Archive for the ‘Regulatory Matters’ Category

The Flying Insurance Adjuster—Implications of Insurers’ Use of Drones

Thursday, May 14th, 2015

By Hilary Rowen, San Francisco

Insurers perform property inspections in connection with underwriting to determine if the property meets their standards for issuing coverage, and to determine the appropriate premium classification. Insurers inspect damaged property to evaluate the extent of the damage, whether the damage resulted from a covered cause of loss and to estimate the cost to repair or replace the insured property.

In the future, inspections of buildings and other insured property by insurers may be done through still photos, videos or data from more sophisticated sensors obtained by an unmanned aircraft. Rather than having inspections done by a person peering up from the ground, on a ladder or walking through a field, the inspections will be done by a person looking at photos taken by a drone or reviewing a computer analysis of data collected through drone-mounted sensors.

Several property-casualty insurers, including State Farm, USAA and AIG, have recently received approval from the Federal Aviation Administration (FAA) to test and use drones in insurance underwriting and claims operations. However, to date, the approvals that the FAA has issued to insurers contain restrictions that effectively limit the insurers to testing drones for use in inspections under limited conditions. Deployment of drones in insurers’ operations will not “take off” until the FAA’s recently issued draft regulation governing commercial use of drones is adopted.

The Regulation of Drones by the FAA: Entering a Period of Rapid Change

After being subject to criticism for its stringent restrictions on commercial use of drones, the FAA announced in March 2015 that it would streamline its process of reviewing “Section 333 exemption” filings for use of drones weighing less than 55 pounds (25 kilograms) in commercial operations. (Section 333 of the FAA Modernization and Reform Act of 2012 authorized the Secretary of Transportation to determine requirements for commercial use of unmanned aircraft systems.) In March the FAA also exempted entities with approved Section 333 exemptions from filing flight plans for each drone use, provided that the drone is flown below 200 feet. The FAA’s move to speed Section 333 approvals and to lift some of the restrictions on commercial drone use is likely to increase insurers’ interest in the use of drones for a wide range of property inspection purposes.

Restrictions in Section 333 Exemption Approval Issued to Insurers

Today, even with the recent changes, the FAA approvals of commercial use of drones have significant restrictions. Although lightweight drones may weigh less than 5 pounds, the operator must have a pilot license (which, under the FAA’s recent relaxation of commercial drone requirements, can be a recreational or sports pilot license). A second observer must be present for all drone flights. The drones can only be operated within line-of-sight of both the pilot and the observer.

Perhaps most significantly for insurers’ use of drones, the FAA’s approvals of insurers’ Section 333 exemption applications contain the following restrictions:

1. A drone cannot be flown within 500 feet of any structure or vehicle without the permission of the owner or person in control of the structure or vehicle; and
2. A drone cannot be operated within 500 feet of a person other than the operator and observer, unless the people within 500 feet are inside a structure that would protect them from debris in the event that the drone crashes.

These limitations impose significant restrictions on testing property inspection drones in real-life situations in urban and suburban areas. The FAA is testing whether to relax some of these restrictions.

On May 6, the FAA announced three drone initiatives: one will allow a drone manufacturer to survey crops in rural areas with drones flying outside of the pilot’s direct line-of-sight; a second initiative will allow a railroad to inspect rail infrastructure beyond line-of-sight in isolated areas; the third initiative will allow CNN to test the use of drones for news-gathering in populated area, under the current line-of-sight restrictions. None of the FAA initiatives involves insurer operations.

The Proposed FAA Regulation

The FAA issued a proposed unmanned aircraft system regulation for comment in February 2015. Under the proposed regulation, a new unmanned aircraft system (“UAS”) airman certificate would be created and the requirement that operators of drones hold traditional pilot licenses would be eliminated. The currently required observer would be optional. The line-of-sight requirement would be modified to provide that either the operator or the observer, if one is present, must maintain eye contact with the drone, rather than the current requirement that both the operator and a mandatory observer maintain a line-of-sight view of the drone.

