Failing to Disclose Teen Drivers: Strategy or Fraud?

In some local markets, it has become typical for certain non-independent agents to tell their insureds it’s not necessary to disclose or rate teenage drivers. These agents say they will cover the teenage drivers in the event of an accident, and the client will simply have to pay back the premium.

Q: “As you can imagine, this puts us at a big competitive disadvantage. Anything out there you're familiar with we can use to combat this, case law or otherwise? I always tell people when they hear this to ask the agent to put it in writing."

A: “Our response depends on the answers to two questions: Can you prove this? And are you willing to pursue this with your insurance department?

If yes for both: While we're certainly not legal experts, if the rates/rules filing a carrier has made with the state DOI calls for premium charges for teenager operators and these agents are deliberately not charging premium for them, that sounds like insurance fraud to me. If the agent is doing this unilaterally without the knowledge or consent of the carrier, they may also be defrauding the insurer.

This is reminiscent of ‘guaranteed replacement cost,’ when agents deliberately undervalued property for competitive reasons, knowing the actual available insurance was 20% or higher than the declared limit on the policy. As a result, many insurers discontinued GRC coverage.

Based on the information below, what you describe appears to be insurance fraud in your state:

20-443.01. Misrepresentation in sale of insurance; violation; classification

  1. It is unlawful for a person to knowingly make any misrepresentation as proscribed by section 20-443 in the sale of insurance.
  2. A person who violates this section is guilty of a class 5 felony.

20-466.01. Fraud; classification

A person who violates section 20-463 or 20-463.01 with the intent to injure, defraud or deceive an insurer is guilty of a class 6 felony.

 

20-463. Fraud; injunction; penalties; restitution; definitions

  1. It is a fraudulent practice and unlawful for a person to knowingly:
    1. Present, cause to be presented or prepare with the knowledge or belief that it will be presented an oral or written statement, including computer generated documents, to or by an insurer, reinsurer, purported insurer or reinsurer, insurance producer or agent of a reinsurer that contains untrue statements of material fact or that fails to state any material fact with respect to any of the following:
      1. An application for the issuance or renewal of an insurance policy.
      2. The rating of an insurance policy.
      3. Premiums paid on any insurance policy.

In addition to possible rates/rules/forms filing law and fraud statutes, would this qualify as an unfair trade practice?

20-448. Unfair discrimination; definitions

C. As to kinds of insurance other than life and disability, a person shall not make or permit any unfair discrimination in favor of particular persons or between insureds or subjects of insurance having substantially like insuring, risk and exposure factors, or expense elements, in the terms or conditions of any insurance contract, or in the rate or amount of premium charged.

If evidence is lacking and/or you do not want to pursue specific individuals, discuss the situation with the insurance department. You might be able to coax them into issuing a bulletin to agents and insurers outlining this or similar practices as major violations of the insurance code.”

Bill Wilson is director of the Big “I” Virtual University.

This question was originally submitted by an agent through the VU’s Ask an Expert Service. Answers to other coverage questions are available on the VU website. If you need help accessing the website, email logon@iiaba.net to request login information.