Commissioner of Insurance
Notice is hereby given that pursuant to the authority granted under s.
601.41 (3), Stats., and the procedure set forth in under s.
227.18, Stats., OCI will hold a public hearing to consider the adoption of the attached proposed rulemaking order affecting s.
Ins 6.60, relating to agent transactions with customers.
Hearing Information
Date: August 3, 2001
Time: 10:00 a.m., or as soon thereafter as the matter may
be reached
Place: Room 6, OCI, 121 East Wilson Street, Madison, WI
Written comments on the proposed rule will be accepted into the record and receive the same consideration as testimony presented at the hearing if they are received at OCI within 14 days following the date of the hearing. Written comments should be addressed to: Stephen Mueller, OCI, PO Box 7873, Madison WI 53707
Analysis Prepared by the Office of the Commissioner of Insurance
Statutes interpreted: ss.
600.01, 618. 39 (1), 628.04 (1), 628.10 (2) (b), 628.34 (12), Stats.
In general insurance agents occupy a position of trust and credibility with their customers. Customers permit these agents to enter their homes and to acquire financial and other personal information. Most agents merit this trust and respect the responsibility it engenders. Unfortunately a few agents abuse this confidence and engage in non-insurance transactions with customers that are not in the customer's best interest.
There are recent examples of this type of abuse:
1. Out of state promoters of illegal “corporate promissory note" programs have specifically recruited insurance agents (most not licensed as securities agents) to illegally market millions of dollars in illiquid unregistered securities to their customers in Wisconsin. These programs resulted in devastating financial loss to Wisconsin citizens who placed their trust in the agents partly due to their credibility as licensed insurance agents.
2.
Several insurance agents have sold investments in viatical settlements to their customers for commissions without exploring or understanding the risks and securities law implications of these sales.
3.
Several agents borrowed money from customers or encouraged customers to invest in businesses controlled by the agents. Often the funds loaned or invested are derived from life insurance settlements or liquidated annuities.
Wisconsin and federal securities law prohibits certain personal financial transactions with customers by securities agents as “dishonest or unethical business practices" or “taking unfair advantage of a customer". This conduct includes borrowing from a customer and acting as custodian for money or securities of a customer. Securities agents are required to disclose all securities transactions to their employing broker-dealers and obtain the broker-dealer's written authorization for any “off the books" transactions. Some insurers also prohibit their listed insurance agents from borrowing from customers. The proposed rule incorporates normal standards of ethical behavior that prudent agents practice and their customers deserve and expect. This rule does not place an unnecessary burden on the legitimate business of insurance.
Section
628.10 (2) (b) Stats. allows the commissioner to “
…revoke, suspend,
…the license of any intermediary if the commissioner finds that the licensee is unqualified as an intermediary, is not of good character or has repeatedly or knowingly violated an insurance statute or rule
… of the commissioner
… , or if the intermediary's methods and practices in the conduct of business endanger, or financial resources are inadequate to safeguard, the legitimate interests of customers and the public
…". The proposed rule will specifically prohibit conduct that falls within the proscriptions of this statute without limiting the types of conduct that constitute grounds for license sanction. The rule will assist agents and others to determine when conduct with customers is prohibited and places an agent's insurance license at risk.
The rule defines personal financial transactions and prohibits agents from engaging in such transactions with persons with whom they have conducted insurance business within 3 years prior to the transaction. Transactions with relatives and bona fide business transactions with customers are allowed as long as there are sufficient safeguards to protect the customer's interests. The rule incorporates violations of state and federal securities and other related laws and prohibits misleading statements regarding an agent's training and qualifications.
