Monday, April 28, 2014

No. 46: Michigan's Department of Insurance Summarily Suspends an Agency and Two Agents

The Michigan Department of Insurance and Financial Services (DIFS) recently issued an order summarily suspending the licenses of Larson's Insurance Solution Agency, Inc. (Livonia, MI) and two members of the agency: Keith Larson, president, secretary, treasurer, and director of the agency; and Karen Larson. The agency was a licensed resident insurance producer agency and the two individuals were licensed resident insurance producers. The respondents were licensed in the lines of accident, health, property, casualty, life, and variable annuities.

The Order
On March 20, 2014, Chief Deputy Director Teri L. Morante of DIFS issued an "Order of Summary Suspension, Notice of Opportunity for Hearing, and Notice of Intent to Revoke." The order is directed at the Larson agency and the two Larsons.

In February 2014, after receiving a complaint alleging misconduct in the handling of customers' insurance transactions, DIFS began an investigation into the respondents' business activities. Here is one paragraph of the order:
DIFS' investigators found several transactions where Respondents submitted forged applications to a premium finance company using customers' information to obtain money for Respondents' personal and business use. Respondents have borrowed funds using customers' information for their own use and failed to repay the funds. Respondents have also exposed customers to liability for the borrowed funds, and have jeopardized the coverage provided under the customers' commercial liability policies.
An Illustrative Case
In November 2013, a Larson client had four policies scheduled to renew with Liberty Mutual Insurance Company. The account was set up to bill the client monthly for premiums to be paid by electronic funds transfer (EFT).

On November 27, 2013, an agent at the Larson agency completed and submitted a premium finance application to Prime Rate Premium Finance Corporation using the client's business and policy information. The client's signature was forged on the premium finance application. The agent asked for $18,411 to pay a portion of the premiums due on the client's policies. The client had no knowledge of the premium finance application. The client was making on-time payments to Liberty by EFT and did not need premium financing.

On December 5, 2013, Prime Rate, unaware of the forgery, sent the funds to the Larson agency's bank account, which was jointly owned and controlled by the two Larsons. Thereafter several withdrawals were made by the respondents to pay personal and business expenses. None of the money was used to pay premiums on the client's policies.

Other Cases
The order describes another case in December 2013 involving two premium finance applications to Prime Rate purportedly to pay a portion of the premiums due on a client's two commercial liability policies with Great American Insurance Company. In this case, a third premium finance application was submitted relating to a non-existent policy. Prime Rate sent $170,842 to the Larson agency's bank account, and the Larsons withdrew funds to pay personal and business expenses. None of the money was used to pay premiums on the clients' policies, on which the client already had paid the premiums.

The order describes a third case in December 2013 where Prime Rate sent $17,648 to the Larson agency's bank account purportedly to pay the premiums on a client's policies. In January 2014, the client received from the insurance company a Notice of Cancellation for Nonpayment. The Larson agency remitted only the minimum premium of $2,092 necessary to reinstate the coverage.

The order says Auto-Owners Insurance Company informed DIFS in March 2014 that the respondents submitted premium finance applications to PREMCO Financial Corporation Inc. requesting funding for Auto-Owners policies that do not exist. The order says the "investigation
also revealed that the Respondents habitually submitted premium finance applications to premium finance companies to obtain money for their own personal and business use." The order also says:
DIFS' staff continues to field calls and complaints from insurers, premium finance companies and insureds pertaining to Respondents' misconduct related to debt incurred, policy validity, policy effectiveness, premium payments, forged documents, false insurance policy information, and possible lapses in coverage.
General Observations
When I saw the order in the Larson case, I contacted DIFS. I said the activities described in the order appear to be felonies, and asked whether the case has been referred to criminal prosecutors. Deborah K. Canja, deputy general counsel, promptly replied: "We do not typically disclose whether we have or have not referred issues/persons/cases to criminal prosecutors." I think her response is appropriate.

Although the order mentions—in its title and its text—the possibility of license revocation, I also asked DIFS why the order is for summary suspension rather than summary revocation. Ms. Canja said: "Our statute and due process considerations do not allow us to summarily revoke." I think the opportunity for a hearing is adequate for due process purposes. As for the statute, I think it illustrates what one often hears about insurance laws being drafted primarily by and for the benefit of the insurance industry rather than for the benefit of the public.

I am offering the eight-page order as a complimentary PDF. Send an e-mail to and ask for the Michigan order in the Larson case.