As perhaps the most significant change with respect to insurers’ use of drones, the proposed regulation eliminates the requirement that drones remain at least 500 feet from structures, vehicles and people, although drones may not be flown directly over people other than the operator and observer. Under the proposed regulation, the operator is responsible for taking measures to mitigate risk to persons and property in the event that the operator loses control of the drone. The Notice of Proposed Rulemaking for the proposed regulation provides an example of a mitigation measure: Where the drone is operating in a residential area, the operator could ask that people in the area of operation remain inside while the drone is flying.

The proposed UAS regulation creates a separate and more relaxed set of requirements for drones weighing less than 4.4 pounds (2 kilograms) that fly at low speeds and at low altitudes. Operators of these very small drones would need to obtain a “microUAS” operator certificate from the FAA. Unlike the larger drones weighing up to 55 pounds, microUAS drones could be operated directly over people.

The proposed regulation requires that any accident involving injury to persons or property (other than the drone itself) be reported to the FAA.

It is unclear when the FAA regulation on the commercial use of small drones will be issued and whether it will be significantly modified based on comments from interested parties. However, the FAA is under pressure to create a regulatory environment more favorable to commercial use of drones, in part because testing and deployment of small drones is moving to other countries with less restrictive requirements.

The Evolution of Insurers’ Use of Drones

It is likely that insurers’ use of drones will move from the testing stage to operational use within the next few years. Possible developments include:

On-Site Inspections Will Be Severed From Data Evaluation

As a general matter, the person performing an insurance underwriting or claims inspection will have the expertise to evaluate the state of the property. The person on-site will usually provide a written assessment of the state of property in underwriting inspections, or the extent of damage, nature of the damage and the likely cause of the damage in claims inspections. These reports typically will include photographs and, sometimes, videos as documentation of the findings. However, the assessment is made by the on-site inspector.

As insurers start utilizing drones in inspections, it is likely that the expertise needed to perform a given underwriting or claims inspection will be split among several individuals. The on-site “inspector” will need to hold an FAA drone operator license and will need to have sufficient insurance training to collect the data relevant to the underwriting or claims evaluation. The drone operator will not need the substantive expertise in building construction and maintenance currently needed for underwriting inspections or the expertise in extent of damage, loss causation and other issues currently needed for claims inspection. Some insurers may outsource the drone inspections to companies that specialize in flying drones, rather than have drone operators on staff. Instead of having experienced claims personnel in the field, insurers will likely perform the analytic portion of the inspection remotely, using personnel who rarely, if ever, go into the field.

Drone Inspections Will Collect Different Data Than Current In-Person Inspections

In contrast to a human on a ladder checking for dry rot with a screwdriver, drones in the near future will not have capabilities to physically probe buildings or take samples. The type of sophisticated instrumentation utilized in space probes will not be practical for drones used for insurance inspections.

While on-site physical inspections will remain an option for insurers, it is likely that as inspection operations change in response to increased use of drones, physical inspections will become a rarity only performed in unusual circumstances where physical sampling is essential.

Current inspections, whether of buildings, crops or other insured property, tend to utilize visible light. The Mark 1 human eyeball, supplemented by photos and, sometimes, videos, is the primary inspection tool. Devices such as infrared detectors generally are only employed where there is some indication of a problem.

It is possible, although by no means certain, that insurance inspection drones will routinely collect data using non-visible light sensors. This could lead to more sophisticated analyses of the condition of buildings and the extent of damage. With a wider range of data, insurers may increasingly utilize computer algorithms to evaluate the inspection data. The use of a range of drone-mounted sensors may prove to be an effective substitute for a diminished reliance on physical probing of buildings.

