Source: http://www.forc.org/Public/Alerts/2018/AlertsForMay2018.aspx
Timestamp: 2019-04-25 13:53:32+00:00

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Welcome to the May 2018 edition of the FORC Alert. If you have any colleagues that may be interested in this publication, please forward it on. There is a link on the Alerts main page where they can subscribe to receive FORC Alerts automatically.
Finally, Governor Ducey approved legislation to create a new highway safety fee (set by the ADOT Director) that Arizona motorists will have to pay when registering a new vehicle.  The fee will be around $18 and it is expected to generate around $149 million per year to fund highway patrol operations.  The intent behind this legislation is to eliminate the need for the legislature to sweep Highway User Revenue Funds (HURF) to balance the budget and fund DPS.
On, May 8th, 2018, in Bailey v. Rocky Mountain Holdings, LLC, the 11th Judicial Circuit of Florida upheld the dismissal of a putative class action that was filed against an air ambulance company after a dispute arose over a bill for emergency air ambulance services.  At issue was whether the Airline Deregulation Act (the “ADA”) preempted a cause of action against an air ambulance provider based on a provision of the Florida Motor Vehicle No-Fault Law which would limit the fees that are payable under a motor vehicle insurance policy to a schedule of fees. The 11th Circuit rejected the plaintiff’s argument that McCarran-Ferguson Act (“MFA”), which provides that federal laws cannot preempt “any law enacted by an State for the purpose of regulating the business of insurance,” precluded the ADA’s preemption of his action—an argument that was advanced by the air ambulance service provider.  The Court agreed with the District Court that the MFA “prevents only inadvertent intrusion from federal legislation, not express preemption such as that of the ADA,” and held that the ADA preempted the insurer’s action because it related to the prices of the air carrier, which was a federally regulated air carrier.  The Court’s holding is significant because it provides that the ADA preempts Florida insurance law, to the extent that an insurance law relates to the price of services charged by an air carrier.
On May 12, 2018, in Nicon Construction, Inc. v. Homeowner’s Choice Property and Casualty Ins. Co., the District Court of Appeals of Florida, Second District, reversed an entry of summary judgment that had been entered in favor of a property and casualty insurance company regarding a breach of contract claim for the payment of insurance proceeds to cover water-damages to an insured’s home because of a pipe burst.  The insured provided an Assignment of Benefits (“AOB”) from his insurance policy to two contractors that eventually sued the insurer for breach of the insurance contract alleging that it had failed to pay all benefits due them under the policy.  The insurer obtained a summary judgment in circuit court against the second contractor after having argued that the assignment to that contractor was invalid because the insured had already assigned his benefits under the policy to the first contractor.  The District Court of Appeals reversed, holding that when the language in the policy is read in the context of the entire assignment and the purpose for which it was entered into, it was evident that the insured only assigned his rights under the policy to payment for the services performed by the first contractor—not his rights to payment for the entire covered claim.  Thus, the assignment to the second contractor was valid.
On April 6, 2018, Florida Governor Rich Scott approved HB 533, which was filed in the Florida House of Representatives by Representatives Bill Hager and Richard Stark.  The new law, which will take effect July 1, 2018, amends Section 626.9541, Florida Statutes, to allow admitted property and casualty insurers to refuse to insure or refuse to continue to insure applicants or insureds for failing to purchase noninsurance motor vehicle services from a membership organization, such as the American Automotive Association (“AAA”), that is affiliated with the insurer.  The new law amends the State’s Unfair Methods of Competition and Unfair or Deceptive Acts law, which previously prohibited insurers from refusing to insure or continuing to insure any individual or risk solely because of the insured’s or applicant’s failure to purchase noninsurance services or commodities, including automobile services as defined in Section 624.124, Florida Statutes.  A copy of the bill may be viewed by clicking this link.
On April 6th, 2018 Florida Governor Rick Scott approved HB 483, which was filed in the Florida House of Representatives by Representatives Clay Yarborough (R) and Katie A. Edwards-Walpole (D).  The new law, which takes effect on July 1, 2018, amends Section 626.9541, Florida Statutes, to revise the types, value, and frequency of advertising and promotional gifts that licensed insurers or their agents may give to insureds, prospective insureds, or others.  The law authorizes Florida insurers and agents to: (i) give insureds and prospective insureds goods, wares, store gift cards, gift certificates, event tickets, anti-fraud or loss mitigation services, or other items having a total value of up to $100 per insured or prospective insured in any given calendar year; and (ii) make charitable contributions on behalf of insureds or prospective insureds of up to $100 per insured or prospective insured in any calendar year.  The law also authorizes title insurance agents, title insurance agencies, and title insurers to give insureds and prospective insureds, for the purposes of advertising, articles of merchandising having a value of not more than $25.  A copy of the bill can be viewed by clicking on this link.
