Recognizing unfair marketing, discrimination and claims practices

Introduction

Nevada law lists specific ways that people in the insurance business can treat buyers, policyholders or competitors unfairly. A producer is the licensed person who sells or arranges insurance, such as an agent or broker. Producers, insurers and customers can all break these rules. Some of the rules cover what is said during a sale. Others cover what is given to win a sale, how prices are set, what is claimed after a loss and how an insurer handles that claim.

The lesson's facts come from Nevada Revised Statutes (NRS) chapter 686A, the state's written insurance-practice laws, and from Nevada Administrative Code (NAC) 686A.130, a regulation that adds detail to those laws.

You won't need to memorize section numbers to follow along. For each rule, ask four questions:

• Who acted?
• What did they say, give, charge or do?
• What did they know or intend?
• Does a listed exception fit?

What you'll be able to do

• Recognize misrepresentation, twisting and defamation of an insurer in a sales situation, and explain how they differ.
• Decide whether a gift, discount or payment is a prohibited inducement or fits a listed exception, including the $100 yearly gift limit.
• Distinguish unfair discrimination from pricing that reflects different risk, and apply Nevada's sex and marital-status rule.
• Recognize insurance fraud, including false statements on an application.
• Recognize listed unfair claims practices and apply Nevada's motor-vehicle repair-payment rule.

Before you start: This lesson assumes you know what the Commissioner of Insurance does (Nevada's Commissioner: authority, examinations and hearings) and who must hold a license (Who needs which Nevada insurance license?).

A few everyday terms:

• The insurer is the insurance company.
• The insured is the person or business the policy protects.
• The premium is the price paid for the policy.

All people, companies and amounts below are fictional.

Misrepresentation: saying something untrue or misleading about a policy

Misrepresentation means describing a policy in a way that gives a false picture. Nevada prohibits any person from making or spreading an estimate, illustration, circular, statement, sales presentation or comparison that does any of these things:

• misrepresents a policy's benefits, advantages, conditions or terms
• is misleading about the financial condition of any person, including an insurer
• uses a policy name or title that misrepresents what the policy really is
• misrepresents a policy to get someone to drop, surrender, exchange or convert it, or to borrow against, pledge or assign it
• presents an insurance policy as if it were shares of stock

A statement or sales presentation can be spoken. A false promise made in conversation still counts. It does not have to appear in a printed ad.

Example. Priya, a producer, is selling a homeowners policy to Lee. Assume the policy excludes flood damage. Lee asks about flooding, and Priya says, "Don't worry, water from anywhere is covered." That statement misrepresents the policy's terms. It fits the rule because it gives Lee a false picture of what the policy will pay.

Change one fact. Priya instead says, "This policy doesn't cover flood. That would need separate coverage." Her statement now matches the policy. It describes a limit that Lee may not like, but it gives no false picture. (Flood coverage itself is taught in NFIP flood insurance: separate the event, property and limit.)

Tempting mistake: "It was only said out loud, so it doesn't count." The rule covers statements and sales presentations, not just written materials.

Try this: A producer markets a policy under the name "Total Home Protection Plan." Assume the policy covers only fire and lightning. Which part of the rule might this raise?

Twisting: using a misleading comparison to change what someone does with a policy

Twisting means using a false statement or a misleading comparison about a policy's terms, conditions, benefits or advantages to get someone to do something with a policy. The statement can be spoken or written. The goal might be to get the person to:

• let it lapse, meaning end it by not paying
• forfeit or surrender it
• borrow against it
• exchange or convert it
• keep it
• otherwise deal with it

The rule applies whether the statement succeeds or only tries or tends to push the person toward that action.

Example. Sam has a homeowners policy that covers theft. Jordan, a producer, wants Sam to switch to a policy Jordan sells. Jordan says, "Your current policy doesn't cover theft at all," which is false. Sam cancels and switches. This is twisting:

• The comparison is false.
• Its purpose was to get Sam to drop one policy and take another.

