Discipline Under Chapter 12
This lesson covers the grounds on which the Director can refuse or discipline a license, how to contest that action, and the other chapter 12 licensees you will work beside.
Grounds for Action
MCL 500.1239 sorts its grounds into two lists. For both, the Director may place an existing license on probation, suspend it, revoke it, levy a civil fine, or use any combination. The difference lies in what happens to an applicant: under the first list the Director “shall not issue” a license, and under the second the Director “may refuse” one.
| Director shall not issue (MCL 500.1239(1)) | Director may refuse (MCL 500.1239(2)) |
|---|---|
| Obtaining or attempting to obtain a license through misrepresentation or fraud | Providing incorrect, misleading, incomplete or materially untrue information in the application |
| Improperly withholding, misappropriating or converting money or property received in insurance business | Having a producer license or its equivalent denied, suspended or revoked in any other state, province, district or territory |
| Intentionally misrepresenting the terms of an actual or proposed contract or application | Improperly using notes or reference material on an examination |
| Admitting or being found to have committed any insurance unfair trade practice or fraud | Violating any insurance law, or any regulation, subpoena or order of the Director or another state’s commissioner |
| Using fraudulent, coercive or dishonest practices, or demonstrating incompetence, untrustworthiness or financial irresponsibility, in Michigan or elsewhere | Failing to comply with an administrative or court order imposing a child support obligation |
| Forging another’s name to an application or related document | Failing to pay the single business tax or Michigan business tax, or to comply with an order to pay it |
| Knowingly accepting insurance business from an unlicensed individual |
Felonies appear on both lists:
| Conviction | Effect on an application | Citation |
|---|---|---|
| Any felony within 10 years before the uniform application was filed | Shall not issue | MCL 500.1239(1)(d) |
| At any date, a felony involving violence or a threat of violence, criminal sexual conduct, or a fiduciary or financial matter such as fraud, embezzlement, bribery or extortion | Shall not issue | MCL 500.1239(1)(e) |
| Any other felony | May refuse | MCL 500.1239(2)(b) |
Lena’s felony embezzlement conviction is decades old, but she can’t be licensed, because age doesn’t matter for a financial felony. If Ben’s felony came more than 10 years before he applied and isn’t a kind listed in MCL 500.1239(1)(e), the Director decides.
Procedure
Before denying an application under MCL 500.1205 or 500.1206a, the Director must tell the applicant in writing of the denial and the reason. Not later than 30 days after that written denial, the applicant may make a written demand for a hearing on the reasonableness of the action, held under the Administrative Procedures Act (MCL 500.1239(4)). Solicitors, counselors and adjusters have a parallel right, requesting a hearing in writing within 30 days after the notice of refusal is mailed (MCL 500.1242(1)). After notice and an opportunity for a hearing, the Director may suspend or revoke those licenses, and may refuse to grant or renew one if the applicant’s business would probably give rise to coercion, indirect rebating or other prohibited practices (MCL 500.1242(2), (3)).
When protection of the public requires emergency action, the Director may summarily suspend a license without a prior hearing. If requested, the hearing must come not later than 20 days after the suspension takes effect, unless the licensee asks for a later date, and the decision follows within 30 days after the hearing ends (MCL 500.1242(4)). The Director may subpoena witnesses and documents for a hearing (MCL 500.1242(5)).
A person aggrieved by a final order may seek judicial review (MCL 500.244(1)). The petition is due within 60 days after the date of mailing notice of the final decision, and filing it doesn’t stay enforcement unless the agency or court grants a stay (MCL 24.304(1)).
A business entity’s license may be suspended, revoked or refused, after hearing, if its partners, officers or managers knew or should have known of an individual licensee’s violation, and the violation was neither reported nor corrected (MCL 500.1239(5)). Surrendering a license, or letting it lapse, doesn’t end the case: the Director may still act against a person under investigation or charged (MCL 500.1239(7)).
Penalties
If the Director finds, after an opportunity for a hearing, that a person violated chapter 12, the Director must put the findings in writing and order the person to cease and desist. The Director may add any of these (MCL 500.1244(1)):
- A civil fine of up to $1,000 per violation, or up to $5,000 per violation if the person knew or reasonably should have known of the violation, with no order requiring more than $50,000 in fines.
- A refund of overcharges.
- Restitution to the insured or other claimant for losses, damages or other harm.
- Suspension or revocation of the license.
Knowingly violating a cease and desist order, after notice and an opportunity for a hearing, carries up to $20,000 per violation, suspension or revocation, or both, with no order requiring more than $100,000 in fines (MCL 500.1244(3)). The Director may reopen and change an order if facts, law or the public interest require it (MCL 500.1244(2)). The Director may also apply to the court of claims for an order enjoining a violation (MCL 500.1244(4)).
