Source: http://www.forc.org/Public/Alerts/2012/AlertsforFeb2012.aspx
Timestamp: 2019-04-25 14:40:15+00:00

Document:
Welcome to the February 2012 edition of the FORC Alert. I hope you find the information useful. If you have any colleagues that may be interested in this publication, please forward it on. There is a link below this message allowing them to opt-in so they can receive these FORC Alerts automatically.
On December 7, 2011, in Bay Farms Corp. v. Great American Alliance Ins. Co., 2011 WL 6099367, the U.S. District Court for the Middle District of Florida granted an insured's motion for partial summary disposition, ruling that Senate Bill 408's ("SB 408") amendment providing a definition for the term "structural damage" could not be retroactively applied to the insurance policy in that case.  The relevant policy defined a sinkhole loss as: "structural damage to the building, including the foundation, caused by [sinkhole activity]." The policy did not define structural damage and incepted before SB 408 was enacted.
The parties filed cross-motions for partial summary judgment on the issue.  The Court ruled that the amendment is not a true "clarification" of existing law, and that it is a substantive amendment that cannot be applied retroactively.  Premising its decision on the fact that this amendment provided an entirely new definition for a previously undefined term, the Court also relied on the fact that the Florida Legislature amended this section several times without providing a definition of the term "structural damage."  The Court agreed with Bay Farms' argument that, simply by using the term "structural damage" in 2005, the Legislature could not have intended the highly technical definition provided by SB 408.  While the Court found that SB 408's definition does not apply retroactively, it did not define the meaning of the term structural damage prior to SB 408, inasmuch as the carrier conceded that coverage would have been afforded if SB 408's definition did not apply.
This decision is not appealable at this stage of the litigation.  However, the Court may always reverse this decision later in the litigation, and depending on the outcome, Great American may file an appeal.  Additionally, because this is only a trial court decision, it is not binding authority on other cases.
Florida Insurance Consumer Advocate Robin Smith Westcott presented the final report from her Personal Injury Protection Working Group to the Florida House and Senate leadership on December 15, 2011.   She had assembled the Working Group at the request of Florida Chief Financial Officer, Jeff Atwater, to address the skyrocketing cost of PIP insurance coverage to Florida consumers.  The Working Group meetings yielded the data presented in the report, which can be viewed by clicking here.  Related data can be accessed by clicking here.
The Florida Office of Insurance Regulation advised all Florida residential property insurers on January 4, 2012, that the revised "Uniform Mitigation Verification Inspection Form" ("Form OIR-B1-1802") will become effective on February 1, 2012.  In Informational Bulletin OIR-12-01M, a copy of which can be viewed along with the new Form by clicking here, the OIR noted that the revised Form OIR-B1-1802 does not change any approved company inspection requirements, nor does it change the mitigation discounts/credits as adopted in Rule 69O-170.017, F.A.C.
Personal Injury Protection (PIP) insurance reform has been a hot topic in Florida’s 2012 legislative session.  Fraudulent claims plague the market, causing rates to increase.  After significant study, the legislature seeks to revise Florida’s PIP laws to deter fraud while ensuring that emergency care remains available.
Florida’s residual property insurance market has grown to well over 1 million policies due in part to the competitiveness of its rates with those in the private sector.  This has prompted Governor Rick Scott to call for proposals to privatize the organization, as well as legislative responses such as allowing surplus lines insurers to assume residual market policies.  One favorable proposal pending in the 2012 legislative session would change the residual market’s assessment mechanism, providing a better operating climate for private market insurers.  At the same time, a legislative proposal to reduce the size of the state's catastrophe fund has prompted concerns that increased private market costs with lead to further residual market expansion.
In Cruz v. Cooperativa De Seguros Multiples De Puerto Rico (Fla. 2d DCA, December 30, 2011), the Second District Court of Appeal has upheld the neutral evaluation process for sinkhole claims established in section 627.7074, Fla. Stat.  This case is the state's first appellate decision to construe the statute since its enactment in 2006.  In Cooperativa, the carrier and the insured disagreed over a sinkhole claim and the carrier invoked "neutral evaluation."  The insureds, however, sued the carrier for breach of contract.  Pursuant to the neutral evaluation statute, the trial court entered an order staying the lawsuit until completion of the evaluation process.  The insureds sought to lift the stay, arguing that the neutral evaluation conference was not completed within 45 days as mandated by statute thereby denying the insureds access to the courts.  The insureds also argued that the stay provision of the statute was a procedural rule and, therefore, was unconstitutional and an infringement on the Florida Supreme Court's rule-making authority.
