June 2011 Alert

Greetings,

Welcome to the June 2011 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.

Best Regards,

David K. Liggett

Editor, FORC Alert

June 2011 Alerts

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Category(s): Arizona - 06/01/2011

Arizona Enacts NAIC Model Qualified Financial Contracts Law

Arizona passed legislation enacting the NAIC Model Receivership Act relating to how Qualified Financial Contracts ("QFCs") are handled in a state receivership context. HB 2113, now Chapter 46, Laws 2011, provides definitions of QFCs and Netting Agreements; provides that a person cannot be enjoined from exercising a contractual right to terminate and settle any obligation under a QFC or Netting Agreement because of the insurer's insolvency or the commencement of formal delinquency proceedings; and prescribes procedures governing the termination of QFCs between the Receiver of the insurer and the counterparty. The bill takes effect July 20, 2011.

J. Michael Low, Esq. - KUTAK ROCK LLP, (480) 429-4874 , Michael.Low@kutakrock.com

Category(s): Colorado - 06/01/2011

Colorado Health Exchange

Senate Bill 200 adds a new article, C.R.S. § 10-22-101 et seq., creating the Colorado Health Benefit Exchange.  The new law is intended to all individuals and small businesses looking for insurance to join together to negotiate for group rates and discounts from insurers.

Joel A. Glover, Esq. - Faegre Baker Daniels LLP, (303) 607-3648 , Joel.Glover@FaegreBD.com

Category(s): Colorado - 06/01/2011

Individual Health Policies for Children in Colorado

Senate Bill 128 adds a new section, C.R.S. § 10-16-104.4, and makes it a condition of issuing coverage in the individual market for carriers to issue at least one child-only plan.  Emergency Insurance Regulation E-11-03 was passed providing for mandatory open enrollment periods for child-only plans.

Joel A. Glover, Esq. - Faegre Baker Daniels LLP, (303) 607-3648 , Joel.Glover@FaegreBD.com

Category(s): Connecticut - 06/01/2011

Connecticut Joins Other States in Launching Inquiry into Death Benefit Payments by Life Insurers

The Connecticut Insurance Department (the “CID”) issued a notice April 28, 2011 (the “Notice”) announcing the launch of a formal inquiry into the business practices of life insurance companies regarding the payment of death benefits and the protocols used to locate beneficiaries.  According to the Notice, the inquiry is prompted by a concern that some insurers do not make reasonable efforts to locate life insurance beneficiaries once a policyholder has died or fail to confirm that a policyholder has died. 

The Connecticut action is part of a larger nationwide investigation into life insurance companies’ claim settlement practices.  The National Association of Insurance Commissioners has recently formed a task force to help coordinate and facilitate a formal examination of life insurers’ use of the U.S. Social Security Administration’s Death Master File (“DMF”).  Life insurers have been accused of using the DMF to stop payments on annuity products, while neglecting to use the list to identify deceased policyholders in order to timely pay life insurance benefits.  

The Connecticut Notice puts insurers “on notice that the [CID] fully expects them to make every effort to locate all beneficiaries,” and indicates that the CID “will not tolerate” insurer use of the DMF to stop annuity payments once a policyholder dies, while failing to use the same database to check dormant life insurance policies to determine if the policyholder has died.

Alan J. Levin, Esq. - LOCKE LORD LLP, (860) 541-7747 , alan.levin@lockelord.com
Michael T. Griffin, Esq. - ACCEL LAW GROUP, (860) 761-8550 , mgriffin@accelcompliance.com

Category(s): Connecticut - 06/01/2011

Disclosure Requirements Imposed on Personal Risk Insurers

Effective July 1, 2011, insurers that use a financial history measurement program are required to inform Connecticut applicants for personal risk insurance of certain consumer protections that exist with regard to an insurer’s use of an applicant’s credit information.  The Connecticut Insurance Department recently issued Bulletin PC-69 to provide insurers with the required form of disclosure, which provides a summary of the relevant consumer protections.  Among other things, the consumer protections require insurers to consider the impact of extraordinary life circumstances on an individual’s credit history and prohibit insurers from denying, canceling or failing to renew coverage based solely on an applicant’s credit information.  In addition to providing applicants with the summary of consumer protections, insurers must also notify applicants of the insurer’s contact information and provide detailed information regarding how the insurer uses credit information to underwrite and rate insurance policies.