On May 1, 2018, the Florida Office of Insurance Regulation (“OIR”) advised that it has approved a rate decrease for workers’ compensation insurance in Florida.  Importantly, the 1.8% decrease was filed by the National Council on Compensation Insurance (“NCCI”) in a law-only filing resulting from the effects of the Act.  The 1.8% decrease is due to a change in the Profit and Contingency (“P&C”) Factor to 0.5 percent from 1.85 percent.  NCCI’s analysis to determine the revised P&C reflects provisions from the recently-passed Tac Cuts and Job Acts, including top corporate tax rate decreases, changes to reserve discount factors, and other factors.  This applies to both new and renewal workers’ compensation insurance policies effective in Florida as of June 1, 2018.
Georgia held its primary elections on May 22.  On the Republican side, Jim Beck won the nomination for Insurance Commissioner and will face Janice Laws, who won the Democratic nomination.  Both Mr. Beck and Ms. Laws won approximately 60% of the total votes cost in their primaries.
House Bill 878 Amends O.C.G.A. §33-24-44.1 relating to the procedure for an insured’s cancellation [type(s)] of insurance by eliminating the previous requirement that an insured request cancellation of an existing policy in writing and adding new language providing that an insured may request cancellation of an insurance policy orally, electronically or in writing.  The amendment further provides that an insurer or its duly authorized agent may require that an insured provide written, electronic or other recorded verification of the request for cancellation and requires the insurer to document the request for cancellation in its policy file.
House Bill 878 was signed by the Georgia Governor on May 7, 2018 and takes effect on July 1, 2018.
Senate Bill 350 amends O.C.G.A. § 33-39-5 relating to requirements for delivery of notice of information practices by amending the notice requirements in cases of insurance policy renewals.  O.C.G.A. § 33-39-5 previously required an insurance institution or agent to provide notice of its information practices to an insurance applicant or policyholder upon issuance of a new policy, at renewal, and during a policy reinstatement. Senate Bill 350 adds a revised O.C.G.A. §33-39-5 (a)(2)(A) and (B), which provides that in the case of a policy renewal, the insurer or agent does not have to provide notice of its information practices if (1) personal information is collected only from the policyholder or from public records or (2) notice has been given within the previous 24 months.  Specifically, no notice is required concurrently with a policy renewal if (1) non-public personal is provided to non-affiliated third parties only in accordance with Chapter 39 of Title 33 (the Georgia Insurance Code) or (2) the information sharing practices of the insurance institution or agent relating to nonpublic personal information have not changed since the last notice of such information practices was given to the policyholder in accordance with Chapter 39 of Title 33.
House Bill 350 conforms Georgia’s information practices statute to the  federal Fixing America’s Surface Transportation Act (“FAST”) which eliminated the Gramm Leach Bliley Act (“GLBA”) requirements for financial institutions to provide annual privacy notices under certain conditions.
Senate Bill 350 was signed by the Georgia Governor on May 3, 2018 and takes effect on July 1, 2018.
House Bill 760 amends O.C.G.A. §§33-24-45 and 33-24-46 by adding provisions which require an insurer to provide a “Notice of Reduction in Coverage” to automobile and property insurance insureds.  A Notice of Reduction in coverage is defined as “as a change made by an insurer which results in a removal of coverage, diminution in in scope or less coverage, or the addition of an exclusion.”  “Reduction of Coverage” does not include any change, reduction, or elimination of coverage made by the insured.  “Reduction of Coverage” also does not include correction of scriveners errors or mandated legislative changes.
A “Notice of Reduction of Coverage” must be sent by an insurer no less than 30 days prior to the effective date of such reduction in coverage.  A “reduction in coverage” or the failure of the insured to pay premiums following “reduction in coverage” is not  a non-renewal of the policy.
