Bulletin, January 13, 2005, Application of Section 612.13 (1m), Wis. Stat., Regarding Inside Directors

​Last Updated: April 12, 2005

Date: January 13, 2005
To: All Town Mutual Insurance Companies
From: Jorge Gomez, Commissioner of Insurance
Subject: Application of Section 612.13 (1m), Wis. Stat., Regarding Inside Directors

​Section 612.13, Wis. Stat., was amended in 2004 to add language on inside directors, as follows:

(1m) INSIDE DIRECTORS.
(a) Beginning 2 years after April 30, 2004, all of the following apply:
1. If a town mutual has fewer than 9 directors, no more than one director may be an employee or representative of the town mutual.
2. Employees and representatives of a town mutual may not constitute a majority of its board.
(b) Notwithstanding par. (a), the commissioner may allow a town mutual an extension of up to one year to come into compliance with the requirements under par. (a).

OCI has received inquiries from town mutuals and WAMIC about the application of the terms "employee" and "representative" in this statute.

• A "representative" includes the insurer's "insurance marketing intermediaries" as defined in s. 628.02 (1), Wis. Stat., which says:
  
  

(1) INSUANCE MARKETING INTERMEDIARIES. (a) Activities constituting intermediary. Except as provided under par. (b), a person is an "intermediary" if the person does or assists another in doing any of the following:
1. Solicits, negotiates or places insurance or annuities on behalf of an insurer or a person seeking insurance or annuities; or
2. Advises other persons about insurance needs and coverages.

It does not matter whether the "representative" is paid through a commission that is a direct percentage of the premium paid by the policyholder, a fee that may not be a direct percentage of the premium, or in any other manner.

• "Employee" means a person who is hired for a wage, salary, fee or payment to perform work for an employer.
  
  It is a common practice that officers and directors are paid for their service on the board and on committees. Under IRS regulations, usually officers are issued a W-2 statement and other directors are issued a Form 1099, regardless of the specific duties they have performed. Whether an officer or director receives a W-2 tax statement or a Form 1099 statement does not determine whether the officer or director is an "employee" or "representative" for the purpose of s. 612.13(1m), Wis. Stat.

The following general criteria will be used to determine whether or not a director is an employee or representative, pursuant to s. 612.13 (1m), Wis. Stat.

1. If a director is also a "representative" as discussed above, the director is a "representative" for the purpose of s. 612.13 (1m).
2. Every town mutual has at least one person who manages the company and performs or supervises the daily work. Often the Secretary, Manager and/or other staff perform these functions. The Secretary, Manager or other person(s) who regularly perform and/or supervise the day to day work of the company are "employees" of the company for the purpose of s. 612.13 (1m).
3. If any director or officer's duties are substantially limited to those related to their role as a director (e.g., attending board and committee meetings, adjusting or supervising the adjustment of losses pursuant to s. 612.13 (4), Wis. Stat., etc.),
• and the director or officer does not regularly perform activities related to day to day management of the company,
• and the director or officer is paid less than $5,000 per year primarily for his or her duties as a director,
• and the director or officer is not a "representative",
• Then that director or officer would not be an "employee" of the company for the purpose of s. 612.13 (1m).

The above guidance is intended to facilitate compliance with s. 612.13 (1m), Wis. Stat. Individual company circumstances will ultimately determine the proper classification of directors under s. 612.13 (1m). OCI expects to review individual company circumstances and the related classification of directors during examinations and at other times as deemed necessary.

Effective Date

This bulletin shall take effect immediately and shall remain in effect until revised or withdrawn.

Contact Information:

Please contact any of the following persons:

Frequently Asked Questions Regarding the Application of s. 612.13 (1m), Wis. Stat., Related to Inside Directors