Required Limits and Coverages Every motor vehicle registered or principally garaged in Minnesota must be insured with the following three coverages, each with minimum limits to provide benefits for injuries arising out of the maintenance or use of a motor vehicle. 1.) Bodily Injury and Property Damage The insurer will pay, on behalf of the insured, damages the insured is legally obligated to pay due to bodily injury and property damage arising out of the ownership, maintenance, or use of a motor vehicle. The minimum liability limits are $30,000 for bodily injury to one person in any one accident; $60,000 for bodily injury to two or more persons in any one accident; $10,000 for property damage of others in any one accident. The insurer has the right to settle any claim covered by the policy. Liability coverage will be primary on the vehicle involved in the loss. 2.) Basic Economic Loss Benefits (personal injury protection) Provides reimbursement for loss due to injury arising out of the maintenance or use of a motor vehicle. Coverage shall be a minimum of $40,000 per person, subject to any applicable deductibles, exclusions, disqualifications, and other conditions. Benefits consist of $20,000 for reasonable and necessary medical expenses and a total of $20,000 for income loss, replacement services, funeral expense, and survivor s loss. Income loss benefits provide compensation for 85% of gross income to a maximum of $250 per week. Benefits are payable to a self-employed person who incurs costs to hire substitute employees and to an unemployed person who loses eligibility for unemployment benefits because of the inability to work due to the injury.

36 32 Minnesota Law Supplement Funeral and burial benefits shall be reasonable expenses not to exceed $2,000. Replacement service benefits reimburse expenses incurred by or on behalf of the injured person to obtain substitute services that normally would have performed by the person, for the benefit of the household, had they not been injured. Survivor s economic loss benefits are subject to a maximum of $200 per week; death must occur within one year of the accident and must arise out of injuries received in the accident. Rehabilitation treatment must be reported to the insurer within 60 days. If not, the insurer is responsible only for $1,000 of rehabilitation expenses. Every person injured in Minnesota in a motor vehicle accident, or as a pedestrian struck by a motorcycle, has a right to basic economic loss benefits. Persons injured while on a motorcycle do not qualify for basic economic loss benefits. A person entitled to basic economic loss benefits must notify the insurer within six months of the date of accident. If treatment lapses, the insurer may require reasonable medical proof of recurrence of the injury prior to paying for additional treatment; policies may contain a provision terminating eligibility for benefits after a one year lapse in treatment. Any person claiming injury benefits shall, upon request of the insurer, submit to a physical exam by a physician selected by the insurer. Persons receiving benefits shall participate and cooperate in arbitration proceedings if necessary. Benefits are payable on a monthly basis and are not subject to garnishment or any other legal process which would deny their receipt of use by the injured person. 3.) Uninsured and Underinsured Motorists The minimum limits for each coverage are $25,000 because of injury or death of one person in any accident and $50,000 because of injury or death of two or more persons in any accident. The insured may not use this coverage to recover for basic economic loss benefits. Uninsured and underinsured motorist coverage is primary on the vehicle occupied by the insured at the time of the loss. The coverage does not pay for bodily injury of the insured while occupying a motorcycle owned by the insured. d. Right to Sue A non at-fault claimant may recover damages for non-economic loss provided they meet a tort threshold. If one of the four thresholds is met, the claimant may file a claim or lawsuit against the at-fault party. The thresholds include the following: 1.) Reasonable medical expenses that exceed $4,000; the cost of diagnostic tests may not be included in the total

37 Minnesota Law Supplement 33 2.) Permanent injury or permanent disfigurement 3.) Disability for 60 days or more 4.) Death e. Payment of Claims 1.) Time Limitations The following acts by an insurer or adjuster constitute unfair settlement practices: Failing to acknowledge receipt of a claim notification within 10 business days Failing to reply, within 10 business days of receipt, to all other communications about a claim from an insured or a claimant Failing to complete the investigation and inform the insured or claimant of acceptance or denial of a claim within 30 business days after receipt of a claim notification. If the investigation cannot be completed within that time, the insurer shall advise the insured or claimant why the investigation is not complete and the expected completion date Failing to provide written notification to an insured or claimant who has an unresolved claim, and who has not hired an attorney, of the expiration of a statute of limitations at least 60 days prior to that expiration 2.) Assigned Claims Plan Insurers providing basic economic loss insurance in Minnesota shall organize and maintain an assigned claims bureau and assigned claims plan. The assigned claims bureau shall promptly assign each claim and provide the claimant with the identity and address of the insurer. Once a claim is assigned, the insurer has rights and obligations as if the insurer had issued a policy of basic economic loss insurance. With the exception of minor children in the household, a person shall not be entitled to benefits through the assigned claims plan if the injured person was the owner of the motor vehicle and failed to insure the vehicle. If an insurer is unable to fulfill benefit obligations due to financial inability, a person authorized to obtain benefits through the plan must notify the assigned claims bureau within six months after discovery of the financial inability. A person entitled to basic economic loss benefits because of injury may obtain benefits through the assigned claims plan if: the person is 14 years old or younger and benefits are not applicable to the injury because the motor vehicle involved in the loss was converted; benefits are not applicable to the injury for a reason other than vehicle conversion, racing, or intentional injuries; an insurer cannot be identified; or a claim is rejected by an insurer on grounds other than the person is not entitled to benefits under the no-fault law.