Change one fact. Jordan instead says something true: "Your current policy has a $2,500 deductible. This one has $1,000, but it costs $140 more per year." That comparison is accurate, so it is not twisting merely because it led to a switch. Twisting requires the misrepresentation or misleading comparison. A replacement alone is not enough.

Tempting mistake: "Twisting only means replacing a policy." The rule also covers pushing someone to keep a policy. Suppose a representative falsely tells a customer, "If you switch companies, you'll have no coverage for 90 days," to stop them from leaving. That is a misleading statement used to make the person keep a policy.

Misrepresentation vs. twisting. These two rules overlap, and one false statement can fit both. They answer different questions:

• Misrepresentation asks whether what was said about the policy, the insurer or the product's nature gives a false picture.
• Twisting asks whether a false statement or misleading comparison was used to move someone to lapse, swap, keep, borrow against or otherwise act on a policy.

Try this: A producer gives a customer a side-by-side chart of two renters policies. Every figure is correct. The customer decides to replace their current policy. Is this twisting?

Defamation of an insurer: false or malicious attacks meant to harm an insurance business

Defamation here means damaging an insurer's reputation with a harmful statement. Nevada prohibits making or spreading certain statements about an insurer, or about an organization that plans to become an insurer. The statement is covered if it is false, or maliciously critical of or derogatory to the insurer, and if it is calculated (intended) to injure someone engaged in the insurance business.

The rule covers spoken and written statements, including pamphlets, circulars and articles. It covers spreading them directly or indirectly, and it covers helping or encouraging someone else to spread them.

Example. Casey, a producer, wants customers to leave Silver Mesa Mutual, a fictional insurer. Casey invents a story that Silver Mesa "is refusing every fire claim and will close next month," and shares it in a local online group. The story is false and is designed to hurt Silver Mesa's business. That fits the rule.

Change one fact. Casey instead tells a customer, "For your home, Silver Mesa's deductible is higher than ours." Assume that is true. A negative comparison is not defamation simply because it makes a competitor look worse. Without a false or malicious attack aimed at injuring the insurer, this rule doesn't describe it. The comparison must still be accurate under the misrepresentation and twisting rules.

How defamation differs: Misrepresentation and twisting focus on the false picture given to a buyer about a policy. Defamation focuses on the injury aimed at an insurer or a would-be insurer.

Try this: A producer doesn't post anything personally. Instead, the producer hands a made-up "news sheet" about a rival insurer's collapse to a friend and asks the friend to share it widely. Does the producer escape the rule because someone else did the posting?

Rebates and inducements: extra value given outside the policy

An inducement is anything of value offered to persuade someone to buy or keep insurance. A rebate is one kind of inducement. It is a return of part of the premium, such as a discount or refund that the policy doesn't provide for.

The basic rule

For property, casualty, surety and title insurance, Nevada's rule reaches several groups:

• insurers
• their employees and representatives
• underwritten title companies
• brokers, agents and solicitors

Two of these terms may be new:

• Surety is a guarantee that someone will perform an obligation.
• Title insurance protects against problems with ownership of real estate.

These people may not pay, give or offer any of the following, directly or indirectly, either to win the insurance or after the insurance is in place:

• a rebate, discount, credit or premium reduction not specified in the policy
• a special favor or advantage in dividends or other benefits
• any other valuable consideration or inducement not specified in the policy

The rule does not apply to the extent that an applicable filing with the Commissioner provides for the item. A filing is a document an insurer submits to the Commissioner, such as rates or rules (see Nevada rate standards and surplus-lines placement).

The customer side is covered too. Apart from the gift exception below, an insured, or an insured's employee, may not knowingly accept a prohibited rebate or inducement.

Example. Morgan, a producer, tells a customer, "Buy this business property policy and I'll pay $150 of your premium out of my commission." Assume no applicable filing provides for this. It is a premium reduction not specified in the policy, offered to win the sale, so it is prohibited.

