The Lapsed License and the Unlicensed Assistant
Elena has held a New Mexico producer license for nine years. While changing agencies she let the license lapse for six weeks, having missed the renewal and her continuing-education hours. During that window her unlicensed assistant quoted and bound eleven auto policies using Elena's carrier appointments, and Elena paid the assistant 50% of each commission. Elena also paid $400 per closed referral to a clerk at a Santa Fe title company who steered homebuyers to her, and she had several applicants sign blank applications that she completed afterward. One client's collision claim then sat untouched for 90 days with no acknowledgment letter; when the client called, Elena said the adjuster was "backed up."
1. Identify each regulatory problem in this fact pattern and explain why each is treated as a violation, not merely sloppy practice.
Read the worked answer
1. Transacting insurance on a lapsed license. The license is the authority to solicit, negotiate, or bind. Missing CE and renewal means the authority expired; appointments do not substitute for a license. Every quote and binder the assistant issued during the six weeks occurred while no licensed person was behind them.
2. Aiding unlicensed activity. Letting an unlicensed assistant quote and bind is an independent violation from the assistant's own conduct. The producer is responsible for the acts of staff performing licensed functions under the producer's supervision.
3. Commission splitting with an unlicensed person. Commissions are compensation for the licensed act of selling. Paying half of each commission to someone not licensed for that line is a classic prohibited arrangement - it is how unlicensed selling gets funded.
4. Contingent referral fees to a title company clerk. Per-closed-deal compensation paid to an unlicensed person for steering business is compensation for solicitation, which only a licensee may receive. It also creates a conflict with the clerk's duties to the buyer and the lender, and it exposes the title company as well.
5. Blank signed applications. The applicant's answers must be the applicant's. Filling in answers after a signature manufactures a misrepresentation defense the carrier can later use against the customer - pure E&O exposure.
6. The 90-day silent claim. Failing to acknowledge and act promptly on a claim is an unfair claims settlement practice. Ninety days with no written communication has no defensible explanation.
Exposure. Insurance department investigation, monetary penalties, suspension or revocation, disgorgement of commissions, restitution, and civil claims by clients and carriers.
2. Are the eleven policies void because Elena was unlicensed? What must she do now?
Read the worked answer
No - the policies are not void. The carrier issued them, accepted premium, and put coverage on the books. The insureds are innocent parties, and a licensing defect in the distribution channel is not a coverage defense the carrier can use against them. If a loss occurs on one of those policies, the carrier owes the claim.
That does not make Elena whole:
- Commissions. She is not entitled to retain commissions on business transacted while unlicensed. Expect disgorgement to the carrier or the agency.
- Carrier relationships. Both carriers whose appointments she used should be notified; undisclosed lapsed-license activity typically triggers termination of the appointment.
- E&O. The blank applications and the unsupervised quoting create real exposure if any of the eleven insureds ends up with coverage different from what they were promised.
Steps, in order: stop all transacting immediately; notify the carriers and the agency in writing; contact the insurance department about reinstatement - confirm directly with the Office of Superintendent of Insurance what the current lapse rules require, since a short lapse may be reinstated administratively while a longer one may require a new application, CE, or examination; terminate the commission split and the referral arrangement in writing; put a written procedures manual in place covering who may quote and bind; report the matter to the E&O carrier.
3. The client whose collision claim went 90 days without contact asks Elena what her claim is worth and who is responsible. How should this be handled?
Read the worked answer
Who is responsible. Elena is not the adjuster and cannot settle the claim, but she has a duty to transmit the report promptly and accurately. The primary responsibility for the unfair claim practice sits with the insurer: failure to acknowledge the claim, failure to investigate promptly, and failure to communicate a position are all unfair claims settlement practices. The agency's failure to escalate for 90 days is a separate service failure.
What to do now.
- Send a written demand to the carrier's claims management with the original report date, every adjuster contact, and the client's unanswered calls. Paper the timeline.
- Ask for a written coverage position and an inspection date.
- Tell the client, in writing, that a complaint may be filed with the New Mexico Office of Superintendent of Insurance, and give the claim number and adjuster contact.
- Do not speculate about the value of the claim. Liability and damages are the adjuster's determination; guessing creates a promise the carrier may not keep.
Beyond the auto claim. A documented pattern of delay supports a bad-faith argument and, in an extreme case, extra-contractual exposure beyond the policy limit. The agency should also ask why a claim sat 90 days - if the report was never filed, that is the more serious problem, because the client may lose the right to timely appraisal or suit.