38 34 Minnesota Law Supplement 3.) Primacy When injured due to the maintenance or use of a motor vehicle, basic economic loss benefits are primary except for those benefits payable under a workers compensation law. 2. Renewal, Nonrenewal, and Cancellation Insurance companies can nonrenew or cancel an insured s policy, but must provide advance written notice, and there are only certain reasons the policy can be terminated. The standard experience period in Minnesota is three years. Any claims or losses that occurred before the experience period cannot be used against the insured when making an underwriting decision. a. Nonrenewal Nonrenewal includes terminating a policy at a certain date, a reduction in the limits of liability of coverage, or an increase of a physical damage deductible. Notice must be mailed to the insured at least 60 days before the effective date of nonrenewal. b. Reasons for nonrenewal 1.) Entire policy An entire policy may be nonrenewed for one or more of the following reasons. The policy may be nonrenewed for the same reasons used to cancel a policy. The agency contract is terminated. An insurer ceases to write auto insurance in Minnesota. The insured has two or more total theft of vehicle claims during the experience period and the vehicles are not recovered. The insured fails to provide necessary underwriting information upon written request from the insurer. Prior to nonrenewal, two written requests must be sent to the insured, stating why the information is necessary. The second notice must state the insurer s intent to nonrenew the policy if the information is not received. 2.) Points for nonrenewal The insurer may also nonrenew a policy if the insured equals or exceeds the number of points allowed for traffic violations and chargeable accidents during the experience period. a.) The following schedule shows the number of points that must be accumulated before a policy can be nonrenewed due to traffic violations and chargeable accidents. The schedule is based on the number of household vehicles insured by the same insurer. 1 vehicle in the household 2 points 2 vehicles in the household 3 points 3 vehicles in the household 3½ points 4 or more vehicles in the household 4 points b.) Point schedule for chargeable accidents and traffic violations 4 points Hit and run

39 Minnesota Law Supplement 35 Felony with an auto Auto theft Suspension or revocation of a driver s license DWI/implied consent Driving after suspension or revocation 2½ points Reckless driving 1½ points Careless driving 1 point At-fault accident; over $500 is paid from liability or collision coverage Open bottle violation ¾ point Second and subsequent speeding violations ½ point First speeding violations At-fault accident; $500 or less is paid from liability or collision coverage Other moving violations c.) If one operator accumulates three or more points, a policy may be nonrenewed regardless of the number of insured vehicles in the household. d.) Except in the four-point category, accidents or violations occurring while operating a commercial vehicle or emergency vehicle cannot be used to accumulate points for nonrenewing a private passenger vehicle policy. 3.) Nonrenewing physical damage coverage The grounds for nonrenewing physical damage coverage are limited to the following. a.) The insured has two or more comprehensive claim payments during the most recent 12 months. b.) The insured has three or more comprehensive claim payments during the experience period. c.) The insured has three claim payments on a single vehicle insured. d.) Multiple vehicles are covered, and the insured has four claim payments for any combination of comprehensive and collision losses during the experience period.

40 36 Minnesota Law Supplement c. Cancellation An insurer may cancel a policy with advance written notice provided to the insured and any unearned premium returned. 1.) A policy can be cancelled at any time for nonpayment of premium with at least 10-days advance written notice to the insured. 2.) Policies in effect for less than 60 days can be cancelled for any reason, and the notice must be mailed to the insured at least 10 days before the effective cancellation date. 3.) At the time of application, a written notice must be provided to all auto insurance applicants containing the following language: THE INSURER MAY ELECT TO CANCEL COVERAGE AT ANY TIME DURING THE FIRST 59 DAYS FOLLOWING ISSUANCE OF THE COVERAGE FOR ANY REASON WHICH IS NOT SPECIFICALLY PROHIBITED BY STATUTE. 4.) A policy in effect for at least 60 days may not be cancelled except for one or more of the following reasons. The cancellation notice must be mailed to the insured at least 30 days before the effective cancellation date. The insured fails to pay the premium. The insured obtains a policy through misrepresentation or makes a fraudulent claim. The insured omits a material fact that increases the risk. The named insured failed to fully disclose any accidents or violations within the past 36 months. The insured fails to notify the insurer of a loss or lawsuit against the insured. The insured fails to cooperate with the insurer. The insured is subject to epilepsy or heart attacks, unless determined by a physician to be under control. This also applies to household residents who drive the insured vehicle. The insured s driver s license has been suspended or revoked in the past 36 months. This also applies to household residents who drive the insured vehicle. The insured vehicle is mechanically defective such that its operation might endanger public safety. The insured vehicle is used to carry passengers for hire. Use of the vehicle for a car pool is acceptable. The insured vehicle is used in the business of the transportation of flammables or explosives. The insured vehicle has been substantially changed in type or condition, increasing the risk substantially. Examples include conversion to a commercial type vehicle, dragster, or sports car. d. Cancellation and nonrenewal notices The Commissioner must approve all cancellation and nonrenewal notices. Proof of mailing the notice to the