Impact of the Relaxed FAA MicroUAS Requirements

If the proposed FAA regulation is promulgated with the relaxed requirements for drones weighing less than 4.4 pounds, insurers—and many other commercial users of drones in urban and suburban areas—may favor micro drones. Where it is not practical to get pedestrians, neighbors and other bystanders under cover before launching a lightweight drone, there will be significant incentives to use drones below the 4.4-pound threshold. Absent a set of “safe harbor” guidelines from the FAA regarding what set of precautions, other than moving everyone other than the operator and the observer under cover, is reasonable, commercial users of drones will probably favor microUAS.

It is unclear whether inexpensive microUAS will be able to carry sensors more sophisticated than a camera, given the 4.4-pound weight limit. Many current microUAS use the relatively inexpensive ultralight camera technology in smartphones. However, there is no comparable off-the-shelf source for ultralight, non-visible light sensors. Insurers alone would not be able to generate enough demand for such equipment. In the future, it is possible that there will be enough demand from all commercial uses for microUASs to spur the development of such sensors. Alternatively, the FAA may create an intermediate

category between drones weighing 4.4 pounds and drones weighing 55 pounds that allows less stringent deployment requirements for drones that can carry somewhat heavier payloads than the microUASs.

Drones and Disaster Response by Insurers

Much of the discussion of insurers’ use of drones has focused on handling disaster claims. It has been suggested that use of drones in damage assessments after disasters will allow insurers to handle claims more quickly. This is likely to be true in some disaster scenarios, but not all.

Large-scale disasters, whether hurricanes, earthquakes or Western wildfires, often strain insurers’ claims adjusting resources, even with the reassignment of claims inspection personnel from other regions of the country and the use of independent adjusters. Drones may alleviate at least part of the post-disaster claims resource crunch. As claims inspections increasingly are performed remotely, the need to redeploy claims personnel will diminish and the insurer’s ability to handle a surge in claims in one geographic region will improve. However, a limited supply of drones and qualified drone operators may simply replace a limited supply of claims adjusters as a key post-disaster claims adjusting resource issue.

Potential Issues Relating to Insurers’ Use of Drones

Any change in insurer underwriting or claims handling practices is likely to trigger charges that the insurer is treating policyholders and claimants inappropriately. Potential issues arising from insurer use of drones include:

Failure to Properly Inspect and Investigate a Claim

A shift from in-person inspections to remote inspections based on drone-collected data will inevitably lead to allegations that a claim was improperly denied due to the failure of the drone to collect necessary information or the misinterpretation of the data by a remote claims center. In many ways, these likely future complaints are not materially different from garden-variety challenges to in-person claims inspections. However, it is possible that regulators could impose a requirement that drone inspections be supported by in-person inspections whenever there is a challenge to the drone-collected data, at least where the in-person inspection does not pose a risk to the adjuster. It is unclear whether such a requirement would deter insurers from utilizing drones in adjusting claims; although if challenges became frequent, the cost of duplicate inspections would reduce the use of drones.

Flawed Computer Algorithms for Underwriting and/or Claim Damage Evaluation

If the use of drones is combined with the use of computer algorithms to assess the drone-collected data, there may well be challenges to the accuracy of computer-driven claims review. Challenges to computer models used to estimate replacement costs and other uses of computer programs in claim adjusting have been common in recent years. These lawsuits typically have been brought as class actions. Future litigation over computer algorithms used to assess drone-collected data are also likely to be framed as class actions, increasing insurers’ potential exposure.

Conclusion

Use of drones in insurance inspections will start as a fairly minor supplement to the traditional in-person inspection, primarily used to examine inaccessible portions of structures and other property. As lightweight sensors and the computer software needed to evaluate drone sensor data are developed, drones may trigger a more fundamental reorganization of insurers’ property inspection operations—with the collection and evaluation functions severed from each other.

Whether this more seismic shift occurs will depend both on technological developments and on the legal infrastructure for commercial use of drones. It is a fairly safe bet that the technology will be developed. The only question is whether the legal infrastructure creates an environment in which widespread use of drones makes sense for insurers.

This article was originally published in the Bloomberg BNA’s Daily Report for Executives on May 14, 2015.