House Bill 760 was signed by the Georgia Governor on May 3, 2018 and takes effect on July 1, 2018.
Senate Bill 381 Amends O.C.G.A. §33-5-20.1 to create a definition of “domestic surplus lines insurer.”  A “domestic surplus lines insurer” means “a nonadmitted insurer that is domiciled in this state with which a surplus lines broker may place surplus lines insurance.”  The bill also creates a new section, O.C.G.A. §33-5-20.2 which provides for eligibility requirements for a domestic surplus lines insurer which are equivalent to those of a non-domestic surplus lines insurer and those of the federal Non-Admitted and Reinsurance Reform Act of 2010.  A domestic surplus lines insurer is authorized to write any kind of insurance that a nonadmitted insurer not domiciled in Georgia is eligible to write and domestic surplus lines insurers are subject to taxation and exempt from rate, rule and form filing requirements on the same basis as are nonadmitted insurers not domiciled in Georgia.
Senate Bill 381 was signed by the Georgia Governor on May 8, 2018 and takes effect on July 1, 2018.
House Bill 673 creates The “Georgia Hands Free Act” amends O.C.G.A §40-5-57 by prohibiting a person operating a motor vehicle from physically holding or supporting a wireless communications device, or writing, sending any text based communication, including but not limited to a text message, instant message, email or internet data on a wireless telecommunication device.  The watching of any video or recording a video, other than the use of a vehicle’s navigation device is also prohibited, as is the use of more than one button to access a wireless communication and reaching for a wireless communication device, while operating a motor vehicle.  Penalties for violating these provisions include fines and points against the violator’s driver’s license.
House Bill 673 was signed by the Georgia Governor on May 3, 2018 and takes effect on July 1, 2018.
House Bill 64 creates a new code section, O.C.G.A. §33-24-59.23 known as the "Protection and Guarantee of Service for Health Insurance Consumers Act."  The new code section provides that any carrier that issues a health benefit plan in Georgia shall pay a commission to the agent consistent with the amount proposed in the rates filed with the Georgia Insurance Commissioner to compensate the agent for the first term and for each renewal term thereafter, so long as such agent reviews coverage and provides ongoing customer service for such plan; provided, however, that no such compensation is required for any individual health benefit plan sold during a special enrollment period.
House Bill 64 was signed by the Georgia Governor on May 8, 2018 and takes effect on July 1, 2018.
House Bill 754 proposed to create new sections of the Georgia Insurance Code,  O.C.G.A. § 33-14-120 through 33-14-128 which would have provided that a Georgia domestic insurer may divide into two or more resulting insurers pursuant to a plan of division approved by the Georgia Insurance Commissioner, unless there were findings that (a) the interests of the policyholders would not be adequately protected or (b) the proposed division constituted a fraudulent transfer.
House Bill 754 was vetoed by the Georgia Governor on May 8, 2018, stating that he did not believe there was a need for the division bill and was not convinced of the adequacy of the proposed policyholder safeguards in the bill.
Matching its best year ever since 1986, the State of Hawaii licensed 30 new captive insurance companies in 2017.  These new captives were formed by globally diverse parent companies in various industries including financial services, retail, manufacturing, construction, real estate, health care and transportation.  As of December 31, 2017, there were 230 actively licensed captive insurance companies in the State of Hawaii.
Illinois has introduced legislation, supported by several P&C carriers in the state, that would have provided that a domestic stock company may divide into 2 or more resulting companies pursuant to a plan of division. After early momentum in the House, the bill appears to have been abandoned.
Kentucky Gov. Matt Bevin recently signed into law House Bill No. 464.  The Bill amends the state's Insurance Code to conform to the 2016 amendments to the National Association of Insurance Commissioners' (NAIC) Credit for Reinsurance Model Law. The law goes into effect on January 1, 2019.
Mississippi Attorney General Jim Hood recently filed six more civil actions against a number of insurers arising out of grants awarded by the Homeowners Assistance Program (HAP) in the aftermath of Hurricane Katrina.  The first of these complaints were filed in 2015.  This litigation alleges improper adjusting of claims, specifically the issue of damage caused by wind versus damage caused by water during Hurricane Katrina in 2005.  These cases are being handled by private attorneys under contingency fee contracts with General Hood.  In total, twelve cases have been filed.  Three cases have been settled with the aggregate amount of the settlements appearing to exceed approximately $8,500,000, two cases are before the Mississippi Supreme Court on interlocutory appeal of procedural issues, and one case remains before the Mississippi Supreme Court on petition for rehearing of denial of interlocutory appeal as to another procedural issue.  General Hood has indicated that more HAP cases are to be filed.