41 Minnesota Law Supplement 37 insured s address on the policy shall be sufficient proof that notice was provided. All termination notices must abide by the following: 1.) The year and make of the vehicle being nonrenewed must be specified. 2.) The insured must be given the specific reasons for nonrenewal including the date and type of physical damage loss, the date of the accident or violation, name of the driver, type of violation, and point value of each violation. 3.) The insured must be advised of the right to file a written objection with the Commissioner within 30 days of receiving the termination notice. The insurer has 10 days to respond in writing to the objection. Within 23 days the Commissioner will approve or disapprove the insurer s action and will notify both parties. 4.) The insured must be advised of the availability of insurance through the Minnesota Automobile Insurance Plan. 5.) Coverage remains in force until the effective date and time of policy termination. 6.) Each insurer must retain a record of all nonrenewals and company initiated cancellations, except those for nonpayment of premium, for three years. e. Penalties Insurers who violate Minnesota statute regarding nonrenewal are subject to the following calendar year penalties: 1.) First violation: $100 2.) Second violation: $300 3.) Third and subsequent violations: $500 4.) The Commissioner will not levy a fine if it s determined the nonrenewal notice was based on the insurer s good-faith judgment supported by evidence. The Commissioner is not prohibited from applying additional penalties. 3. Surcharge Disclosure Insurers may add a surcharge to the premium if the insured makes a claim or receives a traffic violation. Insurers are required to provide the policyholder with a surcharge disclosure statement prior to accepting the initial premium payment. Once a policy is in effect, an insurance company cannot change a surcharge plan without first mailing or delivering a copy of the new disclosure statement to the policyholder. The disclosure statement must include the insurer s name, the date of the surcharge plan, an explanation of the surcharge calculation, and two surcharge examples.

42 38 Minnesota Law Supplement 4. Minnesota Automobile Insurance Plan (assigned risk) The goal of the Automobile Insurance Plan is to make state-mandated auto insurance coverages available to individuals who are unable to obtain them through ordinary means. All insurance companies authorized to write auto liability or physical damage coverage in Minnesota are legally obligated to participate in this program. When determining the loss ratio of its producers, insurers may not include losses incurred by risks insured through the plan. a. Coverages provided Policies issued by the plan include the following coverages: 1.) Bodily injury and property damage liability with minimum limits of 30/60/10. Limits up to 50/100/25 are available, with higher limits if recommended by the plan and approved by the Commissioner 2.) Basic economic loss benefits as required by the Minnesota No-Fault Act 3.) Uninsured and underinsured motorist coverage with minimum limits of 25/50 4.) Physical damage coverage subject to deductible options b. Producer responsibilities All producers licensed to solicit, negotiate, or sell automobile insurance shall: 1.) offer to place coverage through the plan for any qualified applicant who is ineligible or unacceptable for coverage through the producer s company(s); 2.) forward to the plan all applications and any deposit premiums if the qualified applicant chooses to have coverage placed through the plan; and 3.) be entitled to a commission. c. Eligibility To be eligible for coverage through the plan, a qualified applicant must have been rejected, cancelled, or nonrenewed by an insurer in the voluntary market. 1.) Coverage through the plan will terminate once an insured is offered equivalent coverage at a lower rate in the voluntary market. 2.) At least annually, insurers who have placed applicants with the plan shall review those applicants and determine if they are acceptable for voluntary market insurance at a lower rate. If acceptable, the insurer shall make an offer to insure the applicant under voluntary coverage. 5. Comparative Negligence Negligence is defined as a tort involving failure to use reasonable care. Insurers will assign a percentage of fault (based on negligence) to

43 Minnesota Law Supplement 39 each party involved in the loss. Comparative negligence involves both parties being at fault. The harmed party (plaintiff) may recover damages, but only if their fault is less than that of the other party (defendant). Any damages recovered by the plaintiff will be reduced by the plaintiff s percent of negligence. The plaintiff will not recover damages if their negligence is greater than the defendant s. 6. Auto Stacking [65B.47] A priority of policies apply when determining which policy pays basic economic loss benefits. The priority differs when injury results from business use of a vehicle, use of an employer-provided vehicle, and when injury results to an individual not driving or occupying a motor vehicle involved in the accident. a. Injury resulting from business use If a driver or other occupant of a motor vehicle is injured while the vehicle is being used in the business of transporting property or people, basic economic loss benefits are secured through the policy covering the vehicle. If the vehicle is not insured, benefits are secured through the policy under which the injured person is an insured. This does not apply to: a commuter van; a vehicle being used to transport children as part of a family or group family day care program or to school or to a school-sponsored activity; a bus operating in Minnesota, as to a Minnesota resident defined as an insured by statute 65B.43; a passenger in a taxi; or a taxi driver if the policy was issued or renewed between September 1, 1996 and August 31, b. Injury resulting from use of an employer provided vehicle If an employee is injured as a driver or other occupant of a motor vehicle furnished by the employer, basic economic loss benefits are secured through the policy covering the vehicle. If the vehicle is not insured, benefits are secured through the policy under which the injured person is an insured. This also applies to the employee s spouse, or resident relative of the employee. The provision does not apply if the vehicle is a commuter van furnished by the employer. c. Injury to other persons If any other person is injured in a motor vehicle accident involving a vehicle used for business or an employer provided vehicle, and that person is not a driver or occupant of another involved motor vehicle, basic economic loss benefits are secured through the policy covering the vehicle. If the vehicle is not insured, benefits are secured through the policy under which the injured person is an insured. d. In all other cases, the following priorities apply. Basic economic loss benefits applicable to an insured are secured through the policy under which the injured person is an insured. Basic economic loss benefits applicable to the driver or other occupant of an involved motor vehicle who is not an insured are secured through the policy covering that vehicle.

