After notice and a hearing, an insurance commissioner determines that Wrenlight Life has been engaging in a prohibited practice. She wants the practice stopped immediately while the question of penalties is still being decided. Which instrument does she use, and what happens if the company ignores it?
- A.A certificate of authority, which is revoked automatically on any violation.A certificate of authority is the licence permitting an insurer to transact business in the state. Nothing about it is automatic, and revoking it is a far heavier step than ordering one practice to stop.
- B.A subpoena, which compels the company to stop the conduct.A subpoena compels the production of testimony, records or documents during an investigation. It gathers evidence; it does not prohibit conduct.
- C.A CEASE AND DESIST order directing the company to stop the specified conduct, with further penalties and licence action available if it is violated.Correct. The order operates immediately on the named conduct, and disobeying it is a separate violation exposing the company to additional fines and to action against its certificate of authority.
- D.A market conduct examination, which itself bars the conduct while it is under way.An examination is a fact-finding review of a company's claims, underwriting, advertising and complaint practices. It produces a report and may lead to enforcement, but it prohibits nothing by itself.
Why: A CEASE AND DESIST order is the commissioner's direct remedy: it commands a named person or company to stop a specified practice, and it operates immediately, independently of any monetary penalty later imposed. Violating such an order is a separate offence, exposing the violator to additional fines, to suspension or revocation of the certificate of authority or licence, and in most states to enforcement in court.
After a hearing, the commissioner finds that Marchbank Life has been systematically misrepresenting policy dividends in its advertising. Under the Unfair Trade Practices Act, the commissioner's direct remedy is to:
- A.Issue a cease and desist order against the practice, with monetary penalties and possible license action for continued violations.This is the remedy the act supplies: after notice and hearing, the commissioner orders the practice stopped and may add fines, escalating to suspension or revocation if the insurer persists.
- B.File a civil lawsuit in state court seeking damages on behalf of every affected policyholder.This casts the commissioner as class counsel. The act creates an administrative enforcement process, and individual policyholder damages are pursued through separate private remedies.
- C.Immediately revoke the insurer's certificate of authority without further process, since the violation is now proven.This skips the graduated remedy structure. Revocation is available, but the ordinary first response to a proven unfair practice is an order to stop it, with license action reserved for continuing or serious misconduct.
- D.Refer the matter to the state guaranty association for restitution to affected consumers.This misassigns the association's role. A guaranty association pays covered claims of insolvent insurers and has no function in remedying an unfair trade practice by a solvent one.
Why: The Unfair Trade Practices Act follows a defined sequence: notice, a hearing, findings, and then an order. Where the commissioner finds a violation, the order directs the insurer to cease and desist from the practice and may impose monetary penalties, with license suspension or revocation available for continuing or aggravated conduct. Violating the cease and desist order itself exposes the insurer to further and larger penalties.