Just hours before the deadline for filing conference reports, SB 2467 emerged regarding the Mississippi Windstorm Underwriting Association, the residual market mechanism for wind and hail coverage along the Mississippi Gulf Coast.  This bill reauthorized a 3% surplus lines policy fee that provides funding for MWUA, but diverted the first $6,000,000 or approximately one-half of such fees to the Capital Expense Fund and the Rural Fire Truck Fund.  This bill has been signed by the Governor and is effective July 1, 2018.  No word yet if this will be challenged as a taking of private property.
A proposal to eliminate New York State’s anti-arson applications for commercial fire policies struggles towards a vote before the Legislature adjourns on June 20th.  An Assembly bill, A9797, would repeal New York Insurance Law § 3404 and “all rules and regulations” that implement it, including 11 NYCRR 64-4.2 (Regulation 96).
Section 3404 and Regulation 96 derive from the NAIC’s Anti-Arson Application Model Law adopted in 1981.  NAIC ST -715-1 (Model Law).  At that time, many cities in the United States were experiencing a record number of arsons-for-hire.  New York adopted the Model Law in 1984.
Over the years, Section 3403 and Regulation 96 have both been frequently amended and narrowed such that Section 3403 now only applies to commercial fire policies issued for property located in cities with a population of more than 1,000,000, as determined by the 1970 U.S. census, i.e., New York City.
Both the Professional Insurance Agents of New York (PIA) and the New York Insurance Association (NYIA) support the effort to eliminate the anti-arson application on the grounds that: (1) the epidemic of arson-for-hire has passed; (2) methods of investigating arson, including the use of internet searches, electronic databases, and other advanced arson-detection techniques have turned the anti-arson application into a buggy whip; and (3) the cost and time required to complete and collect the applications, burdens that fall on both producers and insurance consumers, no longer warrants the effort.
The Assembly sponsor of the bill to repeal NYIL 3403 (and Regulation 96) continues to push for a vote before the Legislature disbands.
South Carolina became the first state to adopt the NAIC Insurance Data Security Model Law on May 3, 2018.  The South Carolina Insurance Data Security Act, H4655, is based on the NAIC Model.  The law goes into effect on January 1, 2019.
On May 7, 2018, Governor Mary Fallin signed into law a measure that will allow insurance business transfers (IBTs) under a structure that mimics Part VII of the UK Financial Services and Markets Act 2000.  The law does not provide for commutation of contracts.  According to the Department of Insurance, it has had a number of conversations with interested parties when the law goes into effect on November 1, 2018.
Pursuant to its authority under Tenn. Code Ann. Section 56-2-905, TDCI is promulgating rules to implement the Corporate Governance Annual Disclosure Act (Section 8 of Public Chapter 873).  A public hearing on proposed new Regulation 35 (Chapter 0780-01-35) will be held on July 10.
On May 3, Governor Bill Haslam signed into law the legislative package proposed by the Tennessee Department of Commerce Insurance which includes the NAIC Model Corporate Governance Annual Disclosure Act.  In addition to the CGAD, which takes effect on January 1, 2019, the new law (Public Chapter 873) includes NAIC Model credit for reinsurance amendments, makes technical corrections to the Insurance Holding Company System Act, and deletes an obsolete statute with regard to reserves on participating policies (Tenn. Code Ann. Section 56-3-102) that dates back to the early 1900s.
The Washington Insurance Commissioner issued a Cease & Desist to Microsoft on May 9, 2018 to stop using Cypress Insurance Company, its Arizona captive insurance.  The Insurance Commissioner asserts that Microsoft started this captive in 2008 and over the last five years has written in excess of $71m directly into this captive.  The Commissioner indicates that there was no legal policy issuance as Microsoft lacks a certificate of authority for Cypress and there were also not lawful surplus line placements.
In addition to ordering Microsoft to cease Cypress’ activities, the Commissioner also asserts fines, interest, and taxes due of over $2m to the State of Washington. Please contact Steven Beeghly if you want copies of Orders 18-0220 and 18-0221.

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