44 40 Minnesota Law Supplement Basic economic loss benefits applicable to an uninsured individual who is not the driver or other occupant of an involved motor vehicle are secured through the policy covering any involved motor vehicle. A parked and unoccupied vehicle is not an involved vehicle unless it was parked such that it caused an unreasonable risk of injury. e. Contribution and subrogation If benefits from two or more policies apply to the injury, benefits may only be paid once. The insurer paying the claim shall do so in its entirety, but is entitled to recover contribution on a pro rata basis for benefits paid and the claim processing costs. When contribution is sought for benefits paid to an uninsured individual who is not the driver or other occupant of an involved motor vehicle, proration is based on the number of motor vehicles involved. 1) When an insurer pays basic economic benefits which another insurer is obligated to pay under this statute, the insurer paying the benefits has all rights of subrogation. f. Adding policies together Two or more motor vehicle policies may not be added together to determine the limit of insurance per person for any one accident unless a policyholder specifically elects to have them added together. The insurer must notify the policyholder that the policyholder may elect to add two or more policies together. B. WORKERS COMPENSATION [ ; ] 1. Purpose At the basis of the Minnesota workers compensation law is the intent to assure the quick and efficient delivery of indemnity and medical benefits to injured workers at a reasonable cost to the employers who are subject to the provisions of this law. Employees rights to sue for damages over and above medical and wage loss benefits are limited by the statute, as are the employers rights to use common law defenses such as assumption of risk or the employee s contributory negligence. Workers compensation laws are not meant to favor the employee, nor are the rights and interests of the employer to be favored. 2. Definitions a. Employee Any person who performs services for another for hire. Employee does not include farmers or members of their family who exchange work with other farmers in the same community. b. Employer Any person who employs another to perform a service for hire; includes a corporation, partnership, limited liability company, association, group of persons, state, county, town, city, school district, or governmental subdivision. c. Maximum medical improvement The date after which no further significant recovery from or significant lasting improvement to a personal injury can reasonably be anticipated, based upon reasonable medical probability, regardless of subjective complaints of pain.

45 Minnesota Law Supplement 41 d. Occupational disease Occupational disease means a mental impairment or physical disease arising out of and in the course of employment peculiar to the occupation in which the employee is engaged and due to causes in excess of the hazards ordinary of employment and shall include undulant fever. Physical stimulus resulting in mental injury and mental stimulus resulting in physical injury shall remain compensable. Mental impairment is not considered a disease if it results from a disciplinary action, work evaluation, job transfer, layoff, demotion, promotion, termination, retirement, or similar action taken in good faith by the employer. Ordinary diseases of life to which the general public is equally exposed outside of employment are not compensable, except where the diseases follow as an incident of an occupational disease, or where the exposure peculiar to the occupation makes the disease an occupational disease hazard. A disease arises out of the employment only if there be a direct causal connection between the conditions under which the work is performed and if the occupational disease follows as a natural incident of the work as a result of the exposure occasioned by the nature of the employment. An employer is not liable for compensation for any occupational disease that cannot be traced to the employment as a direct and proximate cause and is not recognized as a hazard characteristic of and peculiar to the trade, occupation, process, or employment or which results from a hazard to which the worker would have been equally exposed outside of the employment. 1.) Mental impairment means a diagnosis of post-traumatic stress disorder by a licensed psychiatrist or psychologist. 2.) A firefighter on active duty with an organized fire department who is unable to perform duties in the department by reason of a disabling cancer of a type caused by exposure to heat, radiation, or a known or suspected carcinogen, and the carcinogen is reasonably linked to the disabling cancer, is presumed to have an occupational disease. If a firefighter who enters the service after August 1, 1988, is examined by a physician prior to being hired and the examination discloses the existence of a cancer of a type described in this paragraph, the firefighter is not entitled to the presumption unless a subsequent medical determination is made that the firefighter no longer has the cancer. e. Personal injury An injury arising out of and in the course of employment and includes personal injury caused by occupational disease. Applies to employees while engaged in, on, or about the premises as required during the time of injury and during the hours of employment. Employees traveling to and from work in employer-furnished transportation are also covered. Personal injury does not include an injury caused by a third person or fellow employee intending to injure the employee because of personal reasons. Mental impairment is not considered a personal injury if it results from a disciplinary action, work evaluation, job transfer, layoff, demotion, promotion, termination, retirement, or similar action taken in good faith by the employer. f. Retraining A formal course of study in a school setting, which is designed to train an employee to return to suitable gainful employment.

