Insurance Litigation Law Blog | Regulatory Law | Bad Faith | California | Lawyer | Attorney | Barger & Wolen

By Robert W. Hogeboom

This Alert follows our Client Alert of September 4, 2009, Harvey Rosenfield Seeks Initiative to Prohibit Broker and Installment Fees.

Harvey Rosenfield’s proposed initiative, Stop Insurance Overcharges Act (pdf), of September 4, 2009, is intended to counter the July 2009 initiative, The Continuous Coverage Auto Insurance Discount Act, sponsored by CalFair and Mercury General Corp.

The historical background is as follows:

In 2004, Mercury sponsored SB 841, which codified the right to offer portable persistency discounts. In 2005, the Court of Appeal overturned SB 841, reasoning that the legislation did not further the purposes of Proposition 103. In July 2009, Mercury and CalFair sponsored an initiative for the 2010 ballot to permit insurers to offer portable persistency discounts, arguing that consumers benefit by this discount and that it encourages consumers to shop for the lowest rates.

Harvey Rosenfield argues that portable persistency punishes the uninsured. Smart’s California Insurance Report of July 15, 2009 refers to Michael Hiltzik’s July 2nd Los Angeles Times article, Mercury General using guise of benevolence to assault Prop. 103, that criticizes Mercury’s attempt to undermine Proposition 103’s ban on insurers from using the absence of prior coverage as a factor in rate setting. The article also asserts that previously uninsured motorists were charged higher premiums because they do not qualify for a discount, which, in turn, discourages them from purchasing insurance. 

The Stop Insurance Overcharges Act would also add other provisions to the Insurance Code that deal with installment fees, broker fees, the absence of prior insurance and precluding the use of claims experience. 

Proposed Section 1861.25 deals with installment fees and mandates that installment fees, including a fee for the time value of money, are premium. It further limits fees to the direct cost of collecting the installment payments. Comment: This would eliminate the ability to estimate a specific amount as the installment fee.

Proposed Section 1861.26(a) precludes the charging of a broker fee if the broker receives a commission from the insurer on the transaction.  It further requires that broker fees be fair and reasonable and not unfairly discriminatory. It requires the Commissioner to adopt regulations to establish broker fee limits. Comment: This section attempts to regulate broker fees that are not part of the rate and nullify AB 2956. AB 2956, which was unanimously passed by the legislature last year, clarifies the difference between agents and brokers by using the “totality of the circumstances” test coupled with the addition of disclosures to the consumer. 

Proposed Section 1861.27 establishes that any other amount that is billed to and paid by a policyholder constitutes premium and is subject to review and approval by the Commissioner. Comment: Harvey Rosenfield is expanding Proposition 103, which covers insurance rates, to cover all amounts paid by a policyholder. This would include all broker fees and fees charged when the broker does not receive a commission.

Proposed Section 1861.28 clarifies that the absence of prior insurance is not a criteria for auto and homeowners rates. Comment: This deals directly with the Mercury/CalFair initiative.

Finally, proposed Section 1861.29 maintains that except pursuant to Section 1861.02, an insurer may not include claims experience in determining rates, discounts or insurability. Comment: This is meant to address rating and insurability in homeowners insurance.

Contact Robert Hogeboom at (213) 614-7304 for more information.

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An amendment introduced by Sen. Jay Rockefeller, D-W.Va. to require “24-hour health coverage”* has drawn industry fire, according to an article, Another Health Care Amendment Draws P&C Industry Fire, by Arthur D. Postal.

In a letter to the Senate Finance Committee, which was not expected to take up the amendment today, the p&c industry argues that, “the amendment would upend the systems now in place to protect injured workers, drivers and passengers.”

The insurers added that the 24-hour coverage concept “would destroy the healthy and competitive auto insurance marketplace.”

According to a lobbyist for the American Insurance Association, the amendment is not likely to be taken up by the committee, although it has been officially filed.

In a bulletin to members, the Independent Insurance Agents and Brokers of America said the work on language in the legislation in the Senate panel was supposed to be completed this week, but “the markup could very well slip into next week and potentially beyond.”

The letter, delivered to all members of the Senate Finance Committee was signed by:

• American Insurance Association
• Council of Insurance Agents and Brokers
• Independent Insurance Agents and Brokers of America
• National Association of Health Underwriters
• National Association of Mutual Insurance Companies
• Property Casualty Insurers Association of America

* Twenty-four hour health coverage typically refers to a coordinated system of health care delivery, whereby a person receives all medical care for injuries and illnesses from a single health care provider.

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Certain producer group representatives have publicly criticized the current version of the proposed Producer Compensation Transparency Regulation (the “Proposed Regulation”) that was forwarded recently by the New York Insurance Department (“NYID”) to the Governor’s Office of Regulatory Reform (“GORR”) for review. As discussed in our September 14, 2009, Client Alert, if the Proposed Regulation becomes effective it will apply to all insurance producers that transact business in New York. 

In a September 15, 2009, P&C National Underwriter article N.Y. Comp Regulation Proposal Unacceptable, Says IIABNY, the Independent Insurance Agents & Brokers of New York  objected, among other things, to the Proposed Regulation’s requirement that producers explain to their customers whether they are functioning as an agent or a broker and how these legal classifications affect the producer’s compensation, saying such a technical discussion would engender confusion amongst consumers. Representatives of IIABNY have also criticized the Proposed Regulation’s ambiguity regarding the disclosure rules that apply to policy renewals.

The spokesman for IIABNY raised the possibility that producer groups might institute legal action if the State did not agree to make necessary revisions to the Proposed Regulation.