Michael T. Griffin, Esq. - ACCEL LAW GROUP, (860) 761-8550 , mgriffin@accelcompliance.com

Category(s): Connecticut - 06/01/2011

New Disclosure Requirements Imposed on Life Insurers

The Connecticut Insurance Department recently issued Bulletin IC-27, which imposes new disclosure requirements on life insurers effective May 4, 2011.  Bulletin IC-27 requires life insurers to provide beneficiaries with written information at the time a claim is made describing the settlement options available under the policy and how to obtain specific details relevant to those options.  If the insurer settles benefits through a retained asset account (by depositing the proceeds into an account from which the proceeds may be drawn, where those proceeds are retained by the insurer pursuant to a supplementary contract not involving annuity benefits), the insurer must provide the beneficiary with a supplemental contract before the account is selected that clearly discloses the rights of the beneficiary and the obligations of the insurer.  Specific required disclosures regarding retained asset accounts are set forth in Bulletin IC-27.

Alan J. Levin, Esq. - LOCKE LORD LLP, (860) 541-7747 , alan.levin@lockelord.com

Category(s): Federal - 06/01/2011

FSOC and Insurance

There are three insurance-related positions on the Financial Stability Oversight Council created by the Dodd-Frank Act.  Missouri Insurance  Director John Huff (appointed by the NAIC) and new Federal Insurance Director and former Illinois Insurance Director Mike McRaith fill the two non-voting positions, but the Obama Administration has not named the voting position (that person will need to be confirmed by the Senate for a six-year term).  People in the industry and on Capital Hill have been urging the Administration to get the insurance positions filled and operating as multiple federal agencies are writing rules, drafting reports, and generally implementing the massive responsibilities placed on them by the 2300-page Dodd-Frank Act.

Charles T. Richardson, Esq. - FAEGRE BAKER DANIELS LLP, (202) 312-7487 , crichardson@faegrebd.com

Category(s): Florida - 06/01/2011

11th Circuit Upholds Florida Cap on Noneconomic Medical Malpractice Damages

The United States Court of Appeals for the 11th Circuit in Estate of Michelle Evette McCall v. United States of America has determined that Florida's cap on noneconomic medical malpractice damages is permissible under the Equal Protection Clause and Takings Clause of the U.S. Constitution as well as the Takings Clause of the Florida Constitution.  However, the court has certified several other state constitutional questions to the Florida Supreme Court, such as whether the caps violate state provisions relating to equal protection, access to courts, trial by jury and separation of powers.

Travis L. Miller, Esq. - RADEY LAW FIRM, (850) 425-6654 , tmiller@radeylaw.com

Category(s): Florida - 06/01/2011

Florida Division of Administrative Hearings Remands Jurisdiction to Florida Office of Insurance Regulation on Property and Casualty Insurer Certificate of Authority in Affiliated Entity Case

In a June 2, 2011 order involving the Florida Office of Insurance Regulation's ("OIR") revocation of the Certificate of the Authority for Lillian Assurance Group ("Lillian"), a Florida domestic property and casualty insurer, the Florida Division of Administrative Hearings relinquished its jurisdiction to the OIR, explaining that " . . . there are no material facts to be resolved by a formal evidentiary hearing."

The OIR, which initially had approved Lillian to take out policies from Citizens Property Insurance Corporation, subsequently determined that Lillian violated the terms of its Consent Order after its management and operations were found to have become inappropriately interlocked with a Louisiana-domiciled property insurer, Lighthouse Property Insurance Corporation.