46 42 Minnesota Law Supplement 3. Requirements Every employer is liable to pay compensation in every case of personal injury or death of an employee arising out of and in the course of employment without regard to negligence; the employer is liable for compensation according to the statute provisions. However, if the injury was intentionally self-inflicted or the intoxication of the employee is the proximate cause of the injury, the employer is not liable for compensation. The liability imposed upon the employer extends to and binds those conducting the employer s business during insolvency. 4. Benefits Workers compensation in Minnesota provides four basic types of benefits for employees: a. Wage loss benefits reimburse a portion of the injured employee s lost income. No benefits are paid for the first three calendar days after the disability begins. Benefits are equal to 66-2/3% of the employee s gross weekly wage at the time of the injury to a maximum of 102% of the statewide average weekly wage for the period ending December 31 of the preceding year, per week. b. Disability benefits 1.) Temporary total disability The compensation is 66-2/3% of the weekly wage at the time of injury subject to a maximum and minimum weekly compensation; compensation shall end when the employee returns to work. 2.) Temporary partial disability The compensation shall be 66-2/3% of the difference between the employee s weekly wage at the time of injury and the wage the employee is able to earn in their partially disabled condition. 3.) Permanent partial disability Compensation depends upon what percent of the employee s body is impaired. The impairment rating is developed in accordance with rules adopted by the Commissioner. Permanent partial disability is payable after temporary total disability payments end. 4.) Permanent total disability The compensation shall be 66-2/3% of the daily wage at the time of injury, subject to a maximum and minimum weekly compensation. After a total of $25,000 of weekly compensation has been paid, the amount of benefits paid by the employer shall be reduced by the amount of any disability benefits paid by any government disability benefit program, provided the disability benefits are due to the same injury. The reduction also applies to Social Security benefits. c. Medical benefits 1.) Statutes entitle an injured employee to reasonable and necessary medical treatment or supplies to cure or relieve the effects of the work injury.

47 Minnesota Law Supplement 43 The employer is required to furnish medical treatment including psychological, chiropractic, podiatric, surgical, and hospital treatment. 2.) In cases of permanent total disability, payment for the reasonable value of nursing services by a member of the employee s family is allowed. 3.) The employer is responsible for the repair or replacement of artificial members, glasses, dentures or artificial teeth, hearing aids, canes, crutches, or wheelchairs damaged because of the injury. 4.) All reasonable expenses incurred by or on behalf of an employee in providing treatment must be paid. This includes travel costs, copying charges, costs of medical reports, and attorney fees that are directly related to the treatment requested by the employee. d. Vocational rehabilitation services 1.) Rehabilitation is intended to restore the injured employee to a job related to their former employment or to a job in another work area that produces an economic status as close as possible to what the employee would have enjoyed without disability. 2.) Rehabilitation to a job with a higher economic status than would have occurred without disability is permitted if it can be demonstrated that this rehabilitation is necessary to increase the likelihood of re-employment. 3.) Economic status is to be measured not only by the opportunity for immediate income but also by the opportunity for future income. 5. Assigned Risk Plan [79.252] The purpose of the assigned risk plan is to provide workers compensation coverage to employers rejected by a licensed insurance company. An insurer that refuses to write insurance for an employer shall furnish the employer a written notice of refusal. The employer shall file a copy of the notice of refusal with the Commissioner. a. Any employer that is required to carry workers compensation insurance and has a current written notice of refusal to insure is entitled to coverage upon applying in writing to the assigned risk plan and paying the applicable premium. b. Policies and contracts of coverage shall contain the usual and customary provisions of workers compensation insurance policies and shall be deemed to meet the mandatory workers compensation insurance requirements of Minnesota. Policies may also provide workers compensation coverage required under the laws of other states, including coverage commonly know as all states coverage. c. Any employer may be denied or terminated from coverage through the assigned risk plan if the employer:

48 44 Minnesota Law Supplement 1.) applies for coverage for only a portion of the employer s statutory liability, excluding wrap-up policies; 2.) has an outstanding debt owed to the assigned risk plan at the time of renewal arising from a prior policy; 3.) persistently refuses to permit completion of an adequate payroll audit; 4.) repeatedly submits misleading or erroneous payroll information; or 5.) flagrantly disregards safety or loss control recommendations. d. Cancellation for nonpayment of premium may be initiated upon 60 days written notice to the employer. e. To be entitled to coverage, an employer having a significant occupational disease exposure, as determined by the Commissioner, shall have physical examinations made: 1.) of employees who have not been examined within one year of the date of application for assignment; 2.) of new employees before hiring; and 3.) of terminated employees. Upon request, the findings and reports of doctors making examinations, together with x-rays and other original exhibits, must be furnished to the assigned risk plan and the Department of Labor and Industry.

