Unfair Competition and Deceptive Practices
Coercion
Ref: 10-3-1104(1)(d); 10-3-1105
Producers and insurers may not engage in coercion—using force, intimidation, or unfair pressure—to compel a person to purchase insurance from a specific source.
Entering into an agreement to commit, or by concerted action committing, any act of boycott, coercion or intimidation that results or tends to result in unreasonable restraint of, or monopoly in, the business of insurance is prohibited.
Misrepresentation
Ref: 10-3-1104(1)(a); 10-1-128
Misrepresenting policy terms, benefits, or the financial condition of an insurer is illegal.
- Misrepresentation involving the creation or distribution of policies, quotes, and illustrations designed to provide inaccurate information about the terms and conditions of a policy is prohibited. Under the NAIC’s model act, any estimate, illustration or statement that misrepresents a policy’s benefits, advantages, conditions or terms is an unfair trade practice when committed flagrantly and in conscious disregard of the law, or often enough to indicate a general business practice.
- Providing inaccurate or incomplete information or comparisons regarding the benefits of a policy is an example of misrepresentation.
Providing inaccurate or incomplete information for the purpose of inducing, or tending to induce, the lapse, exchange, conversion, forfeiture, or surrender of a policy is a violation as well (twisting).
False advertising
Making, publishing or circulating an advertisement, announcement or statement about the business of insurance that is untrue, deceptive or misleading is an unfair trade practice under state law, based on the NAIC’s model act. The medium does not matter: the rule reaches newspapers, magazines, radio and television, and also notices, circulars, pamphlets, letters, posters and any other way of placing the statement before the public. Under the model act, such a statement is an unfair trade practice when committed flagrantly and in conscious disregard of the law, or often enough to indicate a general business practice. Some state laws adopt this condition, and others reach a single such statement.
Unfair discrimination
Unfair discrimination is treating people or risks that present the same hazard differently. The NAIC’s model act, on which state unfair trade practices laws are based, prohibits:
- Unfair discrimination between individuals of the same class and equal expectation of life in life insurance and annuity rates, dividends, benefits or terms
- Unfair discrimination between individuals of the same class and essentially the same hazard in health insurance premiums, benefits or terms
- Refusing, limiting or canceling coverage because of a person’s sex, marital status, race, religion or national origin
- In property and casualty insurance, refusing or limiting coverage solely because of a risk’s geographic location, unless sound underwriting and actuarial principles justify it, or solely because the applicant or insured is physically or mentally impaired
Many states also expressly forbid refusing or limiting coverage solely because a person is blind or partially blind. Colorado bars unfair discrimination between individuals of the same class and equal expectation of life; any classification solely by marital status or sex unless it insures family units or is justified by actuarial statistics; any classification solely by blindness, partial blindness or a specific physical disability unless it rests on a different expectation of life or risk of loss; and any use of sexual orientation in underwriting (C.R.S. 10-3-1104(1)(f)).
Controlled business
Controlled business is insurance written on the producer’s own life, property or interests, or on those of the producer’s family, employer or a business the producer controls. A producer may insure themselves and their family, but a license exists to sell insurance to the public, so states generally restrict obtaining or using a license principally to write controlled business. Colorado will not grant or extend a license used to write controlled business, meaning insurance on the person’s own or spouse’s life, property or risks, or on the person’s employer or own business, and treats a license as used for that purpose when, in any twelve-month period, premiums on controlled business would exceed premiums on all other business (C.R.S. 10-2-401(4)-(5)).
Defamation
Defamation of an insurer is an unfair trade practice under state law, based on the NAIC’s model act: making, publishing or circulating an oral or written statement that is false, or maliciously critical of or derogatory to the financial condition of an insurer, and that is calculated to injure such insurer. Some states’ laws reach further, to a statement calculated to injure any person engaged in the business of insurance. Spreading an untrue rumor that a competing insurer is about to fail is the classic example. Colorado’s statute reaches a statement about the financial condition of any person, calculated to injure that person (C.R.S. 10-3-1104(1)(c)), and an insurer’s officer, employee or agent who circulates false and malicious criticism of another insurance company commits a petty offense (C.R.S. 10-1-116).
Rebates
Ref: 10-3-1104(1)(g)
Colorado licensed producers are prohibited from directly or indirectly giving any refund, discount, favor, or credit to reduce premiums to induce the purchase of insurance.
Sharing commission
Splitting or sharing commissions with a licensed producer is allowed. Both parties must be licensed in the line of business in which the proposed commission is to be split. Under the NAIC’s model act, a commission may also be paid to an insurance agency, or to a person who does not sell, solicit or negotiate insurance.
Illegal inducements
Offering anything of value not specified in the policy (money, a service, a favor or a gift) as an inducement to buy insurance is prohibited unless state law expressly allows it, and any agreement made as part of the sale must be written into the policy.
States differ on promotional gifts. The NAIC’s model act lets producers and insurers give customers non-cash gifts, meals or charitable donations up to an amount the state considers reasonable, as long as the gift is not conditioned on buying or renewing a policy and is offered without unfair discrimination. Each state sets its own limit. Colorado’s Division has set the reasonable amount for a noncash gift, item or service, including a meal or charitable donation, at no more than $100 in the aggregate per customer policy per year (3 CCR 702-1, Regulation 1-1-11 § 6).
Unfair Claims Practices
Ref: 10-3-1104(1)(h)
Insurers must adopt fair claims handling standards and promptly pay valid claims.
Unfair practices include:
- Delaying the investigation or payment of claims by requiring an insured or claimant, or the physician of either of them, to submit a preliminary claim report, and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information.
- Failing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement.
- Refusing to pay claims without conducting a reasonable investigation based upon all available information.
- Making settlement claims based on information contained on an application that has been altered without the insured’s consent is a violation of the regulation.
- Denying a claim without conducting a thorough investigation.
- Attempting to settle a claim for less than the amount to which a reasonable person would have believed he or she was entitled by reference to written or printed advertising material accompanying or made part of an application.
Colorado Fraud Statute
Ref: 10-1-128; 10-1-129
Knowingly presenting false information in connection with an insurance application or claim is a criminal offense punishable by fines, restitution, and imprisonment.
Any licensed producer who makes false statements containing inaccurate material facts, or who makes false statements on an application for insurance, is in violation of the state’s unfair trade practices law and likely guilty of insurance fraud. The rule is not limited to licensed producers: under the NAIC’s model act, it is an unfair trade practice for an insurer or any person engaged in the business of insurance to make false or fraudulent statements or representations on or relative to an application for a policy, for the purpose of obtaining a fee, commission, money or other benefit from any provider or individual person.