honoring the trust you cultivate: conflicts of interest...

HONORING THE TRUST YOU CULTIVATE:Conflicts of Interest

and Other Breaches of TrustWichita Area Health Underwriters Symposium • Wichita, Kansas

April 21, 2016

The Usual Disclaimer

Nothing I am about to say should be construed as the official position of the Kansas Insurance Department, the opinion of Insurance Commissioner Ken Selzer, or individual legal advice.

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The Sapir-Whorf Hypothesis

The theory that linguistic categories and usage determine, or at least influence, thought and decisions

It is relevant for our purposes because we are going to talk about how your language shapes thoughts and expectations about what you do.

Conflicts of Interest

“Those engaged in offering insurance and other related financial services occupy the unique position of liaison between the purchasers and the suppliers of insurance and closely related financial products. Inherent in this role is the combination of professional duty to the client and to the company as well. Ethical balance is required to avoid any conflict between these two obligations.” NAIFA Code of Ethics, Preamble.


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The Preamble uses terms—“professional duty” and “client”--that invoke the status and ethical standards of practice in, for instance, law and medicine, professions held to a standard of absolute loyalty to the client and the duty to act in the client’s best interest. Even securities law (Investment Advisers Act of 1940) imposes a fiduciary standard for registered investment advisors. Insurance regulatory law does not.


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Consequently, your handling of those conflicts is more a matter of professional ethics than compliance with the law once any required disclosures are made and the applicable suitability standard is met.


What is a client?

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The primary definition of client in the Meriam-Webster Dictionary is “one that is under the protection of another: dependent.”


What is a client?

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The secondary definition includes “a person who engages the professional advice or services of another,” with the example of a lawyer’s client, a person served by a social agency (welfare client), and a computer in a network sharing a server.

Conflicts of InterestWhat is a client?

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The term client is believed to have derived from the Latin clinare, “to lean.”

What expectation of professional duty do you suppose the term inspires?

Your “Ethical Duties” According to the Insurance Code

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K.S.A. 40-4909. “(a) The commissioner may deny, suspend, revoke or refuse renewal of any license issued under this act if the commissioner finds that the applicant or license holder has:

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“(1) Provided incorrect, misleading, incomplete or untrue information in the license application.

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“(2) Violated:(A) Any provision of chapter 40 of the Kansas Statutes Annotated, and amendments thereto, or any rule and regulation promulgated thereunder;(B) any subpoena or order of the commissioner;(C) any insurance law or regulation of another state; or(D) any subpoena or order issued by the regulatory official for insurance in another state.

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“(3) Obtained or attempted to obtain a license under this act through misrepresentation or fraud.

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“(4) Improperly withheld, misappropriated or converted any moneys or properties received in the course of doing insurance business.”

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K.S.A. 40-247(a). “An insurance agent or broker who acts in negotiating or renewing or continuing a contract of insurance including any type of annuity by an insurance company lawfully doing business in this state, and who receives any money or substitute for money as a premium for such a contract from the insured, whether such agent or broker shall be entitled to an interest in same or otherwise, shall be deemed to hold such premium in trust for the company making the contract.” Violation ranges from a class A misdemeanor to a severity level 7 felony.

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“(5) Intentionally misrepresented the provisions, terms and conditions of an actual or proposed insurance contract or application for insurance.

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“(6) Been convicted of a misdemeanor or felony.

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“(7) Admitted to or been found to have committed any insurance unfair trade practice or fraud in violation of K.S.A. 40-2404 and amendments thereto.”

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K.S.A. 40-2404 contains a list of statutory violations; other violations may be found after hearing.

The following are among those most likely to apply to agents:

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(1) Misrepresentations and false advertising of insurance policies.

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(2) False information and advertising generally. Making, publishing, disseminating, circulating or placing before the public, or causing, directly or indirectly, to be made, published, disseminated, circulated or placed before the public, in a newspaper, magazine or other publication, or in the form of a notice, circular, pamphlet, letter or poster, or over any radio or television station, or in any other way, an advertisement, announcement or statement containing any assertion, misrepresentation or statement with respect to the business of insurance or with respect to any person in the conduct of such person's insurance business, which is untrue, deceptive or misleading.

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(3) Defamation. Making, publishing, disseminating or circulating, directly or indirectly, or aiding, abetting or encouraging the making, publishing, disseminating or circulating of any oral or written statement or any pamphlet, circular, article or literature which is false, or maliciously critical of or derogatory to the financial condition of any person, and which is calculated to injure such person.

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(11) Misrepresentation in insurance applications. Making false or fraudulent statements or representations on or relative to an application for an insurance policy, for the purpose of obtaining a fee, commission, money or other benefit from any insurer, agent, broker or individual.

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“(8) Used any fraudulent, coercive, or dishonest practice, or demonstrated any incompetence, untrustworthiness or financial irresponsibility in the conduct of business in this state or elsewhere.