Colorado Supreme Court Holds that the Notice-Prejudice Rule Does Not Apply to Date-Certain Notice Requirement in Claims-Made Policies

Wednesday, February 25th, 2015

By Eryk Gettel, Sedgwick San Francisco

Like many jurisdictions, Colorado’s notice-prejudice rule generally provides that an insured who fails to provide timely notice of a claim does not lose policy benefits unless the insurer establishes that the late notice prejudiced its interests.  Friedland v. Tranvers Indem. Co., 105 P.3d 639, 643 (Colo. 2005).  In Craft v. Philadelphia Indemnity Insurance Co., 2015 WL 658785 (Colo. Feb. 17, 2015), the Colorado Supreme Court held that this rule does not apply to date-certain notice requirements in claims-made policies.

Dean Craft was the principal shareholder and president of Campbell’s C-Ment Contracting, Inc. (CCCI).  Craft agreed to sell a portion of his CCCI shares to Suburban Acquisition Company (Suburban), and later sold his remaining shares back to CCCI.  Suburban and CCCI sued Craft for alleged misrepresentations and fraud regarding the stock sales.

At the time he was sued, Craft was unaware that CCCI had purchased a D&O policy from Philadelphia Indemnity Insurance Company (Philadelphia).  The policy required the insured to notify Philadelphia “as soon as practicable” after becoming aware of a claim, but “not later than 60 days” after the policy period expired.  The policy period was November 1, 2009 to November 1, 2010.  Craft did not report the matter to Philadelphia until March 2012 (more than one year after the policy had expired), and settled the underlying litigation in June 2012.  Philadelphia ultimately denied coverage for Craft’s legal fees and the underlying settlement because Craft had not complied with the policy’s notice provision.

Craft sued Philadelphia in Colorado State Court for breach of contract, breach of the implied covenant of good faith and fair dealing, and statutory violations.  Philadelphia removed the case to federal district court, and then successfully moved to dismiss the coverage action on the basis that Craft did not notify Philadelphia of the claim within 60 days of the policy’s expiration date.  After appealing the district court’s decision, the Tenth Circuit certified the following questions to the Colorado Supreme Court:  (1) whether the notice-prejudice rule applies to claims-made liability policies as a general matter; and (2) whether the rule applies to one or both types of notice provisions in claims-made policies.  Because the parties agreed that the prompt notice requirement was not at issue, the Colorado Supreme Court limited its analysis to the issue of whether the notice-prejudice rule applies to a claims-made policy’s date-certain requirement.  The court answered the question in the negative.

The court first explained how “occurrence” and “claims-made” policies differ in terms of the coverage they provide.  Whereas occurrence policies (like the policy in Friedman)provide coverage for injuries or damage that occur during the policy term regardless of when the claim is actually made, claims-made policies (like the policy in Craft) only provide coverage if the claim is made during the policy period or any applicable extended reporting period.  The court further explained that this conceptual difference is critical to the risks that insurers undertake and the premiums that insureds pay.  With a claims-made policy, the risk to the insurer passes when the policy expires.  Thus, the date-certain requirement in a claims-made policy is a fundamental policy term because it defines the temporal boundaries of the policy’s basic coverage terms.  The court found that, to extend the notice-prejudice rule in the context of a claims-made policy’s date-certain notice requirement, “would defeat the fundamental concept on which coverage is premised.”

The court also rejected Craft’s argument that strict enforcement of the date-certain notice requirement would result in a windfall for the carrier based on a technicality.  To apply the notice-prejudice rule so as to excuse an insured’s noncompliance with a date-certain requirement would essentially rewrite the policy and effectively create coverage where none previously existed.  By doing so, the insured — and not the insurer — would reap the windfall.

New California Law Sets the Stage for Insurance Regulation of Uber, Lyft

Wednesday, October 8th, 2014

By Kara DiBiasio, Sedgwick San Francisco

The emergence and success of ridesharing companies has sparked questions and debates over the gaps in insurance coverage created when private drivers offer commercial driving services.  Ridesharing companies – such as Lyft, Uber, and Sidecar – allow private drivers to login to a mobile app and pick up passengers for a fee.  This innovative structure has changed the driver-for-hire climate in cities across America, including uncertainty about who will pay when one of these drivers gets into an accident.