This proposed rule incorporates specific guidelines concerning insurance agents who engage in sales of illegal multiple employer welfare trusts and other forms of group health insurance by unauthorized insurers. Typically conducted under the false guise of being “ERISA" or federally-governed and thus exempt from state regulation these plans frequently are self-funded and fail, leaving unpaid claims and lost premiums. OCI has held agents who participate in these programs to strict standards of accountability. This rule codifies the position of OCI that agents may not escape responsibility by citing their reliance on the pronouncements of the promoters that the program is “exempt from state regulation" under ERISA. This strict standard is in keeping with the professional standards that everyone expects from their insurance professionals. This rule makes it clear that an agent who participates in sales of these illegal plans commits an unfair trade practice in violation of s.
628.34 (12) Stats. and violates s.
618.39 Stats. by assisting an unauthorized insurer.
Section
628.34 Stats. defines and prohibits unfair marketing (trade) practices. Sub. (11) prohibits “other unfair trade practices" including “any other unfair or deceptive act or practice in the business of insurance, as defined in sub. (12)." Sub. (12) allows the commissioner to define additional “ specific unfair trade practices by rule, after a finding that they are misleading, deceptive, unfairly discriminatory, provide an unfair inducement, or restrain competition unreasonably." This is the statutory authority for the proposed rule. While the conduct proscribed by this rule may involve misrepresentation or unfair inducement as described in sections
628.34 (1) &
(2) Stats. it also constitutes unfair trade practices and unfair or deceptive acts or practices in the business of insurance within the meaning of s.
628.34 (11) Stats. The Commissioner finds that the conduct prohibited by this rule is misleading, deceptive, unfairly discriminatory, provides an unfair inducement and restrains competition unreasonably within the meaning of s.
628.34 (12) Stats. and finds further that sales of unauthorized insurance as ERISA-exempt in violation of s.
618.39 Stats. are harmful to the public and that agents who become involved in the marketing or placement of these plans must be held strictly accountable for their actions.
Initial Regulatory Flexibility Analysis
This rule does not impose any additional requirements on small businesses.
Fiscal Estimate
There will be no state or local government fiscal effect.
Contact Person
A copy of the full text of the proposed rule changes and fiscal estimate may be obtained from the OCI internet WEB site at
http://www.state.wi.us/agencies/oci/ocirules.htm or by contacting Inger Williams, Services Section, Office of the Commissioner of Insurance, at (608) 266-0110 or at 121 East Wilson Street, PO Box 7873, Madison WI 53707-7873.
Notice of Hearing
Public Service Commission
NOTICE IS GIVEN that pursuant to s.
227.16 (2) (b), Stats., a hearing will be held on
Friday, July 27, 2001, at 9:00 a.m. in the Amnicon Falls Hearing Room at the Public Service Commission Building, 610 North Whitney Way, Madison, Wisconsin, to consider the creation of ch.
PSC 130, Wis. Adm. Code, relating to municipal rights-of-way issues before the Commission.
This building is accessible to people in wheelchairs through the Whitney Way first floor (lobby) entrance. Parking for people with disabilities is available on the south side of the building. Any person with a disability who needs additional accommodations should contact the docket coordinator listed below.
Written Comments
Any person may submit written comments on these proposed rules. The hearing record will be open for written comments from the public, effective immediately, and until Friday, July 20, 2001, at noon (Thursday, July 19, 2001, at noon, if filed by fax). All written comments must include a reference on the filing to docket 1-AC-188. File by one mode only.
If filing by mail, courier, or hand delivery: Address as shown in the box. Industry parties should submit an original and 15 copies. Members of the general public need only file an original.
If filing by fax: Send fax comments to (608) 266-3957. Fax filing
cover sheet MUST state
“Official Filing," the docket number (1-AC-188), and the number of pages (limited to 20 pages for fax comments).