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“(9) Had an insurance agent license, or its equivalent, denied, suspended or revoked in any other state, district or territory.

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“(10) Forged another person's name to an application for insurance or to any document related to an insurance transaction.”

“Forgery” includes the intent to defraud. It is also a crime, a severity level 8 felony. Without the intent to defraud, signing someone else’s name is just a terrible business practice.

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“(11) Improperly used notes or any other reference material to complete an examination for an insurance license issued under this act.

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“(12) Knowingly accepted insurance business from an individual who is not licensed.”

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“(13) Failed to comply with any administrative or court order imposing a child support obligation upon the applicant or license holder.

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“(14) Failed to pay any state income tax or comply with any administrative or court order directing payment of state income tax.

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“(15) Rebated the whole or any part of any insurance premium or offered in connection with the presentation of any contract of insurance any other inducement not contained in the contract of insurance.

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“(16) Made any misleading representation or incomplete comparison of policies to any person for the purposes of inducing or tending to induce such person to lapse, forfeit or surrender such person's insurance then in force.”

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“(b) In addition, the commissioner may suspend, revoke or refuse renewal of any license issued under this act if the commissioner finds that the interests of the insurer or the insurable interests of the public are not properly served under such license.”

Cases and Trends

Call center atrocities:

Life at a call center - YouTube

Cases and Trends

–Joseph Tretola, Consent Order dated April 22, 2014

–Simon Arocha, license revoked by Summary Order effective April 13, 2015

• Larissa Amarral, license surrendered by Consent Order dated Sept. 8, 2015

• Cassandra Watson, license revoked by Summary Order September 21, 2015

• Kenneth Wala, license revoked by Summary Order November 30, 2015

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Joseph Lata, emergency suspension in Arkansas, 3/28/2016, for pretty much the same allegations as against Wala. Given limited contact with Kansas, in the absence of a consumer complaint, we will wait for Arkansas to do the heavy lifting and proceed against the agent if justified after the Arkansas proceeding.

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https://www.youtube.com/watch?v=dMqGr4A_0E0

The Man with the Plan

• Douglas Fritzie, license revoked by Summary Order effective December 9, 2014

• Scott Gartner, license revoked after hearing by Final Order dated January 8, 2014

The Man with the Plan

• Kelly Graham, monetary penalty and cease and desist by Consent Agreement dated December 31, 2014

• J. Scott Day, monetary penalty and cease and desist by Consent order dated January 28, 2014

Criminal conduct, whether prosecuted or not

• Falsification of exam score reports and/or license certificate—two cases in the past two years

• Misrepresentation/failure to disclose in license application


• Two agents—one in a Texas call center and one in a metro-KC agency--obtained bank account or credit card information and used it to pay their personal bills. The KC agent is currently facing a charge of felony theft in Johnson County.


• One Wichita area agent changed the address of a “client” on an annuity, falsified a request for a large withdrawal from an annuity, had the check and future statements sent to his own address, and forged the endorsement on the check.


• One small-town Kansas agent dropped the ball on placing homeowner’s coverage for a client, and when the client had a loss, the agent altered claim documentation and submitted the claim piecemeal under other people’s policies so he could pay the claim with a series of small checks out of his office.


• Too helpful: An agent falsified supporting documents, forging contractors’ signatures, for discounts on several homeowner policies.


• Also too helpful: Isn’t every Kansas vehicle farm use? Maybe you use that classic Corvette to take lunch to the field? Three agents terminated for cause and/or disciplined in the last two years for false rating info.


• Cynthia Krueger & Ralph Harold (April 2014)--Falsified documents to support fraudulent claim for LTC home care benefits for Krueger’s terminally ill but still independent husband.


• Pending case: An agent sold approximately 145 accident policies within about 13 months. Of those 145 policies, 198 claims were submitted, and the average claim was within the first month. The majority of claimants had claims monthly for several months before the policies lapsed for nonpayment of premium.

License application disclosures.

If the question is “Have you ever been convicted of a crime” and you falsely answer “No,” we have some concerns about your honesty and fitness for the responsibilities of an agent, no matter what or when the crime was. It may be an old conviction, but it’s a fresh lie or a fresh case of carelessness.

Five ways to avoid misconduct or the appearance of it

1. Show your work. Document & maintain records.

2. Use a premium trust account. See #1.

3. If you give advice or recommendations, disclose your conflicting interests. See #1.

4. If you are giving advice, encourage the client to seek independent advice. See #1.

5. Respond to complaints/inquiries by KID, company, & consumers. See #1.

Kansas Insurance DepartmentBrenda Clary

Staff Attorney

420 SW 9th StreetTopeka, KS 66612

Phone: (785) 296-3071Fax: (785) 296-7805

[email protected]

Consumer Assistance Hotline:

1-800-432-2484

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