Unfair Trade Practices

  • Michael Lovendusky (American Council of Life Insurers -- ACLI) .... said the Unfair Trade Practices Act is the bedrock of market practices.

2001-1, NAIC Proceedings, Suitability Working Group 

  • The NAIC's Model Unfair Trade Practices Act is designed to prevent deceptive and/or misleading practices during the sale of insurance.
  • The Model Act also provides an enforcement mechanism and a framework for regulatory action in this area.
  • This Act prohibits deceptive, dishonest, or unfair sales practices, as well as unfair methods of competition.
  • To date, 47 states have adopted some form of this Model.

1999-4v2, NAIC Proceedings

  • Mr. DeAngelo responded that the New Jersey Unfair Trade Practices Act on false advertising is only one paragraph long and the department has been criticized for not telling the industry in its regulations what is false and misleading, for example.

1999-4, NAIC Proc.

  • One of the problems is that the notion of what is unfair and deceptive is not objective.

--  Alan Greenspan, Chair of the Federal Reserve in the United States - (1987 to 2006)

2010 0331 - FCIC - FCIC Interview of Alan Greenspan, Former Chair of the Federal Reserve, Financial Crisis Inquiry Committee - 12p-Download-Page

  • Every state in this nation has a strong unfair trade practices law backed by an insurance department staffed with dedicated employees trained to assist consumers who purchase insurance products and file claims.  (p2)

--   John Oxendine, NAIC / Georgia, Commissioner of Insurance - 9p

2005 1117 - GOV (Senate - Banking) - A Review of the GAO Report on the Sale of Financial Products to Military Personnel  ---  [BonkNote]  ---  [PDF-89p, VIDEO-Error] 

  • 6. Adopted motion renaming the "Act Relating to Unfair Methods of Competition and Unfair and Deceptive Acts and Practices in the Business of Insurance" to the "Unfair Trade Practices Act." (52)

1990-1A, NAIC Proceedings

  • (3) A task force of the Unfair Trade Practices (B4) Subcommittee is considering uniform complaint procedures for state insurance departments.
    • Under a pilot project, several departments have reported complaints by company, type, line, Reason, disposition, etc. on a uniform format to the Central Office. 
    • This information will be fed into a computer and reports generated for the departments so as to identify and document problem companies, evaluate complaint handling procedures, identify unfair trade practice problems, etc.

1974-1, NAIC Proc,

  • (p17) - Unfair or deceptive practices in the insurance industry include false statements
    about insurance coverage or costs and stalling or evasion in paying claims.

    • Nonetheless, some states exempt insurers from the state UDAP statute.
  • (p17) - In a few states, courts have interpreted a statutory exemption for “regulated industries” so broadly that the UDAP statute covers almost nothing.
  • (p20) - Coverage of insurance
    • Insurance policies are complicated financial instruments, making it difficult for consumers to detect deceptive sales pitches.
      • For example, a common insurance sales pitch several years ago was that the interest earned on the premiums the consumer paid in the early years of a life insurance policy would build up so much that the consumer would be able to stop paying premiums after a certain number of years.
        • The claim was based on the unfounded assumption that interest rates would stay high, but this assumption was never disclosed to consumers.
        • Only when interest rates rose and the “vanishing premiums” failed to vanish did consumers realize they were defrauded. 
    • Despite these concerns, 21 states immunize insurers completely or almost completely.
      • Seven additional states—Connecticut, Iowa, Mississippi, New York, Vermont, West Virginia, and Wyoming—give insurers significant partial immunity.
        • For example, in Iowa, consumers cannot enforce the UDAP statute against insurers.
          • Their only recourse is to hope that the attorney general will proceed against the insurer, but attorney general offices generally lack the resources to pursue individual cases.
          • In Vermont, an older decision holds that consumers cannot enforce the statute against insurers, and the state supreme court has not yet resolved the question whether it is still binding.
          • West Virginia’s statute carves out “the sale of insurance by an insurer” but leaves the door open to applying the statute to unfair or deceptive acts by insurers outside the initial sale of the policy, such as unfairly denying insurance coverage after a loss.
          • In Connecticut, New York, and Wyoming, the statute appears to apply to insurers but courts have carved out large exceptions.
    • Insurers may justify their exclusion from UDAP statutes on the ground that they are regulated by state Unfair Insurance Practices statutes.
      • But in most states consumers have no right to enforce these statutes; their only recourse is to complain to the state insurance department.
      • State insurance departments generally do not have the resources to provide much help to individual consumers.