In addition to IIABNY, spokespersons for the Independent Insurance Agents & Brokers of America, the National Association of Professional Insurance Agents and the Council of Insurance Agents & Brokers have also criticized certain aspects of the Proposed Regulation.

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On September 10, 2009, the New York Insurance Department (NYID) announced that it had sent the long anticipated Producer Compensation Transparency Regulation (the Proposed Regulation) to the Governor’s Office of Regulatory Reform (GORR) for review. Following GORR approval, the Proposed Regulation will be published in the New York Register and will be subject to a forty-five day period of public comment. After reviewing any comments received during such public comment period, the NYID may adopt, revise or withdraw the Proposed Regulation.

Assuming the current form of the Proposed Regulation becomes effective, it would require insurance producers selling or renewing an insurance contract in New York to make certain mandatory disclosures to purchasers regarding the compensation the producer will receive related to the sale of the insurance. Such disclosures are required to be provided to the purchaser no later than the time the application for insurance is submitted.

More notable among the various required disclosure items are the following:

• The producer must disclose to the purchaser that the purchaser has the right to obtain information about the compensation expected to be received by the producer for the sale and for any alternative quotes obtained by the producer by requesting this information from the producer.
• If the purchaser, in fact, requests more information regarding the producer’s compensation, the producer is required to provide, among other mandatory disclosures, a description of any alternative quotes obtained by the producer, including the coverage, premium and compensation that the insurance producer or any parent, subsidiary or affiliate would have received based, in whole or in part, upon any such alternative quotes.

In addition, the Proposed Regulation would require that insurance producers maintain records evidencing that they have provided the disclosures required by the regulation for a period of three years subsequent to the date of such disclosures.

In anticipation of the likely adoption of the Proposed Regulation, insurance producers may wish to begin developing a compliance process, including the preparation of disclosure forms, which is designed to satisfy the regulation’s requirements.

If you have any questions regarding the Proposed Regulation, please contact Dennis C. Quinn at (212) 655-3878 or dquinn@bargerwolen.com.

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by Robert W. Hogeboom

On September 4, 2009, Harvey Rosenfield submitted the Stop Insurance Overcharges Act (pdf), a proposed state-wide ballot measure, to Attorney General Jerry Brown.

The initiative would:

• limit all insurance broker fees charged if brokers also receive a commission;
• mandate that all other fees, including installment fees billable to a policyholder, is premium subject to prior approval;
• seek to eliminate the absence of prior insurance as a criteria for automobile and homeowner rates or insurability;
• preclude use of claims experience in calculating discounts or surcharges for automobile insurance. 

We anticipate that insurers, managing general agents, brokers and trade associations will be establishing a strategy to contest the proposed initiative.

I look forward to your comments and/or thoughts regarding this significant issue as I will be coordinating our efforts to defeat this initiative. Please contact Robert W. Hogeboom at rhogeboom@bargerwolen.com and/or (213) 614-7304.

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Medicare Secondary Payer Mandatory Reporting Requirements Applicable to All Liability, No-Fault and Workers’ Compensation Insurers

On August 31, 2009, the Centers for Medicare & Medicaid Services (“CMS”) posted an “ALERT” entitled “Compliance Regarding Obtaining Individual HICNs and/or SSNs” and an accompanying Model Language Form (the “Model Form”) to the CMS web site that is intended to provide liability, no-fault and workers' compensation insurers (collectively, “NGHP Insurers”) with guidance from the agency concerning how such entities may collect the personal information from injured claimants that each NGHP Insurer, in its capacity as a Responsible Reporting Entity (“RRE”), is required to begin reporting to CMS pursuant to The Medicare, Medicaid and SCHIP Extension Act of 2007 (the “Act”).

The Act requires all NGHP Insurers to file specified data electronically with CMS with respect to all claims involving an injury to a Medicare beneficiary where the judgment, settlement, award or other payment date is January 1, 2010, or subsequent. Such NGHP Insurers are likewise obligated by the Act to report claims for which the insurer possesses an ongoing responsibility to pay for medical services (“ORM”), existing as of July 1, 2009, and subsequent, even if the date of the initial acceptance of ORM occurred prior to July 1, 2009. Please note that each NGHP Insurer has until September 30, 2009, to complete its registration with CMS as an RRE pursuant to the Act.

The newly published ALERT states that the Model Form is intended to create a safe harbor for NGHP Insurers reporting under the Act in that

CMS will consider the reporting entity compliant for purposes of its next Section 111 file submission if . . . a signed copy of the  . . . [Model Form] is obtained (even if the individual is later discovered to be a Medicare beneficiary . . . .

Problematic Aspects

• The ALERT does not address the situation (likely to be fairly common) when an injured claimant simply declines to return the Model Form to the reporting NGHP Insurer. The clear implication of the ALERT is that the safe harbor would not apply in such a scenario, thus creating a compliance risk for the reporting NGHP Insurer.
• The ALERT requires the NGHP Insurer to continue to obtain an additional executed Model Form from each ORM claimant at least once every 12 months to ensure the continued applicability of the safe harbor to such ORM claim. Again, this places the reporting NGHP Insurer in the uncomfortable position of requiring performance by the claimant to maintain its safe harbor status.   

We note that these issues, as well as other aspects of the Act’s reporting requirements, are complex and present difficult interpretative issues.

For further information regarding NGHP Insurers’ obligations under the Act, please contact Dennis C. Quinn at 212-655-3878 or dquinn@bargerwolen.com.

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