Most personal automobile liability policies contain exclusions for commercial driving services, so anytime a driver is available for hire or driving a passenger, they likely are not covered by their personal auto policy.  Although a ridesharing company must provide commercial liability coverage, the overlap between the driver’s policy and the commercial coverage is often murky.  Seeking to clarify these potential gaps in coverage, the California Legislature passed AB 2293, which Governor Jerry Brown recently signed into law. 

The law has two primary effects on regulation of ridesharing companies.  First, it imposes disclosure requirements on the company.  Second, it sets minimum insurance coverage requirements for all ridesharing companies operating in California. 

For the disclosure requirements, each ridesharing company is required to disclose in writing to each driver the commercial coverage and limits of liability the company provides while the driver has the app enabled.  Drivers will also have to carry proof of the company’s commercial liability coverage when they have the mobile app enabled. 

The law also sets out insurance coverage requirements for each phase of the driver’s potential liability: when the driver is using the vehicle, but the app is not enabled; when the app is enabled, but the driver is not carrying a passenger; and when the driver is carrying a passenger.  During the first phase, the driver is just an ordinary private driver on the road; the law does not set any requirements for this phase.  During the second phase, the company must provide primary coverage for death and personal injury, as well as property damage.  In addition, the company must provide excess coverage of at least $200,000 to cover any liability of the company or the driver while the app is enabled.  After the driver picks up a passenger, the law requires the company to have primary coverage of at least $1 million for death, personal injury and property damage, as well as an additional $1 million in uninsured and underinsured motorist coverage.

The law also requires the commercial liability insurer to defend and indemnify any liability claim arising out of an accident, either while the app is enabled or while the driver is carrying a passenger.  The driver’s personal auto policy is neither primary nor excess coverage while the app is on or while the driver has a passenger, unless the policy expressly states that it affords such coverage.

Most of the provisions of the new law will take effect July 1, 2015.  Pennsylvania has begun working on similar regulations for ridesharing companies, and other states will likely follow suit in the near future.  Insurers should work with coverage counsel to make sure they are ready with policies that conform to these new regulatory requirements, in advance of the laws taking effect.

Is it a Car or A Street Legal Robot: Insurance Issues for Autonomous Vehicles

Monday, October 6th, 2014

In mid-September, Mercedes-Benz became the latest car company to get a license to test self-driving vehicles in California.  Earlier in the month, GM announced that they will offer a hands-free Cadillac with new cruise control technology to adjust speed, braking and steering.  Since 2005, Google has been test-driving their autonomous vehicles (AVs) on public roads, and last summer unveiled the first test prototype for a vehicle with no steering wheel or brake pedal.     

These autonomous or self-driving vehicles will pose new challenges for the insurance industry, as will the semi-autonomous vehicles that already are entering the market.  Hilary Rowen addressed some of the issues in an article entitled, “Expect tort potholes for self-driving cars,” published in the San Francisco Daily Journal on September 26.  The article can be downloaded here.

Offshore Professional Risk in 2014

Wednesday, April 16th, 2014

By Mark Chudleigh, Chen FoleyNick Miles, and Alex J. Potts, Sedgwick Bermuda

From the Cayman Islands to Hong Kong, there’s a lot going on in the world of offshore litigation and law reform. In this report, Sedgwick’s Offshore Professional Risks practice offers a global perspective on professional risk, with unique expertise and solutions valuable to providers and users of offshore services and insurance carriers operating in offshore jurisdictions, including Bermuda, the British Virgin Islands, the Cayman Islands, the Channel Islands, and the Isle of Man.

Learn more about new laws changing the future of this business, collective investment schemes, issues relating to cybercrime and cyberliability, and the dangers of being an offshore lawyer.

 Read the full news report here.