After extensive administrative court proceedings in which OIR officials and various others were deposed, the Florida Division of Administrative Hearings found that a dispute of material fact no longer existed and closed the case, citing section 120.57(1)(i), F.S. (2010) in indicating that jurisdiction in the matter is more appropriate for the "agency with final order authority."

To access the OIR's initial order revoking Lillian's Certificate of Authority, click here.  To view the entire OIR v. Lillian docket, click here.

Richard J. Fidei, Esq. - GREENBERG TRAURIG LLP, (954) 768-8286 , fideir@gtlaw.com

Category(s): Florida - 06/01/2011

Florida Governor Rick Scott Signs Dodd-Frank Surplus Lines Tax Reform Compliance Bill (CS/CS/CS/SB 1816) Into Law

Signed into law by Florida Governor Rick Scott on May 26, 2011, CS/CS/CS/SB 1816 relating to Surplus Lines Insurance is now effective.  The bill creates s.626.9362, F.S. and substantially amends s. 626.931, 626.932, 626.9325 and 626.938, F.S., authorizing the Florida Department of Financial Services ("DFS") and the Florida Office of Insurance Regulation ("OIR") to enter into a cooperative reciprocal agreement with another state or group of states to collect and allocate nonadmitted insurance taxes for multi-state risks pursuant to the Nonadmitted and Reinsurance Reform Act of 2010 ("NRRA"), part of the federal Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

Fred E. Karlinsky, Esq. - GREENBERG TRAURIG LLP, (954) 768-8278 , karlinskyf@gtlaw.com

Category(s): Florida - 06/01/2011

Florida Governor Rick Scott Signs Insurance Cost Driver Bill (CS/CS/CS/SB 408) On May 17, 2011

Florida Governor Rick Scott signed CS/CS/CS/SB 408 into law on May 17, 2011.  The bill, which takes effect immediately unless otherwise provided, makes numerous changes to Florida laws primarily relating to residential property insurance.

Fred E. Karlinsky, Esq. - GREENBERG TRAURIG LLP, (954) 768-8278 , karlinskyf@gtlaw.com

Category(s): Florida - 06/01/2011

Florida Legislature Overturns 2010 Crop Insurance Bill Veto

Meeting in Session on March 24, 2011, the Florida House voted unanimously to override former Florida Governor Charlie Crist's 2010 veto of HB 7103 relating to Agriculture.  Among other provisions, HB 7103 amends s. 624.4095, F.S. to allow additional fiscally sound multi-peril crop insurers to meet the statutorily required capital and surplus requirements for admission into the State.  It also allows the Florida Office of Insurance Regulation latitude in considering financial accounting matters for crop insurers.  HB 7103 provides that gross written premiums for certain crop insurance should not be included when calculating an insurer's gross writing ratio and requires that liabilities for ceded reinsurance premiums be netted against the assets for amounts recoverable from reinsurers.  Insurers that write other insurance products will be required to disclose a breakout of the gross written premiums for crop insurance.  Further, with certain crop insurers interested in doing business in Florida, but currently unable to write insurance because of current statutory constructs, the changes effected by HB 7103 are expected to allow individuals who grow agricultural products to have increased insurance options offered by fiscally sound insurers.  To access complete bill information, click here.

Fred E. Karlinsky, Esq. - GREENBERG TRAURIG LLP, (954) 768-8278 , karlinskyf@gtlaw.com

Category(s): Florida - 06/01/2011

Florida Office of Insurance Regulation Announces Multi-Million Dollar Settlement With John Hancock as "First in the Nation"

The Florida Office of Insurance Regulation ("OIR") announced on May 18, 2011 that it had reached a multi-million-dollar settlement agreement with John Hancock Life Insurance Company to revise its business practices related to unclaimed property for life insurance products, as well as to its use of the Social Security Administration's Death Master File.  According to the OIR, the agreement is the first of its kind in the nation.  The following day, the OIR held an evidentiary public hearing to evaluate life insurance industry practices that involve claim settlement practices, use of the Death Master File and compliance with unclaimed property laws.  Investigative subpoenas were issued to MetLife, and to Nationwide.

