The failure to report an insurance regulatory violation by an insurance agent or broker (“producer”) can lead to violations in other states. This has been called the “agent domino effect.”
Many insurance producers do not realize that they are required to report a violation which occurs in one state to the other states in which they are licensed. We are aware of a number of insurance producers that have not immediately reported violations and have had to work through this with counsel and regulators across a large number of states in a time consuming and expense process. An additional level of complexity is that an individual violation may trigger a reporting requirement for a corporate license as well.
We have found that this regulatory violation reporting requirement is not well publicized and is not widely known. A well known law firm, Morris, Manning and Martin (see here) has an excellent summary article on this subject in their Fall 2005 Insurance, Reinsurance and Managed Care newsletter (p 3., see here). It is well worth a read.
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