Every Texas insurance agent should be aware of the most common grounds for being the subject of a disciplinary investigation and action by the Texas Department of Insurance as well as the basic disciplinary procedures that are involved in this process.
Although not exhaustive, § 4005.101 of the Insurance Code sets out the most general and frequently used grounds for a disciplinary action against an agent. These include:
- intentional material misstatements or fraud in connection with obtaining a license;
- misappropriation, conversion, or illegal withholding of money belonging to a client, insurer, or health maintenance organization;
- conviction for a felony;
- material misrepresentation of the terms of a policy or contract;
- engaging in fraudulent or dishonest acts or practices;
- improper offering or giving of rebates;
- violations of any insurance law; and
- failure to maintain continuing education requirements.
Texas Insurance Code § 4005.101. Note that many of these -particularly numbers (1), (3), (4), (5), and (7)- are broad-sweeping, encompassing a wide swath of potential conduct. In particular, TDI can and will interpret these provisions as they deem is needed to protect the public from fraudulent or dishonest insurance practices.
The Texas Department of Insurance can impose an array of sanctions on an agent licensee. These include outright revocation/suspension/denial of the agent’s license in its entirety or only as to specific lines of insurance. The TDI can also decide to probate a suspension and attach conditions limiting the scope of the agent’s license. Finally,
the TDI may issue a public reprimand or impose sizable fines. Id. at § 4005.104.
Typically, an agent will first realize that the Department of Insurance is considering a disciplinary action against their license when they receive a letter of investigation. This letter should inform the agent that an official investigation is being conducted by TDI and outline the basic facts that led to its initiation and that are providing its focus. From this point, TDI may conduct an informal hearing on the matter where the agent, their attorney if they have retained one, and the prosecuting staff attorney have an opportunity to present their case before a small panel. This panel will then make a recommendation to TDI. Unless the Department of Insurance decides to dismiss the matter entirely, they will then offer an order to the agent that sets out official findings and specific sanctions.
If the agent refuses to sign the order, their only option at this point is to request a full hearing before the State Office of Administrative Hearings. This is a trial-like proceeding that is complex and governed by the Administrative Procedures Act. During this process both the TDI and agent will conduct full discovery, file motions, and ultimately conduct a full evidentiary hearing before an Administrative Law Judge. Following this, the Judge will enter his findings of fact and recommended sanctions with the Department of Insurance who is then free, within certain legal bounds, to accept or reject it. Finally, TDI will enter an order that either agrees or disagrees with the ALJ and sets forth sanctions. Any further contest will require that the agent file a suit in Austin District Court, an even more complex and costly proposition.
Any insurance agent who has received a letter of investigation would be wise to contact an attorney. An attorney experienced in administrative law, professional licensing law, and representation before the Texas Department of Insurance should be able to give good advice on how to proceed. Typically, the later in the process a licensee waits to obtain professional legal advice the more costly and limited their options become. Also, it has been my observation that agents represented by an attorney with background in professional licensing matters tend to achieve better outcomes than those represented by a lawyer without this experience or, even worse, who are not represented by an attorney at all.