New Jersey Legislature Passes Superstorm Sandy Bill of Rights

Monday, March 31st, 2014

By Ryan Chapoteau, Sedgwick New York

We previously reported on the New Jersey legislature’s attempt to pass reform bills as a response to Superstorm Sandy.  Although New Jersey Assembly Bill A3710 died when referred to the Financial Institutions and Insurance Committee, the legislature recently passed Senate Bill S1804 (combined with S1306), which details how the state can distribute Superstorm Sandy federal aid relief, and established a Bill of Rights for Superstorm Sandy victims.

In relevant part, the Bill of Rights helps to ensure that victims of Superstorm Sandy can seek compensation from multiple recovery programs as well as through any applicable insurance.  If a victim is not wholly compensated through their insurance carrier, the Bill of Rights can apply to a governmental recovery program to aid in the victim’s effort to be made whole for any losses resulting from the storm.  According to this law, the State cannot deny applicants seeking aid merely because they have other applications pending for financial relief.  Now, victims have multiple avenues to be compensated for the damage occurred by Superstorm Sandy.

In June 2013, we reported on the 12 new insurance reform bills bassed by the New York State Assembly in response to Superstorm Sandy. 

California Senate Introduces Bills to Expand Abuse Claims

Tuesday, February 4th, 2014

By Alex Potente, Sedgwick San Francisco

For our readers who are involved in insuring public and private entities against sexual abuse claims, you may be interested to know that legislation to reform the civil and criminal statute of limitations for childhood sexual abuse claims was recently introduced in the California State Senate by Senator Jim Beall, D-San Jose, and Senator Ricardo Lara, D-Long Beach. The two legislative bills seek to prohibit childhood sex offenders from leveraging the statute of limitations to escape civil damages or criminal prosecution.

One of the new bills, SB 924, proposes to reform the statute of limitations for civil lawsuits by increasing the age for when victims of sexual abuse can sue private and public organizations that they allege failed to protect them from sexual abuse offenders. The bill would raise the age deadline from 26 to 40 years old. The bill would also increase the length of time for a person to file suit after he or she claims to have discovered that the molestation caused them psychological harm. Currently, a suit can be filed within three years of such a realization, even after the age-related statute of limitations is already expired. SB 924 would increase this standard to five years.

Additionally, the bill more specifically defines the term “discovery” than does current law, identifying it as the time in which a physician, psychologist or clinical psychologist first informs the victim of the link between their adult psychological injuries and the childhood sexual abuse.

The other bill, SB 926, would raise the age at which an adult survivor of childhood sexual abuse can seek criminal prosecution against his or her offender from 28 to 40 years old. The bill would affect sex crimes against children including lewd or lascivious acts, continuous sexual abuse of a child, and other offenses.

In an attempt to avoid the stumbling blocks of SB 131 – a similar bill that was vetoed by Governor Jerry Brown last fall – SB 924 will apply to both public and private entities and both bills will be applied prospectively on January 1, 2015, if passed and signed into law. However, there are some details that still need to be finalized. For one, it is uncertain as to whether the extension of time from three to five years which a victim has to file suit under SB 924 will be applied only to future discoveries of harm, or also to victims who already have been informed (but where the current three-year limitations period has not expired). Additionally, opponents criticize that SB 924 requires a mental health specialist’s opinion to trigger the date of discovery of harm. Bill opponents argue that victims often know that they have been harmed before they receive an opinion from a mental health specialist. Finally, despite the provision that the bills will be applied prospectively, opponents continue to raise the specter of retroactive application to invalidate the previous statute of limitations and concomitant due process issues.

We will monitor these bills as they work their way through the legislature and provide follow up reports.

 

California Allows Contractors Formed As LLCs To Access Surplus Lines Carriers

Tuesday, August 20th, 2013

By Dennis G. Rolstad, Sedgwick San Francisco

On August 16, 2013, California Governor Jerry Brown signed AB1236, a bill that allows contractors organized as limited liability companies to obtain liability insurance from non-admitted surplus lines carriers.  California Business & Professions Code § 7071.19 requires that limited liability companies carry liability insurance.  AB1236, sponsored by the Association of California Insurance Companies, amends Section 7071.19 to allow such insurance to be acquired from surplus lines carriers.

