Federal Court Cases Flashcards
1868- Paul V. Virginia
the Supreme Court ruled that insurance companies were not considered citizens under the Privileges and Immunities Clause and that the business of insurance was not interstate commerce, thus allowing states to regulate insurance without federal interference.
1944- The U.S v. Southeastern Underwriters Association (SEUA)
the Supreme Court ruled that the insurance business constituted interstate commerce and was therefore subject to federal regulation under the Sherman Antitrust Act, overturning the precedent of Paul v. Virginia.
1945- The McCarran-Ferguson Act
the turmoil created by the SEUA case propmted congress to enact Public Law 15, The McCarran-Ferguson Act. This law made it clear that the states continued participation in the regulation of insurance was in the public’s best interest. However, it also made possible the application of federal antitrust laws to the extent that the insurance business is not regulated by state law. This Act led each state to revise its insurance laws to conform to federal statues. Today, the insurance industry is considered to be state-regulated. Any person who violates this act faces a fine of $10,000 or up to one year in jail.
1958- Intervention by the FTC
in the mid 1950s, the federal trade commision (FTC) sought to control the health insurance industry’s advertising and sales literature. in 1958, the surpreme court held that the McCarran-Ferguson Act disallowed such supervision by the FTC- a federal agency. Additional attempts have been made by the FTC to force further federal control, but none have been successful.
1959- intervention by the Securities and Exchange Commision (SEC)
in this instance, the issue was whether variable annuities are an insurance product that should be regulated by the states or a securities product that should be regulated federally by the SEC. The supreme court ruled that federal securities laws applied to insurers that issued variable annuities and, therefore, required these insurers to conform to both SEC and state regulations. The SEC also regulates variable life insurance.
1970- Passage of the Fair Credit Reporting Act.
This act attempts to protect an individuals right to privacy. this law requires fair and accurate reporting of information about consumers, including insurance applications. Insurers must inform applicants about any investigations that are being conducted following the completion of an application. If any consumer report is used to deny coverage or charge higher rates, the insurer must provide the applicant with the name of the reporting agency that’s conducting the investigation.
Any insurance company that fails to comply with this act is liable to the consumer for actual and punitive damages. the maximum penalty for obtaining consumer information reports under false pretenses is $5,000 and one year inprisonment.
1994- United States Code (USC) Sections 1033 and 1034 regarding fraud and false statements.
according to these sections of the USC, it’s a criminal offense for an individual who’s convicted of a felony involving dishonesty or a breach of trust to participate in the insurance business without first obtaining a “Letter of written consent to engage in the business of insurance” from the appropriate state regulator.
The Fraud and False statement act made it illegal to lie, falsify, or conseal information (orally or in writing) from a federal official. As it applies to insurance, any person involved in interstate insurance business who intentionally engages in unfair or deceptive insurance practices or overvalues an insurance product in a financial report or document presented to a regulatory official will violate federal law. Other violations include but are not limited to, embezzling money from an insurance company, misappropriating insurance premiums, and writing threatening letters to insurance offices.
any violation of this federal law will subject an individual to a monetary fine of up to $50,000 or imprisonment for up to 10 years, or both. in addition, if the material misrepresentation jeopardized the safety and soundness of an insurer and was a significant cause of the insurer being placed in conservation, rehabilitation, insolvency, or liquidation, the agent making the false statements may be subject to imprisonment of not more than 15 years. In other words, if the insurer’s solvency is threatened due to the material misrepresentations of a licensee, a prison sentence of up to 15 yeaes may be assessed on the guilt individual.
An individual who’s convicted of a felony involving dishonesty may engage in the insurance business ONLY after recieving written consent from the state insurance regulatory agency and a 1033 waiver.
1999- Financial Services Modernization Act (also reffered to as the Gramm-Leach-Bliley Act or GLBA)
This act allowed commercial banks, investment banks, retail brokerages, and insurance companies to engage in each other’s lines of business.
This act repealed the Glass-Steagull Act of 1933, which barred common ownership of banks, insurance companies, and securities firms and erected a regulatory wall between banks and non-financial companis.
This Act also requires financial institutions, including insurance companies, to protect the privacy of their customers’ personal information. GLBA also reccomends that state insurance regulators create regulations regarding the protection of consumers’ personal information. The main components of the rule are that financial institutions must:
Notify consumers about their privacy policies
provide consumers with the opportunity to prohibit the sharing of their protected financial information with non-affiliated third parties
obtain affirmative consent from consumers before sharing protected health information with any other parties, affiliates, and non-affiliates.
2001- Uniting and Strengthening America by Providing Appropriate Tools required to Intercept and Obstruct Terrorism Act (USA PATRIOT Act)
this act was adopted in response to the terrorist attacks of 9/11. the law aims to detect, deter, and disrupt terrorist efforts and funding while prosecuting international money laundering. These anti-money laundering (AML) measures impact the financial services community.
2003- Do Not Call Implemation Act
the “do not call registry” allows consumers to list their phones in a registry of numbers to whom telemarketers (including insurers) cannot legally make solicitation calls. Calls made on behalf of charities, political organizations, and surverys are exempt.
2003-CAN-SPAM Act
This act Creates rules for commercial emails and messages. Specifically, the regulation outlines the right for a consumer to request a business to stop sending emails, the requirments for businesses to honor such requests, and the penalties incurred for those who violate the act. The act covers all electronic mail messages with the primary purpose of advertisement or promotion of a product, service, or commercial website. This act does not apply to transactional and relationship messages. According to the Federal Trade Commission, the main requirements of the CAN-SPAM Act include the following:
Don’t use false or misleading header information (ex: “from”, “to”, “reply-to”, etc)
Don’t use deceptive subject lines, the subject line must accurately reflect the content of the message.
Identify the message as an advertisement
Include the company’s valid physical postal address in every email
Tell recipients how to opt out of recieving future emails
Honor opt out requests promptly (within 10 business days)
Don’t charge a fee, require the recipent to give personally identifying information beyond an email address, or make overcomplicate the process.
