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Warner Norcross + Judd LLP is a corporate law firm with over 230 attorneys serving clients in nine offices throughout Michigan. Among the largest law firms in Michigan, Warner works in virtually all areas of business law.

Michigan Law Firm - Warner Norcross + Judd LLP

Michigan’s Department of Insurance and Financial Services (DIFS) requires insurance producers (individual agents/brokers and business agencies, collectively, “Insurance Producers”) to provide notice of certain criminal or administrative violations and proceedings within a specific timeframe.

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The following two violations must be reported to DIFS:

Administrative Proceedings: DIFS requires the outcome of any administrative proceedings from different jurisdictions or agencies to be reported. Under MCL 500.1247(1), applicable Insurance Producers must submit the appropriate documents of the administrative proceedings to DIFS within 30 days after the final decision. To properly comply, the Insurance Producer must include a written statement, a copy of the order, consent to order and any other relevant legal documents.

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Criminal Prosecutions: DIFS requires all criminal prosecutions to be reported, even if it is not directly related to your license. Under MCL 500.1247(2), DIFS requires all Insurance Producers to notify DIFS within 30 days after the initial pretrial hearing date. To comply, the Insurance Producer must include a written statement, a copy of the initial complaint filed, the order resulting from the hearing and any other relevant legal documents.

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Reporting is required for several reasons:

Consumer Protection: Insurance Producers serve consumers in a trusted role, handling sensitive and personal information. Criminal or regulatory misconduct raises red flags regarding the Insurance Producer’s fitness to adequately serve consumers in a trusted capacity. Timely reporting allows DIFS to assess the Insurance Producer’s ability to continue working with clients and intervene as necessary to prevent consumer harm.

Regulatory Oversight and Enforcement: The state has an interest in protecting its citizens and enforcing its laws. The state also strives to track disciplinary actions to prevent repeat violations.

Prevent Regulatory Arbitrage: Without a reporting requirement, Insurance Producers in one state could operate in another state undetected. Uniform reporting requirements promote interstate accountability and consumer protection across borders.

Maintaining Professional Standards: Reporting obligations serve to deter unethical behavior by reinforcing transparency and state involvement. Reporting further serves to promote a conduct standard across the industry.

Penalties for Not Reporting

If an administrative proceeding or criminal prosecution is not reported within the specified timeframe, the Insurance Producer is subject to substantial fines. After an opportunity for hearing, DIFS can impose a $1,000 fine per violation. If the Insurance Producer knew or should have reasonably known they were in violation of this regulation, the fine increases to $5,000 per violation. Additionally, DIFS may decide to suspend or revoke the Insurance Producer’s license or take any other disciplinary action permitted under law.

Timely reporting is important. DIFS has noted that having a felony charge or conviction by itself may not be a reason to suspend or deny licensure; however, failing to report it might be. Additionally, the state will report licensing denials to the National Association of Insurance Commissioners (NAIC) national database.

Criminal and administrative proceedings also have broad reaching implications for Insurance Producers who are registered as broker-dealer or investment adviser representatives (collectively, “Registered Representatives”). Form U4 mandates Registered Representatives report charges and convictions related to felonies, investment-related misdemeanors, as well as certain regulatory actions. For purposes of Form U4, “investment related” is defined as pertaining to “securities, commodities, banking, insurance or real estate (including, but not limited to, acting as or being associated with a broker-dealer, issuer, investment company, investment adviser, futures sponsor, bank or savings association).”

If you are required to comply with this act, there are several ways to report to the state, including online and via mail. Once reported, additional information will likely be requested by the state via email.

If you fall into either of these categories, or are unsure, and need to report an administrative hearing or criminal prosecution, Warner Norcross + Judd LLP is here to help. Please feel free to contact us and set up a consultation to discuss your situation. We have attorneys who are ready to review your situation and assist in reporting any violations to DIFS. Our attorneys can also assist you in other legal and compliance matters related to your insurance practice.

The eAlert was written with the assistance of summer associate Valerie McNamara.

Insurance

Partner

Andrea J. Bernard

Corporate

Regulatory and Compliance

White Collar Criminal Defense

Reminder: Insurance Agents/Brokers Are Required to Notify the State of Criminal Prosecutions or Administrative Proceedings

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Reminder: Insurance Agents/Brokers Are Required to Notify the State of Criminal Prosecutions or Administrative Proceedings

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