Source: http://www.forc.org/Public/Alerts/2010/AlertsforApril2010.aspx
Timestamp: 2019-04-25 14:12:09+00:00

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Welcome to the April 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.
The Senate Banking Committee passed the Restoring American Financial Stability Act of 2010 on Monday, March 22, on a party line vote of 13 to 10 after brief statements from Committee Chairman Chris Dodd (D-CT) and Ranking Member Richard Shelby (R-AL) and a matching vote on the manager’s amendment to the bill, the only amendment offered on the sweeping legislation.  Republicans initially submitted hundreds of amendments to the legislation, but chose to withdraw all of them until debate begins on the Senate floor.  Both sides expressed optimism that the bill would eventually pass on a bipartisan basis.  Here is the link to the original bill and hereis the link to the Manager’s Amendment.
In a December 18, 2009 opinion on Citizens Property Insurance Corp. v. Garfinkel, the Fifth District Court of Appeal held that, not only was Citizens Property Insurance Corporation immune from first-party bad faith claims, but that Florida's bad faith statute does not apply to Citizens.
The Florida Cabinet met on March 9, 2010, during which it considered Proposed Rule 69O-170.0155 for final adoption by the Florida Office of Insurance Regulation ("OIR"). The approved amendments to Rule 69O-170.0155 will serve to modify two forms, OIR-B1-1802 and OIR-B1-1655, which are used respectively by home inspectors and insurance companies for providing information about windstorm mitigation features on residential properties.
The Florida Cabinet approved Rule 69O-189.003 relating to Workers' Compensation; Application and Audit Procedures on January 26, 2010 for final adoption, which is effective on March 10, 2010.
The Florida Hurricane Catastrophe Fund ("FHCF") Contract Year will be returned to June 1 through May 31 beginning June 1, 2010 if Florida Governor Charlie Crist signs SB 1460, which was passed unanimously by the 2010 Florida Legislature.  The FHCF Contract Year, after being legislatively curtailed in 2009, had created unintended negative financial consequences for insurers due to the way in which the cost of reinsurance is amortized on their financial statements.  Without passage of SB 1460, an insurer's 2010 financial statement would show a larger-than-normal expense associated with the purchase of FHCF reinsurance.
In a March 1, 2010 report to Florida legislative leadership, Florida Insurance Consumer Advocate Sean Shaw detailed recommendations on improving the property insurance claims process for Florida consumers.  The information used to compile the report was gathered during the course of two roundtable-style discussions on claims dispute resolution, as well as alternative dispute resolution.
The Florida Office of Insurance Regulation has agreed to begin proceedings to adopt a new rule to implement Florida’s workers’ compensation excess profits law.  The agreement was reached with FFVA Mutual Insurance Company, which challenged the Office’s use of unpublished internal policies on what expenses companies were allowed to claim for excess profits reporting purposes.  FFVA Mutual alleged that the Office was implementing invalid non-rule policy which restricted companies’ ability to reduce their excess profits exposure by claiming certain expenses, such as federal and state income taxes, reinsurance expenses, surplus note expenses, and investment expenses.
The agreement reached between the workers’ compensation insurer and the Office will stay pending administrative proceedings while the Office attempts to promulgate a valid rule.  The rulemaking process should begin within the next several weeks.  Interested insurers, as well as the public at large, will have an opportunity to participate in the rulemaking process.
Florida’s excess profits law, section 627.215, Florida Statutes, was originally enacted in 1979 when the Florida Legislature adopted a so-called wage-loss system to replace traditional permanent partial compensations benefits.  At the time, the excess profits law was intended to address legislators’ concerns that workers’ compensation insurers might reap excessive profits as a result of the change in the workers’ compensation benefit structure.  The 1979 wage-loss system has come and gone, and Florida has seen numerous benefit system reforms since then.  But, the excess profits law has remained on the books.
Until recently, it was a fairly rare occurrence for a Florida workers’ compensation insurers to be required to refund excessive profits to its policyholders.  In the past several years, however, as the Florida market improved for workers’ compensation insurers, numerous companies have been forced to make refunds totaling hundreds of millions of dollars.  In some cases, companies complained that they were not allowed to take deductions for expenses they incurred in the ordinary course of doing business.  The rulemaking process, which will shortly get under way, should provide the insurance industry with a forum to air its views on which expenses should be allowed for excess profits reporting purposes.