The listed exceptions

The rule does not prohibit:

• Gifts within the $100 limit. This covers prizes, gifts, merchandise, gift certificates, charitable donations, raffle entries, meals, event tickets and similar items worth no more than $100 in total per insured or prospective insured in one calendar year. It applies to property, casualty and surety insurers, their employees and representatives, and brokers, agents and solicitors. It does not cover title insurers or underwritten title companies.
• Commissions or other compensation paid to licensed agents, brokers or solicitors.
• Premium credit with interest. This means letting an insured pay the premium over time, as long as a reasonable rate of interest is charged and collected.
• Dividends to participating policyholders. Participating policyholders are those whose policies let them share in returns. Insurers may return dividends, savings or unused premium deposits to them.

Work through the gift limit

The $100 limit adds up everything given to one person in one calendar year.

• A property producer gives a new customer a $45 restaurant gift card. That is within $100, so it fits the gift exception.
• The same producer gives the same customer two $60 event tickets in March and October of the same year. That totals $60 + $60 = $120, which is more than $100, so the exception doesn't cover the total. Each item being under $100 doesn't matter. The limit applies to the yearly total.
• Change one fact: the tickets are given on December 20 and January 5. They fall in different calendar years, and each year's total is $60.
• A single $80 gift is within the amount limit. That only settles the amount question. It doesn't clear the gift under every other law. For example, a gift tied to a false promise would still raise the misrepresentation rules.

Tempting mistake: "Commissions are allowed, so I can share mine with the customer." The exception lets licensed producers receive commissions. Giving part of a commission to the customer is a premium reduction, which takes you back to the basic rule. A similar trap applies to payment plans: the credit exception requires reasonable interest to be charged and collected. A plan that waives the interest is not described by that exception.

What follows a violation

Violating this rule is a misdemeanor, a lower-level crime. An agent or broker who violates it is not entitled to a commission on a policy where the prohibited rebate or inducement was given or offered. The insurer may recover the full commission it paid.

Nevada has separate rebate and discrimination sections for life insurance, annuities and health insurance. They include their own gift exception. This lesson applies the property, casualty, surety and title section, so don't transfer the life or health rules to property situations.

Try this: A title insurer gives a home buyer a $50 gift card to thank them for ordering a title policy. A property producer gives a customer a $50 gift card for the same reason. Assume no applicable filing covers either. Which gift does the $100 exception cover?

Unfair discrimination vs. pricing that reflects different risk

Unfair discrimination means treating insureds, or property, differently when they are alike in the features that matter for insurance. Those features are their insuring or risk characteristics: the facts that affect the chance or size of a loss. Nevada prohibits unfair discrimination between insureds or property with like characteristics in:

• the premium or rates charged
• dividends or other benefits
• any other terms and conditions

Example. Two homes are alike in every feature the insurer uses to assess risk. A producer arranges a lower rate for one owner simply because they are a friend. The homes have like risk characteristics but receive different prices, so this is unfair discrimination.

Change one fact. Assume the insurer's rating plan charges more for homes far from a fire hydrant, and assume that plan is otherwise lawful. Home A is near a hydrant and Home B is not. Home B pays more. Because the homes now differ in a risk characteristic the plan uses, the price difference alone doesn't show unfair discrimination.

The reverse also matters. A risk difference doesn't make any price difference automatically lawful. The difference still has to be fair and meet Nevada's rate standards.

Tempting mistake: "Any price difference between customers is discrimination." The rule targets unfair differences between like risks. Start by asking whether the two risks are alike in the relevant features.

Sex and marital status

Under NAC 686A.130:

• An insurer may not deny insurance to an insured on the basis of sex or marital status.
• An insurer may not restrict, change, exclude or reduce benefits, conditions or types of coverage solely because of sex or marital status. The exception is a rate difference that Nevada's insurance code permits.
• Restrictions or reductions of terms, conditions, coverage types or benefits are permitted if the insured and insurer agree to them.
• Marital status may be considered in deciding whether someone is eligible for dependent or family coverage.

