Thanks to my friend Alan Prochoroff, Editor and Publisher of Insurance Compliance Insight, for providing, in his September 9, 2013 edition, a brief discussion and link to the Summary Order issued by the Kansas Insurance Department (“KID”) on August 27, 2013. Mr. Prochoroff describes the issues succinctly as follows: “the postcards mislead recipients into believing their financial well-being may be in jeopardy. The postcards supposedly suggested the person had an annuity that might be adversely affected if they didn’t contact the company. Making matters worse was a disclaimer on the cards. Kansas said that language was in print too small to remedy the misleading language that was printed in a much larger font.” KID has also issued a Consumer Alert today (September 10) regarding the order.
We often hear in our practice that sanctions like this don’t happen and “everyone is doing it.” This suggests that if that is the case, “everyone” can expect to be hit with a penalty from KID. The order imposes a monetary penalty of $5,000 on Lead Generating Systems, LLC, aka Unlimited Fulfillment Services, aka Smart Leads. This is in addition to a previous penalty of $4,000 that remains unpaid. In addition to the monetary penalty, a cease and desist order was issued. The sanctions were based on the unfair trade practices law in Kansas. The Consumer Alert provides some additional details about the claims made in the postcards, namely that they stated recipients financial well-being was at stake because their annuities were purportedly at the end of the surrender charge period.
Kansas has taken a lead role among state regulators in targeting lead generating as a source of problems in insurance advertising. In 2012, KID issued Bulletin 2012-1 specifically addressing issues raised by third party marketing firms.
One of the issues not addressed in this order is whether any producers who used these lead generating devices in their sales, any Independent Marketing Organizations who made the lead generating systems available or promoted them to their producers, or any carriers whose annuity contracts were issued to consumers who responded to the misleading claims on the cards will be sanctioned as well. It seems clear from the applicable laws and regulations that there is authority to find that once a misleading claim like those in the cards sent to Kansas residents, the entire sale is tainted and all along the line in the sales process are exposed to liability. Only time will tell if there are further repercussions.