49 Minnesota Law Supplement 45 MINNESOTA 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 statement accurately describes the required conduct of an agent? A. An agent is required to deliver an insured s policy within 10 business days. B. Producers are allowed to disclose their customers names provided they do not identify the policy they have purchased. C. A producer may accept a loan from a customer provided the agreement is in writing and all records are kept for at least 6 years after repayment. D. Oral binders must be followed up in writing within 7 business days. 2. In the case of a deceased licensed insurance producer, the Commissioner may extend a temporary insurance producer license to the administrator or executor for a period not to exceed a total of how many days? A. 60 B. 90 C. 180 D A licensed insurance producer, limited lines producer, or temporary insurance producer who is convicted of a felony must report it to the Commissioner within how many days of the conviction? A. 10 B. 21 C. 30 D Which of the following is NOT included in the broad powers of the Commissioner of Commerce? A. Making rules and regulations as necessary to implement the insurance laws B. Conducting examinations as needed to determine whether a person or company has violated any insurance law or regulation C. Instituting such actions or other lawful proceedings as deemed necessary to enforce the state s insurance laws and regulations D. Developing and writing insurance education courses 5. What is the daily fine that may be assessed against a person who disobeys a cease and desist order of the Commissioner? A. $1,000 B. $5,000 C. $10,000 D. $20, The Commissioner will examine the affairs and conditions of every insurer licensed in Minnesota at least once every how many years? A. 1 B. 3 C. 5 D When can a licensed producer sell an insurance policy without a company appointment? A. If the producer has the insurer s permission and obtains an appointment within 15 days of submitting the first application B. When the producer has the insurer s written permission C. When the producer has permission from the Commissioner D. The producer is not allowed to transact any insurance business without a company appointment

50 46 Minnesota Law Supplement 8. How many years must an insurance company maintain documentation of an advertisement used in promoting a life insurance policy or annuity? A. 3 B. 4 C. 5 D If the Commissioner refuses to renew a producer s license, the Commissioner will issue a written notice. Which of the following statements about the notice is NOT correct? A. The notice will state the grounds for which the license was not renewed. B. The notice will state the possible criminal charges that may result from the licensee s actions. C. The notice will advise the producer to request a hearing within 30 days. D. The hearing will be held within 30 days of the producer s written request. 10. Which of the following statements about mutual insurers is NOT correct? A. Mutual insurance companies are managed by a board of directors. B. Mutual insurance companies return taxable dividends to policyholders. C. Mutual insurance companies are legal reserve companies. D. Mutual insurance companies are owned by their policyholders. 11. An agent whose license is revoked will be ineligible to reapply for any license for how many years? A. 1 B. 2 C. 3 D As established by law, the fee for an accident and health producer license is A. $50 every year B. $100 every year C. $50 every 2 years D. $100 every 2 years 13. Applicants for insurance producer licensing must meet all of the following requirements EXCEPT A. be age 18 B. be competent, trustworthy, and of good business reputation C. complete an approved prelicensing course of study D. comply with the bond requirement 14. Which of the following statements about continuing education requirements in Minnesota is NOT correct? A. The producer must complete at least 3 credit hours in the area of ethics. B. Only continuing education courses offered in a classroom setting are approved for credit. C. All continuing education courses must be approved by the Commissioner before they can be offered to producers for credit. D. After being licensed, insurance producers must satisfactorily complete 24 hours of approved continuing education during each licensing period. 15. The Minnesota Guaranty Fund was established to protect all of the following EXCEPT A. policyowners B. insurance companies C. annuitants D. beneficiaries 16. All the following individuals are required to become licensed in order to practice in the insurance business in Minnesota EXCEPT A. nonresident producers who hold the CLU designation B. a salaried employee who advises an employer about insurance matters and does not receive a commission C. a business entity acting as an insurance producer D. limited lines producers

51 Minnesota Law Supplement Under Minnesota law, all of the following are defined as unfair claims practices by insurance companies EXCEPT A. failing to promptly acknowledge pertinent communications concerning claims B. delaying an investigation or claim payment by requiring a duplicate verification of facts C. compelling policyowners to go to court to recover amounts due them by offering them substantially less than the amounts recovered through litigation D. offering payment of approved claims after affirming liability 18. Regarding company claims practices, which of the following statements is NOT correct? A. When denying a claim, the insurer is required to reference the applicable policy language in the denial letter. B. A company may require an inspection at a location convenient to the insured. C. An insurer who responds within 7 days to an insured s voic has not violated a claim settlement practice. D. In order to make a correct negligence assignment, the insurer can require ancillary information in addition to the loss information. 19. In Minnesota, to be an admitted company means the insurer has which of the following? A. Certificate of authority B. Company appointment C. Surplus license D. Reciprocal license 20. An agent must retain complaint and financial records for how many years? A. 2 B. 4 C. 6 D. Indefinitely 21. An example of unfair discrimination is best demonstrated by which of the following situations? A. An insurer refuses to reinstate a National Guard member s life insurance policy after coverage was nonrenewed while the person was on active duty. B. An insurer refuses to issue a policy to an applicant who has had 5 liability claims in the previous 3 years. C. An insurer assigns a premium rating to an applicant who weighs 30 pounds more than a typical person of that age and gender. D. An insurer refuses to issue a policy to an applicant whose credit history suggests an inability to financially support the policy for which the applicant is applying. 22. Which of the following statements about nonresident agents is CORRECT? A. A nonresident agent must take the Minnesota licensing examination to transact insurance in Minnesota. B. An individual who holds a producer license in her home state and whose state issues nonresident licenses to Minnesota residents on the same basis may apply for a nonresident license in Minnesota. C. A nonresident agent must file an affidavit with the Commerce Department that appoints the Commissioner of his home state as an agent for service of process in any legal proceeding. D. A nonresident agent must take the same pre-licensing education that resident agents complete. 23. A temporary license can be issued to all of the following EXCEPT A. an employee of a business entity upon the disability of the individual designated on the license B. an individual who has passed the producer exam and is waiting for a license to be issued C. the producer s spouse in order to renew insurance business sold by the deceased D. a business partner chosen by the Commissioner to perform tasks incidental to insurance business in force at the time of death