This regulation is not a blanket ban on every difference, and it is not blanket permission either. Read which situation applies.

Try this: An insurer refuses to sell a homeowners policy to an applicant because the applicant is unmarried. Separately, a different insurer considers an applicant's marital status in deciding whether a person qualifies for family coverage under a policy. Which, if either, fits the regulation's prohibition?

Insurance fraud: knowingly and deliberately deceiving to get a policy or payment

Insurance fraud in Nevada means acting knowingly and willfully, in plain terms aware and on purpose, in ways the statute lists. The core forms are:

• Presenting a statement for an application that the person knows hides or leaves out facts, or contains false or misleading information, about a material fact. A material fact is one that matters to the decision. The statement can be presented to an insurer, reinsurer, producer, broker or their agent.
• Presenting a statement as part of, or in support of, a claim, meaning a request for payment or benefits under a policy, that the person knows hides or leaves out facts, or is false or misleading about a fact material to that claim.
• Helping, soliciting or conspiring with someone else to do either of the above, or participating in, aiding or permitting an employee or agent to commit a listed act.
• Acting, or failing to act, with intent to deceive in order to get a policy or its proceeds.
• Knowingly accepting proceeds that come from a listed act.

The definition applies to two kinds of policies:

• policies issued in Nevada by an authorized insurer, meaning one permitted to do business in the state
• policies issued outside Nevada by an authorized insurer, when they relate to property that was in Nevada when the act occurred or when the incident behind it happened

Insurance fraud is a felony, which Nevada classifies as category D. On a conviction or a guilty, guilty but mentally ill, or no-contest plea, a court may also order the person to pay court costs and the costs of investigating and prosecuting the fraud.

Example. Alex's apartment is burglarized. Assume the policy was issued in Nevada by an authorized insurer. On the claim form, Alex adds a $1,400 television they never owned, to get a bigger payment. Alex knew the item was false, did it deliberately, and the item affects how much the insurer pays, so it is material. This fits insurance fraud.

Change one fact. Alex lists a lamp at $1,800 instead of $180 and attaches the store receipt showing $180. These facts point to a typing error, not a known falsehood. Without knowledge and intent, the fraud definition isn't shown.

Tempting mistake: "Any wrong number on a claim is fraud." The definition depends on what the person knew and meant, not just on whether the figure was wrong.

False statements on an application: a separate rule

A separate section says that a producer, examining physician, applicant or other person must not knowingly or willfully make a false or fraudulent statement in, or relating to, an application for insurance. Violating it is also a category D felony, and the court must order restitution, meaning repayment to the person harmed.

The wording differs. This section says "knowingly or willfully," while the fraud definition says "knowingly and willfully." Treat them as two distinct rules. One false application answer can raise both.

Reporting suspected fraud

• Any person, governmental entity, insurer or insurer representative must report information about insurance fraud to the Commissioner and the Attorney General, on a form they prescribe. Each of them independently reviews reports and decides whether to investigate.
• An insurer with a reasonable suspicion that a loss was caused by something other than an accidental or natural event must notify the Commissioner and Attorney General in writing with its reasons. It must also give them the information it gathered while investigating the claim. If the loss is believed to involve fire, the insurer must also notify an investigative or law-enforcement agency.
• Agencies that receive this information must keep it confidential, with limited exceptions.
• If a person licensed in Nevada is convicted of insurance fraud, or pleads guilty or guilty but mentally ill, the Commissioner and Attorney General forward the conviction or plea and supporting evidence to that person's licensing agency.

A suspicion or a report is not a conviction. Reporting starts a review. It does not establish that fraud happened.

Try this: An insurer investigating a warehouse fire finds signs that the fire may have been set on purpose. What must the insurer do, and does its report mean the owner has committed fraud?

Unfair claims practices: how an insurer must handle a claim

An unfair claims practice is a way of handling a claim that Nevada lists as unfair. A claimant is a person making a claim, who may or may not be the policyholder. Grouped by theme, the listed practices include the following.