The Second District Court of Appeal held that any delay or inconvenience while the neutral evaluation process is completed does not demonstrate sufficient irreparable harm to invoke the appellate court's certiorari review.  The court found that neutral evaluation process is intended as an alternative dispute resolution, and is non-binding, so there is no validity to the insureds' argument of lack of access to courts. The court further held that the stay provision is sufficiently intertwined with substantive provisions so that it is not an unconstitutional violation of separation of powers.
The court added that even though the statute requires that neutral evaluation "shall" be completed with 45 days, the lapse of that period does not bar any statutory or contractual policy right of the carrier to neutral evaluation.  The court reasoned that the evaluation is an informal process in which formal rules of evidence and procedure need not be observed, which suggests that the legislature intended no sanction for failure to strictly adhere to the time period.  The decision is not final until the time expires to file rehearing motion.
Bituminous Ins. Co. v. Coker, A11A1757, Georgia Court of Appeals (February 8, 2012).
The Georgia Court of Appeals reversed the denial of Bituminous Insurance Company’s motion for summary judgment on Carolyn A. Coker’s claim for uninsured motorist benefits, holding that no eyewitness testimony corroborated her description of how an unknown motorist caused the accident in which her husband was killed, as required by O.C.G.A. § 33-7-11 (b) (2) where no physical contact occurred between the vehicles. Although three of four eyewitnesses established the presence of an unknown vehicle at the scene, each described the vehicle in a different location, and none corroborated Coker’s description of how the accident occurred, i.e., that the unknown vehicle stopped suddenly in front of her husband’s truck at an intersection, causing him to brake, the load of lumber he was carrying to shift, the straps holding the lumber to break, and the lumber to move forward and crush the driving cab of the truck.
Georgia Adopts Final Regulation Prohibiting Most Favored Nations Clauses in Agreements Between Insurers and Providers.
On February 10, 2012, the Georgia Department of Insurance adopted Regulation 120-2-20-.03. This regulation prohibits contract provisions in agreements between healthcare providers and insurers that: (i) grant an insurer the option to prohibit a provider from contracting with another party at a lower rate than the payment or reimbursement rate specified in the contract; (ii) grant the insurer the option to require a provider to accept the lower payment or reimbursement rate if the provider agrees to provide healthcare services to another party at a lower rate or gives the insurer the right to terminate; (iii) allow an insurer to renegotiate an existing contract based on another party receiving lower rates than it receives; or (iv) require a provider to disclose the provider's contractual payment or reimbursement rates with other insurers.  The definition of provider includes physicians, hospitals or other person who is licensed or otherwise authorized in the state to furnish healthcare services. The regulation does not apply retroactively, but the Department has stated that it will act if it finds that any insurer is enforcing a most favored nation clause.
On January 12, 2012, the Georgia Department issued Directive 12-EX-1. This directive clarifies that Georgia has not elected to apply Georgia's statutory definition of a "small employer" (2-50 employees) to the calculation of medical loss ratios and related reporting obligations under Section 2718 of the Public Health Services Act (part of PPACA). Thus, health insurers operating in Georgia should file all required reports using the federal definition of a small employer (1 to 100 employees). Large employers are those employers with 101 or more employees. The definitions of small employer as an employer of 1 to 100 employees and large employer as an employer with 101 or more employees also apply for purposes of making required reports on the Supplemental Health Blank as prescribed by the NAIC.
Government Employees Ins. Co. v. Kralick, A11A2298, Georgia Court of Appeals (January 9, 2012).