2018 03 - NCLC - Consumer Protection in the States: A 50-State Evaluation of Unfair and Deceptive Practices Laws, National Consumer Law Center - 76p

  • Legal Cases
    • 1998 - LC - Fisher v. Aetna Life Ins. & Annuity Co. - 39 F. Supp. 2d 508 - Dist. Court, MD Pennsylvania - [link-Google Scholar]
    • 2005 - LC - Agliori v. Metropolitan Life Ins. Co.  - 879 A. 2d 315 - Pa: Superior Court - [link-Google Scholar]
    • 2009 - LC - Fairbanks v. Superior Court - 205 P. 3d 201, 46 Cal. 4th 56, 92 Cal. Rptr. 3d - Cal: Supreme …, 2009 - [link-Google Scholar]
    • 2015 - LC - Boehm v. Riversource Life Insurance Company - PA Super 120 - Pa: Superior Court - [link-Google Scholar]
  • Not Life Insurance - Legal Cases
    • Chern v. Bank of America (1976) 15 Cal.3d 866 [127 Cal.Rptr. 110, 544 P.2d 1310],
    • Fletcher v. Security Pacific National Bank, 23 Cal. 3d 442, Feb. 28, 1979 · Supreme Court of California · L.A. No. 30881 - 19p
      • Indeed our concern with thwarting unfair trade practices has been such that we have consistently condemned not only those alleged unfair practices which have in fact deceived the victims, but also those which are likely to deceive them.
    • http://leginfo.ca.gov/pub/99-00/bill/sen/sb_0551-0600/sb_593_cfa_19990513_114057_sen_comm.html
  • GOV - NAIC - Strong Unfair Trade Law
  • LC - Walker v LSW
  • 1988 - LR - Consumer Protection - The Unfair Trade Practices Act and the Insurance Code: Does Per Se Necessarily Preempt? - Pearce v. American Defender Life Insurance Co. - 24p
  • Alan GREENSPAN:  One of the problems is that the notion of what is unfair and deceptive is not objective.
    • There are certain practices so egregious that it’s black and white.
      • For example, flipping refinancing in short order—getting people to turn over their mortgage in order to generate fees—that’s egregious.
    • In order for that to happen, the bank or the broker has to say that this is to your advantage, and that’s not the case.
      • It’s a factually based question.
        • Does that actually benefit the homeowner?
        • When you get away from that sort of issue, it gets very fuzzy.
      • These partially require jury trials to decide whether that’s unfair or deceptive. 
      • I didn’t study it, but that’s what the people who did study it told me. 
      • If you’re dealing with language that’s not exact, my recollection is that I heard lots of complaints that you need better guidance from Congress about what is unfair.
      • We did get some help, but there was some  reluctance from Congress.
      • The House Financial Services Committee—or maybe it was the House Banking Committee back then—and the Senate Banking Committee did offer some guidance, and I thought that helped.
      • I thought the Fed was complying appropriately with the intent of Congress at the time, and it’s only in retrospect that questions arose.

2010 0331 - FCIC - FCIC Interview of Alan Greenspan, Former Chair of the Federal Reserve, Financial Crisis Inquiry Committee - 12p-Download-Page

  • 3. Report of Subgroup on Unfair Trade Practices Act
  • Brad Connor(Mo.), Chair of the Subgroup on the Unfair Trade Practices Act.
    • presented his written report dated Oct. 11, 1990 (Attachment Eight-B <221>). He reported that he had been given further direction from the NAIC leadership regarding the pursuit of .... the practice of agents "low-balling" insurance premium quotations,
    • The subgroup will continue to investigate and suggest potential remedies or articulate currently available powers to more effectively deal with the practice of agents low-balling insurance premium quotations.

1991-1A, NAIC Proceedings

  • b. Report of Subgroup on Unfair Trade Practices
    • Commissioner Weaver called upon Brad Connor (Mo.) as chair of the subgroup on Unfair Trade Practices.
    • Mr. Connor advised that he had made a report at the Oct. 11, 1990, Washington, D.C., meeting regarding potential amendments to deal with unfair tying, misquotes of premium and other related unfair trade practices.
    • He stated that he had submitted a revised memorandum the previous day with amendments for further consideration (Attachment Five).
    • He advised that the joint informal meeting of the subcommittee and advisory committee had concluded that, while his proposals were worthy of further discussion, they may be in need of further refinement before being considered for adoption.
    • He asked that his report be received by the subcommittee for further discussion and invited the industry to submit further comment.
  • Upon motion duly made and seconded, the report was received.
  • Discussion turned to development of a section defining the practices prohibited by this act.
    • It was suggested that language could mirror the prohibition in the Unfair Trade Practices Act.
    • The question was raised whether the illustrations violations were "practices" and the group agreed it would not be appropriate to require the regulator to establish practices.
    • The language agreed upon was "define with specificity the acts and practices that would be defined as unfair." Lester Dunlap (La.) suggested adding language similar to the Unfair Trade Practices Act.
    • Mr. Koch recommended the Alaska language giving the Director the authority to define the acts and practices as unfair and deceptive.
    • It was agreed to add the language and make sure the penalty section made insurers subject t.o the Unfair Trade Practices Act penalties without having to find the violation a trade practice.

1993-4, NAIC Proccedings