Fiduciary Duties and Handling Premiums in Wisconsin
A client hands you a check for her homeowners premium. Until it reaches the insurer, you hold money that belongs to someone else, and how you handle it, from the receipt you write to the day you send it on, shows whether you can be trusted with a license. Wisconsin law sets the rules for anyone who handles other people’s money in the insurance business.
Where the Duty Comes From
Wisconsin has no single statute titled “fiduciary duty of agents.” The foundation is the licensing standard. The Commissioner licenses only an applicant who is “competent and trustworthy” (s. 628.04 (1) (b) 2., Wis. Stat.), and after a hearing may revoke, suspend or limit the license of an intermediary who is not, or whose “methods and practices in the conduct of business endanger, or financial resources are inadequate to safeguard, the legitimate interests of customers and the public” (s. 628.10 (2) (b)). An agency that cannot pay its bills without dipping into premium is that kind of danger.
The Commissioner’s rule then lists conduct that is evidence of untrustworthiness (s. Ins 6.59 (5) (d), Wis. Adm. Code). Two items speak directly to money: “improperly withholding, misappropriating or converting any monies or properties received in the course of doing insurance business,” and showing financial irresponsibility in the conduct of business.
Notice the first verb: withholding. You do not have to spend a client’s money to fail the standard. Improperly sitting on it, whether a premium kept past the date it was due to the insurer or a refund not passed to the client, is enough.
A fiduciary standard for money is not fiduciary status for advice: even Wisconsin’s annuity best-interest rules “do not create a fiduciary obligation or relationship” (s. 628.347 (2) (a)). For money in your hands, though, the standard is strict.
Taking the Premium
Under s. Ins 6.60 (1) (d), receiving a premium from a customer is an ordinary part of the insurance business, and not a prohibited personal financial transaction, only if:
- the payment is properly recorded on your records as s. Ins 6.61 requires, including the name of the insurer it was received for; and
- you immediately issue the customer a written receipt.
Skip either step and the exception no longer protects you: you are holding a customer’s money, and acting as custodian of a customer’s money is a personal financial transaction the rule treats as an unfair trade practice unless a narrow exception applies, such as a customer who is your relative (s. Ins 6.60 (2) (a)).
The customer who pays you is generally protected. An insurer is bound by any act of its agent in Wisconsin within the scope of the agent’s apparent authority (s. 628.40). For surplus lines business the statute is explicit: once the surplus lines agent has the premium, the insurer “is deemed to have received the premium due to it,” whether or not the agent owes the insurer money (s. 628.12). The risk of your default falls on you and your insurer, not on the client, which is why your handling of the money is regulated so closely.
Keeping the Books
Wisconsin protects premium money mainly through records. The intermediary records rule exists to protect policyholders “by prescribing minimum standards and techniques of accounting and data handling of intermediaries” (s. Ins 6.61 (1)).
| Record | What it must show | Rule |
|---|---|---|
| Cash receipts record | Who remitted the money, the date received, and the reason for payment | s. Ins 6.61 (5) |
| Cash disbursed record | Who was paid, the date, and the reason for payment | s. Ins 6.61 (4) |
| Commission statements | Insured’s name, policy number, premium, amount of commission, and date allocated or paid | s. Ins 6.61 (6) |
| Business checking account | The records of any account you use for insurance-related transactions | s. Ins 6.61 (3) (a), (8) (e) |
Keep each of these for 3 years (s. Ins 6.61 (8)), update them “at reasonable intervals or as necessary,” and maintain the financial records “according to accepted accounting principles” (s. Ins 6.61 (13)). A false entry made to deceive someone examining your records, or a proper entry willfully left out, is a misrepresentation under s. 628.34 (1) (a). The goal is that every dollar received for insurance can be traced from your receipt, through your account, to the insurer or back to the client.
Commingling
Wisconsin’s rules for agents in general do not prescribe a separate premium trust account. Where the law does spell one out, it shows what the standard looks like. A managing general agent must hold funds collected for an insurer “in a fiduciary capacity in a financial institution which is a member of the federal reserve system” and remit funds due “on not less than a monthly basis” (s. Ins 42.03 (2), (3)). Premium taxes a surplus lines agent collects are “the property of this state, to be held in trust for the state” (s. 618.43 (7)).
For other intermediaries, the sound practice is the same idea on a smaller scale: deposit premium into an account used only for insurance money, never your personal account, and never use it to cover rent or payroll while it waits to be remitted. Once premium is mixed with your own funds, your records can no longer show whose dollars are whose.
Sending Money On and Giving It Back
Remit premium as your agency contract requires, and pass along refunds just as promptly. A return premium issued for your client is the client’s money, and holding it is “withholding” under s. Ins 6.59 (5) (d) 4.
In property and casualty lines other than disability coverage, insurers face limits too. When the insurer initiates a cancellation, or cancels for nonpayment, it may not return less than the pro rata unearned premium, and it may not cancel one policy solely to apply its unearned premium to the balance due on another (s. Ins 6.10 (4) (c), (5)).
Advancing a Client’s Premium
Agents sometimes cover a premium for a client who is short at renewal. Extending credit on a premium is permissible:
- without interest for not more than 60 days from the policy’s effective date; or
- after that, with interest of at least the legal rate and not more than 18 percent per year on the unpaid balance (s. 628.39).
Credit on more generous terms falls outside s. 628.39 and risks being an unfair inducement, a benefit not specified in the policy (s. 628.34 (2) (a)). In surplus lines, no agent may absorb the premium tax for a client (s. 628.34 (2) (b)). Record any credit you extend like any other transaction.
Supervising People Who Touch the Money
Anyone who “knowingly permits a person over whom he or she has authority to violate an insurance statute or rule” may forfeit up to $1,000 for each violation, or up to $5,000 when the violation involves fraud or misrepresentation, a consumer at least 60 years old or an adult at risk (s. 601.64 (3) (c)). If you run an office, assign responsibility for deposits, reconcile the account against the receipts record, and follow up on any premium that has not reached the insurer.
Putting It Together
Dana, an agent in Eau Claire, collects $1,200 in cash from a client renewing his auto policy. She writes a receipt on the spot naming the insurer, logs the payment in her cash receipts record, and deposits it that day in the account she uses only for premiums. When the insurer later issues a $150 return premium on the client’s other policy, Dana forwards it to him at once instead of holding it against a future bill. Every step is on paper, and none of the money sat in an account that also paid her bills.
Lesson summary
- The fiduciary duty in Wisconsin rests on the “competent and trustworthy” standard (s. 628.04) and the grounds for discipline in s. 628.10 (2) (b).
- Improperly withholding, misappropriating or converting money received in the insurance business is evidence of untrustworthiness (s. Ins 6.59 (5) (d) 4.).
- Record every premium with the insurer’s name and receipt it immediately; otherwise you hold a customer’s money as a custodian, an unfair trade practice under s. Ins 6.60.
- Cash receipts and disbursed records, commission statements and the business checking account are kept for 3 years under accepted accounting principles (s. Ins 6.61).
- Wisconsin requires a fiduciary account for managing general agents and treats surplus lines taxes as trust funds; for other agents, a separate premium account is the sound way to avoid commingling.
- Using or keeping another’s money held through your business can be theft (s. 943.20 (1) (b)).
- Premium credit is permitted interest-free for up to 60 days, or with interest up to 18 percent per year (s. 628.39).
- Supervisors who knowingly permit violations face forfeitures of up to $1,000 per violation, or $5,000 where s. 601.64 (3) (c) 2. applies.