In a recent Fourth District Court of Appeal decision involving a supplemental Hurricane Wilma claim, a unanimous three-judge panel determined that a court-ordered appraisal was "premature" because the insurer disputed whether the claimed losses were covered by the policy and whether the insureds had complied with the policy requirements.
A comprehensive study by Risk Management Solutions ("RMS") on windstorm mitigation credit implementation in the State of Florida and its impact on the insurance industry has concluded that the current system is a significant contributing factor in the reported decline of Florida insurance premium income since 2007.  The study was conducted on behalf of the Florida Department of Financial Services and based on a set of objective analyses designed by RMS.  The full report was presented to key members of the Florida Legislature on March 19, 2010.To access the report on www.rms.com, click here.
The Georgia Court of Appeals held recently that former O.C.G.A. § 46-7-12.1 does not authorize a person who is injured by the alleged negligence of a motor carrier to pursue a direct action against the motor carrier’s excess liability insurer. A plaintiff filed a wrongful death suit in 2008 against a motor carrier and the motor carrier’s excess liability insurer under the former version of the statute, which authorized a plaintiff to file suit against a motor carrier’s insurance carrier before obtaining a judgment against the insured. The lower court held that excess liability insurers were insurance carriers for purposes of the statute and that the plaintiff could bring a direct action against the excess liability insurer. The Georgia Court of Appeals reversed the lower court’s decision, holding that the statute must be strictly construed and that nothing in the statute’s language provides authorization for a direct action against an excess liability insurer. The former version of the statute, which the court interpreted, was recently amended during the 2009 session of the Georgia Legislature. The former version of the statute only applies to contracts entered into prior to July 1, 2009.
On March 15, 2010, the Georgia Supreme Court responded to an Eleventh Circuit certified question inquiring whether an insurer’s notice of cancellation of a commercial automobile insurance policy, properly given after a premium payment is past due, is ineffective because it provides an opportunity for the insured to keep the policy in force by paying the past-due premium within the statutory ten day notice period. The Georgia Supreme Court answered the question in the negative, holding that O.C.G.A. § 33-24-44 does not require that a cancellation notice be in any particular form. The court further stated that as long as the notice clearly and unambiguously states that the cancellation will occur, the mere fact that the notice contains an option for the insured to avoid the cancellation does not render the cancellation notice ineffective. See Reynolds et al., vs. Infinity General Ins. Co., S09Q1613 (March 15, 2010).
On March 22, 2010, the Georgia Supreme Court ruled unanimously in Atlanta Oculoplastic Surgery, P.C. v. Nestlehutt et al. that the non-economic damages cap that was enacted as part of the Tort Reform Act of 2005 violates a Georgia citizen’s constitutional right to a jury trial. The Tort Reform Act of 2005 generally limits non-economic damages to $350,000 in a case against a single medical malpractice defendant. The Court stated that the right to a jury trial includes the right to have a jury determine the amount of damages awarded to a plaintiff and that non-economic damages have long been recognized as an element of total damages in medical malpractice cases. The Court held that requiring a court to reduce a non-economic damages award if a jury award exceeds the statutory limit “nullifies the jury’s finding of fact regarding damages and thereby undermines the jury’s basic function.” See S09A1432, (March 22, 2010).
Iowa has adopted by statute a model put forward by the National Conference of Insurance Legislators dealing with "extraordinary life circumstances" experienced by insurance consumers. It provides that an insurer licensed in Iowa must, upon written request, provide "reasonable" exceptions  to the insurer's rates, rating classification or underwriting rule to a consumer suffering from  a declared disaster or who has experienced a personal event such as a serious illness or divorce. 2010 Iowa Acts, Senate File 2075. An insurer receiving this request may require the consumer to provide written verification and show the event hashad  a meaningful impact on the consumer's credit information. Within ten daysof providing this information , the consumer must be informed of the disposition of the request by the insurer.
This statute was passed as a a result of public hearings on credit scoring held in 2009 by the Iowa Insurance Consumer Advocate.