The Georgia Court of Appeals held that the trial court did not abuse its discretion in prohibiting any mention of Werner Kralick’s (“Kralick”) failure to add an ATV involved in the accident at issue to his automobile policy. The Court of Appeals held that Kralick’s failure to add the ATV to the policy had no bearing on the issue of coverage because the accident occurred two weeks after Kralick acquired the ATV and his automobile policy, issued by GEICO, contained an automatic insurance clause pursuant to which coverage of newly-acquired vehicles was effective during a 30-day notice period irrespective of whether notice of acquisition had been given.  The Court of Appeals also affirmed the grant of a directed verdict to GEICO as to Kralick’s umbrella policy because the evidence established that Kralick received the policy, which contained an amendment excluding from coverage motorized vehicles designed primarily for off-road use.
United States of America v. Ismael B. Rodriguez, No. 11-10603, United States Court of Appeals, Eleventh Circuit (January 9, 2012).
On January 9, 2012, the United States Court of Appeals for the Eleventh Circuit affirmed the conviction of Ismael Baca Rodriguez for conspiracy to commit mail fraud, in violation of 18 U.S.C. §§ 1341 and 1349, and mail fraud, in violation of 18 U.S.C. §§ 1341 and 2.  The case arose from a life insurance claim that Rodriguez’s wife filed with Modern Woodmen of America. From 2002 through 2006, Rodriguez secured four life insurance policies with Modern Woodmen, the aggregate death benefit of which totaled $2,000,000. On December 8, 2008, Rodriguez’s wife, who was the primary beneficiary of the life insurance policies, mailed to Modern Woodmen a Mexican death certificate stating that Rodriguez had died on November 10, 2008. Modern Woodmen investigated the accuracy of the Mexican death certificate, and unable to verify it, denied Rodriguez’s wife’s claim in February 2009.  Over a year later, in August 2010, Rodriguez and his wife were taken into custody on federal arrest warrants.  After hearing conflicting stories of Rodriguez’s alleged kidnapping and ransom in Mexico, a jury ultimately found Rodriguez guilty of conspiracy to commit mail fraud and mail fraud, and the district court sentenced him to 60 months’ imprisonment.  On appeal, the court found that based on the inconsistencies in his kidnapping story and the evidence contradicting it, a reasonable fact finder could have disbelieved it and found that he had constructed it to cover up his involvement in the scheme.  The court also found that his disappearance just before the claim was filed and reemergence just after the claim was denied, his knowledge of the life insurance policies, the financial problems the Rodriguez’s were facing, and his admission that he contacted his wife to request money from the life insurance policies, were enough to infer his knowledge of, and participation in the scheme.
The Louisiana Department of Insurance has released a Notice of Intent in the January edition of the Louisiana Register proposing Regulation 100 pertaining to the recently enacted Coverage of Prescription Drugs through a Drug Formulary Subpart of the Louisiana Insurance Code. Proposed Regulation 100 includes provisions intended to clarify and implement the Drug Formulary Subpart, which establishes certain restrictions and requirements for health insurance companies issuing health benefit plans that cover prescription drugs and that use one or more drug formularies to indicate the prescription drugs covered under such plans.
The Drug Formulary Subpart requires a notice in "plain language" to each enrollee of any affected health plan that the plan uses a drug formulary and certain other information. Proposed Regulation 100 uses this requirement as the basis for the first of "three different and distinct types of notice" that a health insurance plan issuer must provide to its enrollees.
The full Notice of Intent regarding Louisiana Department of Insurance Regulation is available here.
Joining other states with a significant presence of domestic life insurers, the Tennessee General Assembly has passed legislation that clarifies rights of counterparties to swaps and other derivative contracts in the event of an insurer’s receivership or liquidation.  The bill (SB 465/HB 500), which generally tracks Section 711 of the NAIC’s Insurer Receivership Model Act, is expected to be signed into law by Governor Haslam within two weeks.
Two Haslam Administration bills proposed by the Tennessee Department of Commerce and Insurance are under active consideration by the Tennessee General Assembly, with passage expected later this Spring.  The first measure (SB 2201/HB 2339) permits the Commissioner of Commerce and Insurance to share confidential information with other state, federal or foreign regulators provided the recipients maintain confidentiality and also modifies the definition of “company level action event,” and the second bill (SB 2202/HB 2240) permits broker/dealers as well as insured depository institutions to serve as custodians to insurers.

References: v. 
 v. 
 v. 
 § 33
 v. 
 v.