Honesty

• misrepresenting relevant facts or policy provisions about the coverage at issue
• misleading an insured or claimant about a statute of limitations, the legal deadline for filing a lawsuit
• advising an insured or claimant not to get a lawyer
• trying to settle based on an application that was altered without the insured's, or their representative's, notice, knowledge or consent
• trying to settle for less than a reasonable person would expect from advertising material that came with or was part of the application

Speed and process

• not acknowledging, and acting reasonably promptly on, communications about claims
• not adopting and following reasonable standards for prompt investigation and processing
• not confirming or denying coverage within a reasonable time after the insured has completed and submitted proof of loss, the documentation the policy requires to show the loss
• delaying by requiring a preliminary claim report and then formal proof-of-loss forms that contain substantially the same information

Fair payment

• not making prompt, fair settlements when it has become reasonably clear that the insurer owes payment
• forcing insureds to sue by offering substantially less than they later recover, when they had claimed amounts reasonably similar to what they recovered
• holding back a clear payment under one part of the policy to pressure a settlement under another part
• telling insureds or claimants about a practice of appealing arbitration awards in their favor, to pressure them into accepting less. Arbitration is a dispute decided by a neutral decision-maker outside court.

Explanations

• not telling the insured, when paying, which coverage the payment is made under
• not promptly giving the insured a reasonable explanation, based on the policy, the facts and the law, for a denial or a compromise offer

On top of the Commissioner's powers, an insurer is liable to its insured for damages the insured suffers because of one of these practices.

Example. Rafi has a kitchen fire. Assume the insurer agrees the $18,000 dwelling damage is clearly covered. It tells Rafi it won't pay that amount until Rafi accepts its low offer on the disputed contents. Holding back a clear payment under one coverage to influence a settlement under another is a listed practice.

Change one fact. The insurer pays the $18,000 promptly. It disputes the contents amount and gives Rafi a written explanation of the policy basis for its offer. A disagreement over the contents amount is not, by itself, a listed practice. These rules govern how the insurer handles a claim. The damages rule does not require an insurer to pay every disputed claim in full. (Notice, proof of loss and insurer response are taught step by step in After a loss: notice, protection, proof and insurer response.)

Try this: A claims representative tells a claimant, "You don't need an attorney. That will just slow things down." Nothing about the claim amount has been decided yet. Is there a listed practice even though no payment decision has been made?

Motor-vehicle repair payments: the 30-day clock and the repair requirement

This rule applies only to insurers that cover damage to a motor vehicle. It is not a deadline for all property claims. It applies when all of these are true:

• the insured has authorized a garage or licensed body shop to do the repairs
• the repairs have been satisfactorily completed
• the insurer has received the shop's statement of charges, the itemized bill provided under Nevada's motor-vehicle repair law

The insurer must not delay payment. Delay here means failing to issue a check or draft within 30 days after the insurer receives the statement of charges. The check must be payable to the shop, or jointly to the insured and the shop.

Example. A covered collision happens May 1. The authorized body shop finishes the repairs satisfactorily, and the insurer receives the statement of charges on June 10. The insurer issues a check payable to the shop on July 1, which is 21 days after receipt. That is within 30 days, even though it is 61 days after the accident.

Tempting mistake: "Count 30 days from the accident." The clock starts when the insurer receives the statement of charges for satisfactorily completed repairs, not on the accident date.

When the vehicle must actually be repaired

Two situations trigger a repair requirement:

• The vehicle is subject to a security interest, meaning a lender's legal claim on it until a loan is paid.
• The legal owner is different from the registered owner, for example when a lender holds legal ownership while the driver is the registered owner.

In either situation, a garage or licensed body shop must repair the vehicle unless one of these is true:

• the insurer has declared the vehicle a total loss, meaning the insurer has treated it as not worth repairing, or
• the total repair charge on the statement of charges is $300 or less

Outside those situations, the insurer and insured may agree to settle a vehicle-damage claim without repairing the vehicle.