52 48 Minnesota Law Supplement 24. How long does an insurance producer s license remain valid in Minnesota? A. For as long as the 2-year licensing period, after which it must be renewed with another round of license testing B. As long as the appointing insurance company pays the appropriate fee each January 1 C. Continually, as long as the renewal fees are paid and the continuing education requirements are met D. Until revoked by the appointing insurer 25. A producer must inform the Commissioner of any change to the producer s residential address within how many days of the change? A. 10 B. 20 C. 30 D. 60 II. Property Insurance 26. What must an insurer do after an agent issues an oral binder to a customer? A. Issue a written binder within 5 business days B. Issue a policy with coverage beginning at 12:00 am Standard Time C. Provide the customer with a standard fire policy within 3 business days D. An agent cannot issue an oral binder. 27. When examining a property that is being considered for coverage under the FAIR plan, the inspection bureau will take all of the following actions EXCEPT A. assess the general condition of the property B. forward an inspection report to the FAIR plan within 10 business days of the inspection C. bill the property owner for the property inspection D. assess the structural problems of the property 28. An agent must initiate a cancellation of coverage request from a client within how many days? A. 5 B. 10 C. 30 D Minnesota Standard Fire policies must conform to all provisions required by law. Which of the following statements about the Minnesota Standard Fire policy is NOT correct? A. Within 30 days of receiving proof of loss, the insurer must give the insured notice of how it will handle the insured s claim. B. Once the insurer and insured settle a property loss, the insurer must pay the claim within 5 business days. C. The insured has 60 days to provide a proof of loss statement to the insurer. D. If the insured and insurer disagree on the value of damaged property, the insured must file a lawsuit to settle the loss. 30. Valued policy law states that A. the face amount will be paid in full in the event of a total loss B. the face amount will be paid in full in the event of a partial loss C. a depreciated amount will be paid in full in the case of a partial loss D. a depreciated amount will be paid in full in the case of a total loss 31. The insurer may nonrenew a homeowners policy for which of the following reasons? A. The insured provides in-home day care for 4 children. B. The property was formerly insured under the Minnesota FAIR plan. C. In the past 3 years, the insured has had 3 property loss claims. D. The insured s house is over 100 years old. 32. Under Minnesota insurance laws governing nonrenewal of a homeowners policy, an experience period is deemed to be how many years? A. 2 B. 3 C. 5 D. 10

53 Minnesota Law Supplement Who is responsible for administering the FAIR plan? A. The Department of Labor and Industry B. The Minnesota Insurance Guaranty Association C. The Federal Emergency Management Agency D. The Minnesota Property Insurance Placement Facility 34. When an insurer cancels a homeowners policy, it must do all of the following EXCEPT A. notify the mortgagee in writing at least 10 days prior to the cancellation B. place coverage with another insurer C. provide written notice to the insurer including the reason for cancellation D. inform the insured of possible coverage through the Minnesota FAIR plan 35. Which of the following statements about cancellation and nonrenewal notices is CORRECT? A. When cancelling a homeowners policy in effect for 30 days, the insurer must provide written notice 20 days prior to the cancellation date. B. A policy in effect for 2 years or more cannot be cancelled. C. An insurer who nonrenews a homeowners policy is not required to include the reason for termination in the nonrenewal notice. D. When a policyholder chooses to nonrenew his homeowners policy, he must provide 60-days notice to the insurer. 36. The Minnesota FAIR plan A. will provide at least 30-days written notice if cancelling a policy B. will insure all properties for which an application is submitted C. may accept a risk even if improvements to the property are necessary D. can deny coverage based on the property s location 37. Sandra s insurance company nonrenewed her homeowners policy after she failed to repair three broken front steps and a missing handrail. As part of the nonrenewal process, the insurer must do all of the following EXCEPT A. provide at least 60-days written notice of the nonrenewal B. retain the nonrenewal notice for 5 years C. send 2 written requests to Sandra prior to nonrenewal advising her what needs to be repaired and the time frame to complete the repairs D. inform Sandra she can file a written complaint with the Commissioner within 30 days of receiving the nonrenewal notice III. Casualty Insurance 38. All of the following are valid reasons for mid-term cancellation of a personal auto policy EXCEPT A. the insured submitted a fraudulent claim B. the insured vehicle is being used to transport flammable materials C. the insured vehicle s brakes have become inoperable D. the insured drove the vehicle into Mexico while on vacation 39. When cancelling a personal auto policy for nonpayment of premium, the insurer must A. notify the Commerce Department within the 10 days immediately following the effective date of the cancellation B. notify the insured within the 60 days immediately following the effective date of the cancellation C. notify the insured at least 10 days prior to the effective date of the cancellation D. notify the insured at least 30 days prior to the effective date of the cancellation 40. According to Minnesota state law, the uninsured and underinsured motorist protection must be written with at least which of the following limits? A. 15,000 / 25,000 B. 25,000 / 35,000 C. 25,000 / 50,000 D. 30,000 / 60,000

