Pare, Edward D., Jr.

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1996 Survey of Rhode Island Law: Legislation: Insurance Law. An Act Relating To Financial Institutions - Sale Of Insurance

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Roger Williams University Law ReviewVolume 2 | Issue 2 Article 22Spring 19971996 Survey of Rhode Island Law: Legislation:Insurance Law. An Act Relating To FinancialInstitutions - Sale Of InsuranceEdward D. Pare Jr.Roger Williams University School of LawFollow this and additional works at: http://docs.rwu.edu/rwu_LRThis Survey of Rhode Island Law is brought to you for free and open access by the Journals at DOCS@RWU. It has been accepted for inclusion inRoger Williams University Law Review by an authorized administrator of DOCS@RWU. For more information, please contact mwu@rwu.edu.Recommended CitationPare, Edward D. Jr. (1997) "1996 Survey of Rhode Island Law: Legislation: Insurance Law. An Act Relating To Financial Institutions -Sale Of Insurance," Roger Williams University Law Review: Vol. 2: Iss. 2, Article 22.Available at: http://docs.rwu.edu/rwu_LR/vol2/iss2/22524 ROGER WILLIAMS UNIVERSITY LAW REVIEW [Vol. 2:524Insurance Law. An Act Relating To Financial Institutions--SaleOf Insurance. Provides for repeal of the historical statutory sepa-ration between banks and insurance sales. The bill is controver-sial since numerous issues of federal preemption exist.' The actallows financial institutions to sell insurance, as agents, withincertain parameters. It also provides certain consumer protectionsand disclosures. Effective, August 7, 1996. 1996 R.I. Pub. Lawsch. 325.This legislation (the Act) appears to be in response to theUnited States Supreme Court decision in Barnett Bank v. Nelson.2In Barnett, the court held that federal banking laws preempt cer-tain state anti-affiliation laws and other state laws that "signifi-cantly interfere" with a national bank's insurance agency powers.3This is true even though the bank is located in that state and isotherwise subject to state law.4The Act is divided into two distinct, operative sections. Thelatter sections repeal what is commonly referred to as an anti-affil-iation provision.5 An anti-affiliation provision generally prohibitsbanks and other deposit-taking financial institutions and theirsubsidiaries, affiliates, agents, officers, directors and employees (fi-nancial institutions)6 from acting as an insurance producer.7 In-surance producers include insurance agents, solicitors, and with1. Barnett Bank v. Nelson, 116 S. Ct. 1103 (1996); Preemption Determina-tion, 62 Fed. Reg. 1950 (Dep't Treasury, Office of the Comptroller of the Currency1997).2. 116 S. Ct. 1103 (1996).3. Id. at 1109.4. Id.5. The Financial Institution Insurance Sales Act, 1996 RI. Pub. Laws ch.325, repealed Rhode Island General Laws section 27-3-46 (1994). Rhode IslandGeneral Laws section 27-3-46 prohibited financial institutions from being licensedto sell insurance, except for certain credit-related products. Id. § 27-3-46 (1994)(repealed 1996).6. R I. Gen. Laws § 27-58-3 (Supp. 1996). This provision defines "financialinstitution" as any association authorized to take deposits and make loans ofmoney including its officers, agents, representatives, employees, affiliates andsubsidiaries thereof. Id-7. Id. § 27-3-46 (1994) (repealed 1996). Technically, section 27-3-46 of theRhode Island General Laws did not directly prohibit financial institutions fromselling insurance, but it prohibited financial institutions from obtaining a licenserequired to sell insurance. Id.SURVEY SECTIONcertain exceptions, brokers.8 A companion statute, Rhode IslandGeneral Laws section 27-3-47 entitled, "Acts prohibited,"9 origi-nally prohibited financial institutions from using their premises tosell or underwrite insurance, except for the sale of certain credit-related insurance products.1 0 The Act amends this prohibition toexempt financial institutions duly licensed as insuranceproducers."The repeal of Rhode Island General Laws section 27-3-4612and the amendments to section 27-3-471s of the Rhode Island Gen-eral Laws authorize financial institutions to become licensed insur-ance producers, or to affiliate with or own licensed insuranceproducers. Additionally, licensed financial institutions can nowuse their premises to sell insurance to a limited extent.' 4The first section of the Act provides a regulatory scheme,which sets out the terms and conditions under which a financialinstitution may sell insurance within the State of Rhode Island.' 