California has been amending its statutes to allow various forms of businesses to form as limited liability companies.  As of a 2010 statute, contractors may now obtain LLC status, but a licensed contractor must maintain liability insurance at specified dollar levels issued by a state licensed insurer.  Since January 1, 2011, hundreds of California contractors have been licensed as LLCs; however, over 68,000 other licensed contractors have general liability coverage obtained from surplus lines carriers that are not regulated by the California Department of Insurance.

Effective January 1, 2014, a contractor licensed as an LLC may obtain its liability policy from an eligible surplus line insurer, which is an insurer that has met certain standards including reserve requirements.  The requirements for a non-admitted insurer are found at California Insurance Code § 1765.1.  It is believed that AB1236 will increase access to insurance for contractor LLCs, have a positive effect on premium pricing, and increase the viability of LLC status for contractors.

A copy of the bill can be found here.

New York Assembly Presents Insurance Reform Overhaul in Wake of Superstorm Sandy

Tuesday, June 25th, 2013

By Ryan C. Chapoteau, Sedgwick New York

We previously reported on the New Jersey Legislature’s attempts to enact a bill that would allow policyholders to sue an insurer for bad faith in the wake of Superstorm Sandy.  New Jersey Assembly Bill A3710  is still pending.  On the other hand, New York’s Assembly has been very active after Superstorm Sandy and resoundingly passed 12 new bills on June 4, 2013, which would affect changes to the Insurance Law.  The State Senate is now holding debates for these bills, which provides insurers an opportunity to request the legislature to reject these proposed laws.

The American Insurance Association has attacked the new legislation, stating that it is “misguided, if well-intentioned” because the bills “would simply open the floodgates for even greater litigation after a catastrophe.”  Although policyholders already have considerable privileges under current law, the New York Assembly is attempting to rewrite insurance policies by rejecting basic contractual principles that allow parties to form the terms of their own agreements.  If passed, the insurance market may raise premiums to ensure they can pay the newly-mandated covered claims, and handle an increase in litigation costs.

The New York insurance reform legislative package includes the following bills:

• Investigation and Settlement Standards (Bill No. A01092, passed 121-23).  The Assembly is attempting to require insurers to investigate a claim and advise the claimant in writing within 15 days (with a potential additional 15 day extension) on whether the insurer has accepted or rejected the claim.  The insurer then must pay the claim within 3 days from the settlement date.

• Creating a Task-Force for Disasters (Bill No. A01093, passed 144-0).  This bill creates an 18-member task force, including officials from federal and state agencies, insurers and independent representatives who will examine and report on whether policyholders and communities have adequate insurance coverage for disasters.

• Discounts on Fire and Homeowner’s Insurance Upon Completing Residential Home Safety and Loss Prevention Course (Bill No. A01475, passed 141-3).  The Assembly is attempting to force insurers to provide discounts to homeowners for a three-year period upon completing a state-certified course that would teach insureds how to prevent losses triggered by weather-related events.  The bill does not comment on the amount of the discount, but requires the discount to be based on sound actuarial practices.

• A Homeowner’s Bill of Rights (Bill No. A02287, passed 118-26).  Legislators are attempting to educate homeowners who purchase property and casualty coverage by obligating insurers to provide them with a consumer guide written “in plain language in a clear and understandable format.”  This disclosure must provide information, such as how coverage is affected by different types of weather conditions and natural disasters as well as whether the property is located in a flood zone.  Additionally, the Department of Financial Services will be required to establish a “Consumer’s Guide on Insuring Against Catastrophic Loss” brochure.

• A Uniform Windstorm Deductible (Bill No. A02729, passed 144-0).  The Superintendent of Insurance will have the duty to institute a uniform and reasonable standard for hurricane windstorm deductibles.  Proponents of the bill claim it will help promote a better understanding of the applicability and amount of hurricane windstorm deductibles.