Hearing Date:
|
Friday, July 27, 2001
at 9:00 a.m.
|
Hearing Location:
|
Public Service Commission
610 North Whitney Way
Madison, WI
|
Comments Due:
Friday
July 20, 2001 - Noon
FAX Due:
Thursday
July 19, 2001 - Noon
|
Address comments to:
Lynda L. Dorr
Secretary to the Commission
Public Service Commission
P.O. Box 7854
Madison, WI 53707-7854
FAX (608) 266-3957
|
Analysis prepared by the Public Service Commission of Wisconsin
Upon complaint, the Commission has authority to determine the reasonableness of an ordinance, contract or resolution (ordinance) promulgated by a municipality that regulates the location of utility facilities in municipal rights-of-way (ROW). This rule creates several criteria the Commission will apply when considering a complaint involving utility access to and use of ROW within a municipality. These include the following:
Under the rules, the Commission will consider an ordinance to be unreasonable if it unduly discriminates between utilities seeking access to municipal ROW or if it denies a utility access to ROW without good cause.
The rules recognize that a municipality may require a utility to pay the actual cost of functions undertaken by a municipality to manage utility access to ROW, and identifies specific costs that may be collected through a pre-excavation permit fee.
The rules specify that it is unreasonable for a municipality to require a utility to install underground a 100 kilovolt or greater electric transmission line at the utility's expense, but such a requirement would be reasonable if the municipality or a third party agrees to pay the difference in construction costs between overhead and underground installation.
Similarly, it is unreasonable for a municipality to require special construction conditions to be followed at the utility's expense unless there is an adequate health or safety justification. Aesthetics alone is not a reasonable basis for requiring underground construction. Special construction conditions would be reasonable if the municipality or a third party agrees to pay the difference in construction costs between the standard and special construction conditions.
Under the rules it is unreasonable for a municipality to require a utility to restore a ROW to a condition that is better than the pre-excavation condition.
The rules specify that it is reasonable for a municipality to require a utility to provide adequate bonding and insurance if the municipality has reasonable grounds to question the utility's financial responsibility or compliance ability. The rules also identify advance workplan notification requirements and mapping requirements.
A Statement of Scope on this rule was approved by the Commission on June 2, 1999, and was published in the Wisconsin Administrative Register on June 30, 1999.
Text of Proposed Rule
SECTION 1.
Chapter
PSC 130 is created to read:
Chapter PSC 130
Municipal Regulation of Utility Rights-of-Way
PSC 130.01 Definitions. In this chapter:
(1) “Actual cost" means identifiable costs that are reasonably incurred by a municipality, but does not include a contribution of surplus income to general revenues.
(2) “Municipality" means a city, village, or town.
(3) “Ordinance" includes any ordinance or resolution adopted by the governing body of a municipality relating to municipal rights-of-way or any contract entered into by a municipality relating to municipal rights-of-way.
(4) “Transmission and distribution facilities" includes any utility pipe, pipeline, wire, cable, duct, conduit, fiber optics or radio signal transmission equipment and associated utility plant and equipment, whether underground or above ground, in a municipal right-of-way.
(5) “Utility" means a public utility, as defined in s.
196.01 (5), Stats., and includes a telecommunications carrier, as defined in s.
196.01 (8m), Stats.
PSC 130.02 Scope. This chapter applies to complaints involving utility access to and use of rights-of-way within a municipality under ss.
196.499 (14) and
196.58 (4), Stats.
PSC 130.03 Undergrounding and special construction conditions. (1) (a) Except as provided in par. (b), an ordinance that requires a utility to install underground a 100 kilovolt or greater transmission line at the expense of the utility is unreasonable.
(b) Paragraph (a) does not apply if the municipality or a third party agrees to reimburse the utility for the difference in cost between above ground and underground construction.
(2) (a) Except as provided in par. (b), an ordinance that requires a utility to install, at the utility's expense, transmission or distribution facilities which are not consistent with the utility's practice for design or construction of utility facilities is unreasonable unless there is an adequate health, safety, or public welfare justification for the requirement. Aesthetics alone is not an adequate basis to justify an undergrounding requirement.
(b) Paragraph (a) does not apply if all of the following conditions are met:
1. The municipality or a third party agrees to reimburse the utility for the difference in cost or between the standard design or construction techniques of the utility and any special design or construction requirement sought by the municipality.