Reporting and Confidentiality
Report to the Director any administrative action against you in another jurisdiction, or by another government agency in Michigan, within 30 days after the final disposition, with a copy of the order or other legal documents (MCL 500.1247(1)). Report any criminal prosecution in any jurisdiction within 30 days after the initial pretrial hearing date, with the initial complaint and the hearing’s order (MCL 500.1247(2)). That clock doesn’t wait for a verdict.
Material that insurers and producers furnish to DIFS, or that the Director obtains in an investigation under MCL 500.1246, is confidential and privileged (MCL 500.1246(1)), though final adjudicated actions may be released to the database of the National Association of Insurance Commissioners (MCL 500.1246(5)). An insurer or producer that fails to report as MCL 500.1208b or 500.1246 requires may, after notice and hearing, lose its license or certificate of authority and be fined (MCL 500.1246(6)).
Solicitors
A solicitor works for a licensed agent, soliciting applications and collecting premiums. An agent may use a solicitor only under a written contract, with the solicitor licensed and the Director notified (MCL 500.1211(1), 500.1212(1)). The prelicensing course must be finished not more than 6 months before the application is received (MCL 500.1214(2)). A solicitor is a fiduciary and may not pay for leads (MCL 500.1216(1), (3)), and an agent must immediately notify the Director when a solicitor’s authority ends, disclosing any misconduct (MCL 500.1218).
Adjusters
No one may adjust loss or damage under a policy without an adjuster license. The exemptions include lawyers, marine average adjusters, an authorized insurer’s employees adjusting its own policies, and licensed producers granted claim authority by an insurer (MCL 500.1222). The Director can’t license a person connected with a fire repair contractor (MCL 500.1224(4)).
An adjuster for the insured has added limits. The fee can’t exceed 10% of the amount the insurer pays in settlement. A written contract is required, and one signed within 48 hours after the loss-producing occurrence ends is voidable by the insured for 10 days (MCL 500.1226(3), (4)). Soliciting during the occurrence, or while the fire department is at the premises, is prohibited (MCL 500.1227(1)). Records are kept for at least 6 years after the transaction ends (MCL 500.1228(2)).
Insurance Counselors
Only a licensed counselor may give advice or opinions on the benefits, terms or value of a policy or annuity, or use language implying that license. A licensed agent’s customary advice is allowed, and so is a lawyer’s (MCL 500.1232). A counselor needs a signed written agreement before starting work. It must state the fee, say the fee may not be waived under any circumstances, and disclose any commission on insurance the counselor places as an agent. The counselor keeps a copy for at least 2 years after the services end (MCL 500.1236).
Temporary Licenses
The Director may issue a temporary license for up to 180 days without an examination when one is needed to service an insurance business (MCL 500.1211b(1)). It may go to the surviving spouse or court-appointed personal representative of a producer who dies or becomes disabled, to a member or employee of a business entity when its designated individual dies or becomes disabled, to the designee of a producer entering active military service, or where the Director considers it in the public interest. The Director may limit its authority or require a sponsor (MCL 500.1211b(2)).
Lenders and Other Provisions
MCL 500.1243 governs lenders that sell insurance. A lender can’t require a borrower to buy through a particular agency, agent or insurer, or vary loan terms as an inducement (MCL 500.1243(9)). A loan representative who worked on a loan can’t act as agent for required insurance on it (MCL 500.1243(13)). Credit and required insurance transactions must be completed independently, on separate documents (MCL 500.1243(18)), and the section has its own penalties (MCL 500.1243(37), (38)). It doesn’t cover credit insurance act products or life insurance offered under MCL 500.4418 (MCL 500.1243(34), (35)).
An accident and health agent who is a health benefit agent is subject to the health benefit agent act when selling health benefits (MCL 500.1210). The remaining sections are administrative: the continuing education fund (MCL 500.1204d) and an annual report of life and health examination statistics (MCL 500.1206c).
Lesson summary
- Under MCL 500.1239, the Director may place on probation, suspend, revoke or fine for grounds on either list. The first list bars issuing a license, and the second allows refusal.
- A felony within 10 years before application bars a license, a violent, sexual or financial felony bars it at any date, and any other felony is discretionary.
- A denied applicant may demand a hearing within 30 days after the written denial, and a final order may go to court within 60 days.
- Summary suspension needs a finding of emergency, and a requested hearing follows within 20 days.
- Chapter 12 fines run up to $1,000 or $5,000 per violation, capped at $50,000 per order. Knowingly violating a cease and desist order raises those to $20,000 and $100,000.
- Surrendering a license doesn’t stop the Director.
- A producer reports administrative actions within 30 days after final disposition and criminal prosecutions within 30 days after the initial pretrial hearing date.
- Solicitors, adjusters and insurance counselors hold separate licenses with their own rules, and lenders selling insurance must keep credit and insurance decisions apart.