54 50 Minnesota Law Supplement 41. When an applicant is ineligible for auto coverage through the producer s own company, the producer can offer to place coverage through the Minnesota Auto Insurance Plan. All of the following statements regarding coverage through the plan are true EXCEPT A. the producer will receive a commission from the sale B. the producer should send the application and premium to his own company C. each year insurers will review risks placed with the plan to determine if they are acceptable for the voluntary market D. the loss ratio of the producer s book of business will not include losses incurred by risks placed through the plan 42. All of the following statements regarding Minnesota workers compensation law are true EXCEPT A. employers are responsible for work-related injuries sustained by their employees, regardless of fault B. reasonable rehabilitation expenses are covered with no limit C. workers compensation provides an exclusive remedy to claimants D. workers compensation does not cover an occupational disease sustained by the employee as a direct result of the employee s occupation 43. Under the Minnesota No-Fault Automobile Insurance Act, medical payments for those with personal injury protection benefits would have a minimum coverage of A. $10,000 B. $20,000 C. $40,000 D. $50, Bob and Sue were both injured in a car accident in which Sue was 70% at fault and Bob was 30% at fault. How will comparative negligence affect their claim settlements? A. Both Bob and Sue can recover damages from each other. B. Neither Bob nor Sue can recover damages from each other. C. Bob can recover 100% of his damages from Sue. D. Bob is unable to recover all of his damages from Sue due to his negligence. 45. Regarding termination of an auto policy, which of the following statements is CORRECT? A. The insurer must retain a record of all cancellations made by policyholders for 3 years. B. Coverage terminates as of the date of the termination notice. C. The insured may pursue coverage through the Minnesota Auto Insurance Plan. D. If an insured wishes to complain to the Commissioner about a cancellation, he must do so within 10 days of receiving the termination notice. 46. The Minnesota No-Fault Automobile Insurance Act requires which of the following as minimum limits of bodily injury and property damage protection? A. 100,000 / 300,000 / 100,000 B. 100,000 / 300,000 / 50,000 C. 30,000 / 60,000 / 10,000 D. 30,000 / 60,000 / 25, What is the purpose of the assigned risk plan? A. To provide workers compensation coverage to employers rejected by a licensed insurer B. To provide workers compensation coverage to employees whose employer does not carry a workers compensation policy C. To provide workers compensation coverage to employees who are injured by a third party D. To provide no-fault coverage to individuals without an auto policy

55 Minnesota Law Supplement Dan was struck by a car and is entitled to basic economic loss benefits through his own auto policy. Which of the following is CORRECT? A. In order to receive basic economic loss benefits, Dan needs to notify his insurance company within 30 days of the accident. B. Wage loss benefits are not available if Dan is unemployed. C. Dan will not qualify for basic economic loss benefits if he was injured while driving his motorcycle. D. Basic economic loss benefits may be garnished by the state if Dan falls behind on paying a judgment against him. 50. When an individual is injured in an auto accident due to his own negligence A. the individual does not qualify for personal injury protection (PIP) coverage since he is at fault B. the individual can obtain underinsured motorist coverage if medical expenses exceed the PIP benefit C. the individual can sue the other driver for additional benefits D. the individual qualifies for PIP coverage under his own policy 49. When an employee is injured on the job, workers compensation pays for all of the following EXCEPT A. reasonable and necessary hospital bills incurred to treat the employee s broken leg B. all the employee s wage loss as a result of being injured C. disability benefits if the employee has a permanent partial disability D. rehabilitation services to assist the employee in training for a job in a different department

56 52 Minnesota Law Supplement ANSWERS TO MINNESOTA LAW PRACTICE FINAL 1. C 11. B 21. A 31. C 41. B 2. C 12. C 22. B 32. B 42. D 3. A 13. D 23. B 33. D 43. B 4. D 14. B 24. C 34. B 44. D 5. C 15. B 25. A 35. A 45. C 6. C 16. B 26. A 36. C 46. C 7. A 17. D 27. C 37. B 47. A 8. A 18. D 28. B 38. D 48. C 9. B 19. A 29. D 39. C 49. B 10. B 20. C 30. A 40. C 50. D