• Expediting State Disaster Emergency Insurance Claims (Bill No. A05570, passed 117-26).  This bill establishes an expedited procedure for claimants to advance any lawsuit against insurers that deny claims related to property damage sustained in counties where a State Disaster Emergency is declared by the Governor.

• Private Right of Action for Unfair Claim Settlement Practices (Bill No. A05780, passed 108-34).  The bill creates a private right of action for unfair claim settlement practices for claims relating to a loss or injury in an area under a declared disaster emergency.  If enacted, insurers will be liable for punitive damages if their claims practices are deemed willful.

• Limiting Insurers from Deciding Not to Renew Homeowners Policies (Bill No. A06913, passed 120-24).  The Assembly is trying to restrict insurers’ reduction of coverage by regulating notices of intention to not renew homeowner’s insurance policies.  If passed, insurance companies must file a plan with the Superintendent of Insurance if they intend to reduce by 20% the net number of these policies in New York, or if they plan to reduce the number of these policies by 500 within five years, whichever is greater.  Additionally, insurers must file a plan if they intend to not renew 4% or more of their total number of covered policies within New York.

• Coverage for Business Interruption Claims Arising From Excluded Perils (Bill No. A07452, passed 113-30).  This bill would force insurers to cover business interruption claims even if the loss directly or indirectly arose from or was caused by an excluded or uninsured peril.

• A Standard Set of Definitions (Bill No. A07453, passed 115-29).  This bill would force all New York insurance policies to adopt a standard set of definitions, as promulgated by the Superintendent of Insurance, for all commonly used terms and phrases.  The proposed legislation does not include a list of the terms and phrases it considers to be common, but provides that an insurer may use alternative definitions as long as they are not any less favorable to the policyholder.

• Providing a Copy of a Policy Prior to it Being Purchased (Bill No. A07454, passed 119-24).  The bill would require insurers to provide potential customers of personal and commercial lines of insurance a copy of the policy prior to the policy being purchased.  Legislators want customers to have sufficient time to review a policy before agreeing to buy it.

• Outlawing Anti-Concurrent Clauses (Bill No. A07455, passed 119-24).  The law would forbid insurers from denying a claim when a loss occurred from several causes, and one cause is covered while another cause is precluded from coverage.  If enacted, New York would be joining California,[1] North Dakota,[2] West Virginia,[3] and Washington[4] in eliminating anti-concurrent causation clauses.

The Assembly also passed Bill No. A07456 on June 10, 2013, by a vote of 125-14, which would require the Superintendent of Financial Services to prepare a report card on insurers’ responses to emergencies and disasters.  Insurers would be graded on: (1) the number of claims the insurer received and the status of those claims; (2) the number of independent adjusters the insurer has working in the field; (3) the number of policyholders who have hired public adjusters; (4) the average amount of time, in days, for the insurer to investigate a claim, make a payment, and close a claim; (5) the number of complaints the insurer has received from its insureds and the number of complaints the Department has received on each insurer; and (6) any other information the Superintendent deems necessary.  This report card must be published within 20 days of the declaration of a disaster or emergency and updated every week for at least 6 months or until the Superintendent determines that the report card is no longer necessary.

 

Bermuda Monetary Authority Announces Principles Underpinning Use of New Powers

Wednesday, January 23rd, 2013

By Nick Miles

The Bermuda Monetary Authority (the BMA) has published a new statement of practice (SoP).  It sets out factors to which it will have regard and procedures to be followed in deciding whether and in what manner to exercise powers granted under the following four statutes that regulate financial sectors in Bermuda:

• The Insurance Act 1978
• The Banks and Deposit Companies Act 1999
• The Investment Business Act 2003
• The Trusts (Regulation of Trust Business) Act 2001

A full analysis of the SoP and the BMA’s powers can be found in our Insurance News Flash published today.

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