5The Act generally prohibits linking banking and insurance prod-ucts, 16 requires certain disclosures, 17 restricts which financial in-stitution employees may sell insurance,18 limits the use offinancial institution customer information by insurance produ-cers,19 requires physical separation between banking services andinsurance activities2 0 and provides remedial penalties for viola-tions.2 ' The Commissioner of Insurance,2 2 who also oversees the8. Id. § 27:2.3-1 (1994). Insurance producer "means a person who solicits,negotiates, effects, procures, delivers, renews, continues or binds policies of insur-ance or who offers advice, counsel, opinion or service in this state." Id. § 27-2.3-2(5). Insurance producers are required to be licensed. Id. § 27-2.3-3.9. Id. " 27-3-47 (1994 & Supp. 1996).10. Id § 27-3-47(a) (Supp. 1996).11. Id § 27-3-47(b)(4).12. I& § 27-3-46 (1994) (repealed 1996).13. Id. § 27-3-47 (1994 & Supp. 1996).14. Id- § 27-58-12 (Supp. 1996). Pursuant to this provision, the physical loca-tion of insurance activities by a financial institution must be physically separatedfrom the banking activities, but does not require a separate building. Id.15. Id §§ 27-58-1 to -13.16. Id § 27-58-6.17. Id. § 27-58-7.18. Id. § 27-58-8.19. Id. § 27-58-10.20. Id. § 27-58-12.21. Id. § 27-58-13.22. Id. § 27-2.3-2(1) (1994). The Commissioner of Insurance is also the Direc-tor of the Department of Business Regulation. Id.19971 525526 ROGER WILLIAMS UNIVERSITY LAW REVIEW [Vol. 2:524regulation of state-chartered banks and financial institutions,23 isauthorized to promulgate regulations to effectuate the purposes ofthe Act and "to ensure the safety and soundness of the bankingand insurance businesses."24As an anti-coercion measure, the Act prohibits financial insti-tutions from requiring, or even implying, that insurance must beobtained from that financial institution, or from a particular insur-ance producer, as a condition of being offered a banking product orservice.25 Financial institutions are also prohibited from varyingthe conditions of banking products based on insurance sales orpurchases. 26 They must disclose to the consumer that any insur-ance sold is not a deposit,2 7 is not insured by the Federal DepositInsurance Corporation,28 is not guaranteed by the financial insti-tution,29 and where appropriate, disclose that such a purchase in-volves investment risk, including a risk of losing principal.3 0Financial institutions are also required to disclose, in writing, thatany insurance that is required as a condition of a loan (e.g., home-owner's insurance on a mortgage), cannot by law be required to bepurchased from that financial institution.3 1 Additionally, bankingand insurance transactions are required to be completed indepen-dently and through separate documentation.3 2 Also, the Act pro-hibits the inclusion of insurance premium financing in the primarycredit extension without the written consent of the customer.33The Act also prohibits persons whose responsibilities includeloan or deposit transactions from soliciting for the purchase or saleof insurance, 34 and limits the information a financial institutionmay use to solicit the purchasing or selling of insurance. 35 Addi-23. Id § 42-14-5 (1993).24. Id. § 27-58-4 (Supp. 1996).25. Id. § 27-58-6.26. Id. This prohibition extends to existing or prospective customers, and in-cludes lending money, extending credit, or establishing or maintaining any type ofaccount. Id.27. Id. § 27-58-7(a)(i).28. Id. § 27-58-7(a)(ii).29. Id. § 27-58-7(a)(iii).30. Id. § 27-58-7(a)(iv). The disclosure must be written in clear and conciselanguage, and must be prominent. Id. § 27-58-7(a).31. I& § 27-58-7(b).32. Id. § 27-58-11.33. Id. § 27-58-11(b).34. Id. § 27-58-8.35. Id. § 27-58-10.SURVEY SECTIONtionally, financial institutions must not use "non-public customerinformation"3 6 to sell or solicit the purchase of insurance, or pro-vide the information to a third party for this purpose.3 7Lastly, the Act provides civil penalties of up to one hundreddollars for each day a violation continues, and the Insurance Com-missioner may seek injunctions against further violations in supe-rior court.3 8Edward D. Pare, Jr.36. Id. § 27-58-10(1)(b). This refers to information derived from a record of afinancial institution, but does not include the customer's name, address or tele-phone number. Id.37. I& § 27-58-10(2).38. Id. § 27-58-13.1997] 527

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1996 Survey of Rhode Island Law: Legislation: Insurance Law. An Act Relating To Financial Institutions - Sale Of Insurance

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