Example with the numbers:

• A lender holds a security interest, and the repair charge is $1,200. The insurer has not declared a total loss. The vehicle must be repaired by a garage or licensed body shop, and a cash settlement in place of repair isn't available here.
• Change one fact: the repair charge is $280. That is $300 or less, so this section's repair requirement doesn't apply.
• Change a different fact: there is no security interest, and the registered owner is also the legal owner. The insurer and insured may agree to settle without repair.

The Nevada motor-damage payments and appraiser roles lesson builds on this rule.

Try this: A financed car (lender holds a security interest) needs $2,400 in repairs. The insurer has not declared it a total loss. The insured would rather take a check and skip the repair. Does this section allow that?

Practice on your own

Try each question before opening its answer. All facts are fictional.

1. To keep a customer from switching companies, an insurer's representative tells them, "Our policy is the only one in Nevada that covers wind damage." Assume this is false. Which rule or rules does this raise?

2. A surety producer gives a customer a $40 charitable donation in their name in February and a $55 meal in August of the same year. Assume no applicable filing applies. Is the total within the gift exception?

3. A producer offers a homeowner a payment plan for the annual premium and charges no interest. Assume no applicable filing covers the arrangement. Does the premium-credit exception describe this plan?

4. Two commercial buildings have identical construction, use, location and protection, and they match on every other feature the insurer rates. The insurer charges one owner 15% less because that owner's cousin works in the underwriting department. Is this permitted risk classification?

5. On a homeowners application, an applicant answers "no" to a question about prior losses even though they know they had two. They answer that way to get coverage. Which rules does this raise?

6. A producer tells a client, "Desert Crest Insurance is run by crooks who take your money and vanish." The producer invented this to win the client's business. Which rule fits most directly?

7. An insurer received an authorized shop's statement of charges for completed, satisfactory repairs 38 days ago. It still hasn't issued payment. It points out that the claim was filed only 40 days after the accident. Has the insurer delayed under the motor-vehicle rule?

8. After paying a claim, an insurer sends a check with no indication of which coverage it is paying under. Months later it denies another part of the claim with a one-line letter: "Not covered." Name the listed practices this raises.

What to remember

• Misrepresentation gives a false picture of a policy, an insurer's finances or a product's nature. Twisting uses a false statement or misleading comparison to move someone to drop, swap, keep or otherwise act on a policy. An accurate comparison is not twisting just because a switch follows.
• Defamation of an insurer is a false or malicious statement aimed at injuring an insurance business. A fair, accurate negative comparison doesn't fit this rule by itself.
• Rebates and inducements outside the policy are prohibited for property, casualty, surety and title business, unless an applicable filing provides for them. Listed exceptions include gifts up to $100 total per person per calendar year (property, casualty and surety only, not title), producer commissions, premium credit at reasonable interest, and dividends to participating policyholders. Violations are misdemeanors and can cost the producer the commission.
• Unfair discrimination means different treatment of like risks. A price difference based on different risk characteristics is not proof of a violation, and it is not automatic proof of lawfulness either. Insurance can't be denied because of sex or marital status, and marital status may be considered for family or dependent coverage eligibility.
• Insurance fraud requires knowing, deliberate deception about a material fact in an application or claim, or helping with it. An honest error is not shown to be fraud. False application statements are covered by a separate rule. Suspicions are reported, and a report is not a conviction.
• Unfair claims practices concern honesty, speed, fair payment and explanations. An insurer is liable for damages its unfair practice causes, but this rule does not require paying every disputed claim.
• Motor-vehicle repairs: after an authorized shop's statement of charges for satisfactorily completed repairs is received, the insurer has 30 days to issue payment to the shop, or jointly to the insured and shop. A vehicle with a lender's interest, or with a different legal and registered owner, must be repaired unless it is a total loss or the charge is $300 or less.