2. The special design or construction requirement is consistent with safe and reliable construction practices.
PSC 130.04 Discrimination. (1) It is unreasonable for a municipality to unduly discriminate between utilities seeking access to municipal rights-of-way.
(2) If space availability is limited, a municipality may permit a utility with an obligation to serve to receive access to a particular right-of-way before a utility that is not bound by an obligation to serve.
(3) It is unreasonable for a municipality to deny a utility any access to municipal rights-of-way without good cause.
PSC 130.05 Management function costs. (1) A municipality may require a utility to pay the actual cost of functions undertaken by the municipality to manage utility access to and use of rights-of-way. These management functions include all of the following:
(a) Registering utilities.
(b) Except as provided in sub. (2), issuing, processing, and verifying excavation or other utility permit applications, including supplemental applications.
(c) Inspecting utility job sites and restoration projects before, during, and after construction.
(d) Maintaining, supporting, protecting, or moving user equipment during work in the streets, highways, and other public places.
(e) Undertaking restoration work inadequately performed by a utility after providing notice and the opportunity to correct the work.
(f) Revoking utility permits.
(g) Maintenance of databases.
(h) Scheduling and coordinating highway, street, and right-of-way work relevant to a utility permit.
(2) A municipality shall be responsible for its costs incurred as a member of the one-call system under s.
182.0175, Stats.
(3) It is reasonable for a municipality to recover costs incurred under sub. (1) (a), (b), and (c) through a pre-excavation permit fee.
(4) A municipality may recover costs incurred under sub. (1) (d), (e), and (f) only from the utility that is responsible for causing the municipality to incur the costs.
PSC 130.06 Bonds and insurance. A municipality may impose reasonable bonding and insurance requirements on a utility seeking a permit to use a right-of-way, provided the municipality has reasonable grounds to question the financial responsibility or compliance ability of the utility.
PSC 130.07 Restoration. An ordinance is unreasonable if it requires a utility to restore a right-of-way to a condition that improves upon the pre-excavation condition. At the utility's option, a utility may undertake the restoration or pay the municipality a fee to cover the actual cost of restoration.
PSC 130.08 Compliance with existing law. An ordinance is unreasonable if it is not in substantial compliance with state statutes, including ss.
66.0831 and
80.32 (4), Stats.
PSC 130.09 Permanent relocation of utility facilities. (1) An ordinance that requires a utility to permanently relocate transmission or distribution facilities in a right-of-way at the expense of the utility is unreasonable unless there is an adequate health, safety, or public welfare justification for the requirement.
(2) An ordinance that requires a utility to permanently relocate transmission or distribution facilities in a right-of-way at the expense of the utility substantially for the benefit of a person other than the municipality is unreasonable.
PSC 130.10 Advanced excavation workplans. An ordinance that requires a utility to submit to a municipality its future construction or excavation workplans is reasonable in order for the municipality to coordinate work within a right-of-way. It is unreasonable for a municipality to deny a permit for a utility excavation not identified on a workplan if the excavation is needed by the utility to restore service to an existing customer, to provide service to a new customer, or for other good cause.
PSC 130.11 Facilities mapping. For purposes of acquiring a permit, a municipality may not require a utility to submit facilities mapping, other than utility right-of-way construction plans and field sketches in the format maintained by the utility, for facilities that are the subject of the permit.
PSC 130.12 Abandonment. An ordinance is not unreasonable if it requires a utility to notify the municipality of the utility's intent to abandon transmission or distribution facilities and requires the utility to provide a map, at the utility's expense, depicting the location of any facility within that municipality that the utility intends to abandon. The format of the map shall be mutually agreed upon by the municipality and the utility.
PSC 130.13 Ordinance challenges. An ordinance is unreasonable if it requires that, as a condition of obtaining a permit, the utility agree that the ordinance is valid and not subject to challenge.
________________________
Initial Regulatory Flexibility Analysis
