In the past few years, federal and state governments have pushed employers to rehire offenders, such as through tax incentives and subsidized training. Despite the public interest in such initiatives and programs, the insurance industry must be careful and consider specific, current legal obligations regulating or prohibiting the employment of individuals with certain criminal records.
Insurers should review their post-offer screening processes for prospective employees and agents to ensure that any hiring or engagement is contingent upon confirmation of employment eligibility pursuant to 18 USC § 1033 (section 1033). Section 1033 was enacted as part of the Violent Crime Control and Law Enforcement Act of 1994. The statute prohibits individuals who have been convicted of a crime “involving dishonesty or breach of trust” or a crime listed in Section 1033 (which includes, among other misappropriation and theft), from engaging in “insurance activity” without the written consent of an official of the insurance regulator. 18 USC § 1033(e). Section 1033 also prohibits persons engaged in the business of insurance from permitting persons covered by the above categories to engage in the “business of insurance.” ID. Violations can result in a variety of consequences, including a civil penalty of up to $50,000 per occurrence. 18 USC § 1034.
Section 1033 defines “insurance business” broadly as “the writing of insurance” or the “reinsurance of risks by an insurer,” including “all acts necessary or incidental to such writing or reissuance.” 18 USC § 1033(f)(1).
Therefore, to comply with section 1033, an insurer must determine whether a prospective employee or agent’s role will involve “insurance business” and, if so, whether that person has been convicted of a crime involving dishonesty, breach of trust, or a violation of section 1033. Crimes involving dishonesty usually involve some element of fraud or forgery, such as perjury, fraud, embezzlement, theft or bribery. Crimes involving breach of trust are often based on a wrongful act that violates the trust relationship – for example, an estate executor misappropriating estate funds. To further complicate matters, the sentence may cover certain deferred sentences and may or may not be subject to expungement laws.
Of course, an insurer may still hire or engage a person with a section 1033 disqualifying conviction if prior written consent is obtained from the governing insurance regulatory officials. To obtain consent, called by some a Section 1033 waiver, the individual must complete and submit the application materials required by the insurance commissioner or regulatory agency of each governing state. The National Association of Insurance Commissioners guidelines explain that a prospective employee should apply in the state where the applicant will perform the most substantial work (if applicable) or the insurance company’s state of residence. Individuals applying for a license as a producer or other licensed insurance professional must apply in the state issuing the license for residence.
Although an individual only needs to apply for an exemption, an insurer may be required to assist in the process. For example, the Pennsylvania exemption application requires an affidavit from the insurer’s president or designated officer, as well as details of the proposed employment or business relationship with the insurer.
Because of the sensitivity associated with the use of criminal history data, regulations affecting background checks and consumer credit law compliance, and employment discrimination laws that limit, if not prohibit, the use of arrest and conviction records as racially discriminatory, the intersection of these issues makes section 1033 compliance even more difficult. For example, the US Equal Employment Opportunity Commission has explained that although Title VII (the federal anti-discrimination law) does not protect against federally imposed restrictions governing the employment of persons with specific beliefs, policies that impose exceptions to those restrictions can be subject to Title VII analysis.
Therefore, each insurer must regularly evaluate its recruiting, screening, hiring, and onboarding processes to comply with best practices in the human resources profession, adhere to employment discrimination laws, and avoid violations of Sec. 1033. This includes understanding the exemption requirements to learn what information may be required for an individual’s exemption application and to assist the individual with the application process. Insurers must also be prepared to explain and defend the processes used to screen applicants if they are ever challenged by anti-discrimination laws or other theories.