Governor Haley Barbour vetoed House Bill 173 that would have added two years to a plan that diverted $20 million in insurance premium tax revenues into the Mississippi Windstorm Underwriting Association Reinsurance Assistance Fund stating he prefers strengthening construction along Mississippi’s coastal counties to lower insurance rates rather than subsidizing insurance policies through the wind pool program.  The original diversion was signed into law in 2007 and is set to expire on June 30.  The diversion was aimed at helping reduce insurance premiums on the Coast.
The Mississippi Supreme Court recently held that contractors are entitled to coverage under their commercial general liability policies for work performed by their subcontractors that is later found to be defective.  The case, Architex Association, Inc. v. Scottsdale Insurance Company, rejected the Fifth Circuit Court of Appeals ruling seven years earlier in ACS Construction Company v. CGU  which held that the hiring of a subcontractor is a deliberate and intentional decision by a general contractor which does not constitute an "occurrence" which would trigger coverage under a CGL policy.
In the Architex case, the contractor filed a claim under its CGL policy when the owner of a hotel for which Architex was performing work sought damages for subcontractor work later deemed defective.  Scottsdale Insurance Company denied any defense obligation to the insured general contractor on grounds that the hiring of a subcontractor was an intentional act falling outside the definition of "occurrence."
The Mississippi Supreme Court rejected the ACS Court's prior analysis, stating that "[w]hile the alleged 'property damage' may have been 'set in motion' by Architex's hiring of the subcontractor, the 'chain of events' may not have 'followed a course consciously devised and controlled by [Architex], without the unexpected intervention of any third person or extrinsic force.'"  As an example, the court noted that when a subcontractor accidentally drops a tile off a roof and strikes a passerby, there is no real dispute that this is an unintentional and unexpected accident. To hold otherwise, the Court stated, "subverts the plain language and purpose of the CGL part of these policies."
Blue Cross Blue Shield of New Mexico had been granted a 24.6% rate increase for its individual plans by the state Insurance Division staff to go into effect on April 1 of this year affecting about 40,00 policy holders.  However, because of complaints  received by the Public Regulation Commission (PRC), the PRC ordered the superintendent of insurance to stay the increase pending a public hearing.  Pursuant to the PRC's instructions, the superintendent has issued an order suspending the rate increase and  has scheduled a public hearing on the rate increase for April 26th in Santa Fe.
It is highly unusual, but the Department's Life, Health and Property Bureaus all have had vacancies at the Chief Examiner level at the same time. Martin Schwartzman has left the Life Bureau to become Deputy Superintendent for Strategic Planning and Market Initiatives and Eugene Bienskie, Chief Examiner of the Health Bureau, moved over to the Property Bureau to replace retiring Larry Levine, with the Life and Health Chief Examiner positions yet to be filled.
New York Insurance Superintendent James Wrynn has proposed the creation of an independent rate service organization to attract medical malpractice insurers to the New York market.  Medical malpractice insurance rates have been frozen in New York for two years.  Only four insurers are currently licensed to write medical malpractice insurance on physicians and surgeons in New York.  In a related development, all property/casualty insurers have agreed to an assessment plan to reduce the $480 million deficit in New York's Medical Malpractice Insurance Plan, the state-run residual market.
Insurance Regulation 114, governing service of process upon insurance companies and insurance related licensees doing business in Rhode Island, went into effect on March 25, 2010 and provides that the Rhode Island Department of Business Regulation:  1) will accept service of process on behalf of licensed foreign insurers, reciprocal exchanges and interinsurers, fraternal benefit societies, and nonresident reinsurance intermediaries, which entities are required to inform the Department where they want service forwarded;  and 2) will not accept service of process for domestic insurance companies, approved surplus lines insurers, advisory organizations, rating organizations, the Rhode Island Fair Plan, the Rhode Island Medical Malpractice Joint Underwriting Association, guaranty funds, captive insurers, and life settlement providers and brokers, which entities must designate their own agents for service of process within the State of Rhode Island and notify the Department of their designations.  The Regulation further clarifies that the Rhode Island Secretary of State, not the Department, is the only entity authorized to accept service of process for persons engaged in the unlicensed business of insurance.

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