Criminal Background Checks

One question frequently asked by IIAT members is, “Am I supposed to conduct a criminal background check on every employee and producer in the agency?”

A literal reading of the Violent Crimes Control and Law Enforcement Act of 1994 (VCCLEA) can lead an agency principal to that conclusion. This federal law specifies that individuals convicted of a felony involving dishonesty or breach of trust may not work in the insurance industry without first obtaining written permission to do so from the state insurance department. In addition, insurance agencies and companies may not “knowingly” allow such individuals to work in the insurance industry. Persons with such criminal records, and persons who permit such individuals to work in the industry, are subject to fines and imprisonment. (That’s why some companies want names and social security numbers for all agency employees and producers, so they can conduct criminal background checks.)

TDI obtains an individual’s criminal history history by using fingerprints submitted with new license applications, as well as new registrations when an individual becomes an officer, stockholder or partner of a new or existing licensed entity.  This activity supports provisions of VCCLEA.

Does the issuance of a license to an individual since TDI began requiring fingerprints satisfy the VCCLEA requirement?

When an individual with a criminal history obtains a license, TDI makes a simultaneous determination whether a VCCLEA waiver should be issued if the individual has been convicted for a felony involving breach of trust or fiduciary responsibility. TDI will either issue a separate waiver or include the waiver language in a related Commissioner's Order.

With regard to individuals who were licensed before TDI began requiring fingerprints, an agency could have a problem if an individual has not disclosed a criminal history and the agency principal hasn't asked. In the first place, the individual license renewal application requires the individual licensee to affirm every two years that any administrative action or criminal history has been reported to TDI. Although an agency cannot be held liable under VCCLEA unless its principals "willfully" permit convicted felons to engage in the insurance business, meaning the principals have actual or constructive knowledge of the individual's prior conviction, information about prior convictions may already be in the agency's employment or license file, or it may be common knowledge around the office.

So, should you order criminal background checks on all employees and producers?

That's one way to be sure you are in compliance with the law. Another method - a much simpler and cheaper method - is to require an affirmative statement from all employees and producers that (1) they have never been convicted of a criminal felony, or (2) if they have been convicted of a criminal felony, that fact has been reported to you and the Texas Department of Insurance, and (3) they agree to immediately notify you in writing if they are ever convicted of a criminal felony. If you decide to order criminal background checks, take a look at the services offered by Trak-1, an IIAT Advantage Partner.

The legal department at the Independent Insurance Agents & Brokers of America (IIABA) has prepared a detailed report concerning VCCLEA.