Richard J. Fidei, Esq. - GREENBERG TRAURIG LLP, (954) 768-8286 , fideir@gtlaw.com

Category(s): Florida - 06/01/2011

Florida Office of Insurance Regulation Publishes Annual Report of Aggregate Net Probable Maximum Losses, Financing Options and Potential Assessments Relating to Florida Hurricane Catastrophe Fund and Citizens Property Insurance Corporation

The Florida Office of Insurance Regulation has published its annual statutory report ("Report") on aggregate net probable maximum losses, financing options and potential assessments of the Florida Hurricane Catastrophe Fund ("FHCF") and Citizens Property Insurance Corporation ("Citizens").  According to the Report, both Citizens and the FHCF have more resources to pay claims than in previous years, largely due to a consecutive five-year period in which no major hurricane has affected Florida.  At the end of 2010, Citizens had an estimated combined policyholders' surplus of $4.6 billion and the FHCF had an estimated fund balance of $5.9 billion.  The Report, which can be accessed by clicking here, concludes by cautioning that Citizens' exposure to catastrophic risk has grown.  It also suggests that strategic methods for encouraging the movement of capital and property insurance policies to the private market should be employed as quickly as possible to reduce the likelihood and magnitude of future assessments.

Fred E. Karlinsky, Esq. - GREENBERG TRAURIG LLP, (954) 768-8278 , karlinskyf@gtlaw.com

Category(s): Florida - 06/01/2011

Florida Office of Insurance Regulation Releases 2010 Annual Report

The Florida Office of Insurance Regulation has published its 2010 Annual Report, which provides information on the agency's 2010 legislative achievements and technology initiatives, financial data and activities of insurers authorized to transact business in Florida.  To access the report, click here.

Richard J. Fidei, Esq. - GREENBERG TRAURIG LLP, (954) 768-8286 , fideir@gtlaw.com

Category(s): Florida - 06/01/2011

Florida Office of Insurance Regulation: Citizens High-Risk Account 2005 Emergency Assessment Reduced

The Florida Office of Insurance Regulation released an Informational Memorandum on April 4, 2011 to notify all assessable insurers and surplus lines insurers that Citizens Property Insurance Corporation has reduced the Emergency Assessment for the 2005 Plan Year within its High-Risk Account from 1.4 percent to 1.0 percent, effective July 1, 2011. The Memorandum can also be viewed by clicking here.

Fred E. Karlinsky, Esq. - GREENBERG TRAURIG LLP, (954) 768-8278 , karlinskyf@gtlaw.com

Category(s): Florida - 06/01/2011

Florida OIR to Review Life & Annuity Claims Practices

The Florida Office of Insurance Regulation has announced a public hearing to evaluate practices pertaining to life and annuity settlements.  The OIR believes some insurers are using the Social Security Administration's Death Master File to discontinue annuity payments but are not using the same information to investigate claims for life insurance proceeds.  Florida is a member of a national task force reviewing this issue.

Travis L. Miller, Esq. - RADEY LAW FIRM, (850) 425-6654 , tmiller@radeylaw.com

Category(s): Florida - 06/01/2011

Florida Supreme Court Denies Rehearing of its Opinion in Custer Medical Center v. United Automobile Insurance Company Personal Injury Protection-Related Case

On May 18, 2011, the Supreme Court of Florida entered an order denying United Automobile Insurance Company's ("UAIC") motion for rehearing and request for oral argument in Custer Medical Center v. United Automobile Insurance Company, 2010 WL 4340809 (Fla. Nov. 4, 2010) (Case No. Sc08-2036). The Court contemporaneously entered additional orders relating to ancillary motions and amici briefs. One of the Court's orders struck all amici briefs filed in the case, including briefs filed by numerous industry trade associations, insurance companies, and even the National Insurance Crime Bureau. Other orders denied motions filed in the case which were rendered moot by the court's denial of UAIC's motion for rehearing.  The Custer opinion, issued on November 4, 2010, contained language ancillary to the case's holding, known as dicta, that frustrates the purpose of the anti-fraud provisions of the personal injury protection ("PIP") statutes. The dicta opined that:

1.  PIP policy provisions that do not directly mirror the PIP statutes may be unenforceable.

2.  Unless otherwise provided by statute, a PIP carrier may not deny payment of medical expenses incurred and submitted by the insured prior to the date of a scheduled independent medical exam ("IME"), even if an insured does not attend the IME.

3.  Unless otherwise provided by statute, a PIP carrier may only deny payment of an insured's medical expenses incurred and submitted after the date of the IME if the carrier can affirmatively prove the unreasonableness of an insured's failure to attend an IME. Thus, the burden of proving the unreasonableness of the insured's action/non-action rests with the insurer.

4.  Denial of benefits for an insured's failure to submit to an examination under oath without counsel ("EUO") may no longer be permissible, as the Court points out that EUOs are not expressly permitted under the PIP statutes.

Denial of UAIC's motion for rehearing cements the Custer decision into State lawbooks, creating uncertainty for PIP insurers in Florida. The full effects of the Supreme Court's decision are yet to be determined, but the use of IMEs and EUOs may be significantly impaired due to litigation contesting the use of these fraud fighting tools.

Richard J. Fidei, Esq. - GREENBERG TRAURIG LLP, (954) 768-8286 , fideir@gtlaw.com

Category(s): Florida - 06/01/2011

Florida Supreme Court Upholds Insurer's Attorney-Client Privilege in Bad Faith Actions

In its March 17, 2011 ruling in Genovese v. Provident Life and Accident Ins. Co., the Florida Supreme Court upheld the sanctity of attorney-client communications between a carrier and its appointed counsel handling the defense of a first-party claim for benefits when the carrier is later sued for bad faith.  To view a complete summary of the case and the Court's opinion, click here.

Richard J. Fidei, Esq. - GREENBERG TRAURIG LLP, (954) 768-8286 , fideir@gtlaw.com

Category(s): Florida - 06/01/2011

Florida's Third District Court of Appeal Denies Contractual Appraisal Process Due to Carrier's Failure to Provide Insureds with Notice of Right to Mediation

On May 25, 2011, the Florida Third District Court of Appeal issued an opinion in Universal Property and Casualty Insurance Company v. Colosimo, -- So. 3d -- 2011 WL 2031332 (Fla. 3d DCA 2011) (Third District Case No. 3D11-180), strictly construing the requirements of section 627.7015 of the Florida Statutes requiring insurers to notify first party claimants of their right to participate in mediation. The Third District affirmed the lower court's denial of Universal Property and Casualty Insurance Company's ("UPCIC") motion to stay the Colosimo's lawsuit, which was filed during the contractual appraisal process, thus permitting the insureds to commence with their claims for breach of contract and breach of the implied covenant of good faith and fair dealing.  The Court rejected UPCIC's arguments that compliance with § 627.7015, Fla. Stat. was necessary, inasmuch as the insureds had knowledge of the mediation process due to a contemporaneously filed claim, and because their insurance policy contained language apprising the insureds of their right to mediation.  The Court also rejected UPCIC's argument that the insureds' participation in appraisal bound them to complete the process. 

It appears from this case that a failure to strictly comply with the mediation notice requirements of § 627.7015, Fla. Stat. may effectively eviscerate appraisal provisions in carriers' insurance policies.

Fred E. Karlinsky, Esq. - GREENBERG TRAURIG LLP, (954) 768-8278 , karlinskyf@gtlaw.com

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