Sectional Analysis for Sponsor Substitute for Senate Bill 202

The Alaska Insurance Consumers Protection Act

Section #1 - refers to Section #1 of this act as "The Alaska Insurance Consumers Protection Act".

Section #2 - purpose statement of the legislation.

Section #3 - prohibits insurers from terminating contracts with an insurance producer, agent, broker, or independent adjuster without good cause. It also requires the Director of Insurance to adopt regulations to implement and enforce this section.

Rationale: in reported instances, large insurance companies have illegally coerced their contracted agents to perform illegal business practices. If these agents refuse to adhere to these often unfair and illegal directives, the parent company often threatens to terminate the contract with them. Under this threat, these smaller agents often have no recourse but to abide with these illegal practices, thereby breaking the law themselves.

Senate Bill 202 would help prevent this type of industry "strong-arming" by allowing these entities to report such illegal practices to the Director of Insurance.

Section #4 - prohibits restrictions or limitations on oral or written communications between an insured and an insurance agent, representative, or a person making repairs and adds these prohibitions to the list of unfair claim settlement practices contained in AS 21.36.125.

Rationale: under existing law, many repair shops consider themselves to be working for the insurer and not the claimant property owner. It may be in the insurance companyÕs best interest to withhold pertinent information to the claimant concerning the damage to a vehicle. This language would remove any potential "gag rule" practices by requiring these entities to provide all information to the insured in a claims settlement.

Section #5 - this section was requested by the Division of Insurance and the Division of Motor Vehicles. It prohibits an insurance company from canceling a policy if an individual in the household has a driver’s license suspended or revoked for minor consuming or minor in possession of drugs or alcohol. This section also relates to section #10 of this bill.

Rationale: it was the intent of the legislature when the "Use It, Lose It" bill passed the legislature not to require high-risk (SR22) insurance when a driver’s license is administratively revoked for a non-driving violation. The insurance industry has been refusing to insure, or in some cases, cancel policies for families unless they purchase the high-risk insurance.

Section #6 - prohibits limitations or reductions of prejudgment interest, legally due to an insured party, as a result of a claim covered under an insurance policy. This provision would apply even if the amount of prejudgment interest exceeded applicable policy limits.

Rationale: in Phillips v State, the Alaska Supreme Court held that as a matter of general state policy, prejudgment interest is appropriate to fairly compensate injured parties. The addition of this section into state statute makes it clear that this state policy applies to all insurance policies.

Section #7 - requires an insurer, within 15 days after a filed claim, to make an estimate of covered claims under the policy. The insurer has within 30 days to pay the undisputed amount of the covered claim.

If a claim involving a covered loss cannot be reasonably determined within a 15 day time period, the insurer shall make a determination within 15 days after the loss becomes determinable.

This section also requires the insurer to pay certain attorney fees and costs if the insured obtains judgment for damages resulting from the disputed claims and the judgment is at least 10% greater than the insurer's covered loss payment. In addition to the attorney fees, the insurer shall pay a penalty equal to at least 20 percent of the damages awarded.

Rationale: establishes a clear timeline for when insurers are required to make a payment after a determination has been made that the loss was covered under the policy. This section prevents insurers from unfairly denying or delaying payment of claims legitimately owed. This section imposes tough new penalties on those insurance carriers who improperly and unfairly withhold payments of legitimate claims.

Section #8 - requires the insurer to pay the costs of arbitration or mediation. However, the arbitrator may require the insured to reimburse the insurer for these costs.

Rationale: in some instances, an insurer may require a policy holder to pay the costs of arbitration or mediation before the process even begins. This type of activity discourages claimants from pursuing a fair settlement, especially when the amount at issue is less than the cost of arbitration. This section prohibits this practice and affords insured motorists a fair opportunity to pursue equitable claims.

Section #9 - establishes that short term policies shall be at least 7 days but no more than 30 days with premiums not exceeding 200% of the pro rata premium charged for longer term policies.

Rationale: when consumers need short term insurance, as required by existing law to be offered, they currently may be charged very high premiums for such coverage. This section sets a fair and equitable limit on how much insurers can charge for such policies.

Section #10 - this section was requested by the Division of Insurance and the Division of Motor Vehicles. It prohibits an insurance company from charging a surcharge of high-risk insurance or increasing the premium to a person or a family when a minor in the household has had their license revoked for a non-driving offense.

Rationale: when the "Use it, Lose it" law was passed, the intent of the legislature was not to penalize the person or family by requiring high-risk (SR-22) insurance be filed when a driver license was revoked under this statute. The reason was because in almost all cases the violation did not involve driving a motor vehicle. Language was placed in AS 28.15 that prohibited DMV from requiring SR-22 insurance but the language was not placed in AS 21. The insurance companies are claiming that since the language is not in AS 21, they can add a surcharge and place the person in a high-risk category.

Section #11 - requires insurers to provide a local or toll-free telephone number if the insurer sells automobile insurance in this state.

Section #12 & 13 - requires insurers to offer coverage for medical payments as part its automobile liability insurance policy. Should a claim arise under a medical payment policy provision, an insurer is required, within 15 days after a filed claim, to make an estimate of covered claims under the policy. The insurer has within 30 days to pay the undisputed amount of the covered claim.

These sections also require the insured to pay reasonable attorney fees, actual costs plus interest, any related arbitration fees if a medical payment claim is denied, and the claim is later determined to be covered under the policy. In addition, the insurer shall pay a penalty equal to at least 20 percent of the value of claim.

These sections also prohibit insurance carriers from offsetting medical payment premiums from uninsured and underinsured policy limits.

Rationale: frequently, insurers "blackmail" injured claimants by refusing to pay for needed medical care until the injured party agrees to the insurer’s settlement terms.

Senate Bill 202 establishes a clear timeline for when insurers are required to make a medical payment after a determination has been made that the claim was covered under the policy. These sections impose tough new penalties on those insurance carriers who improperly and unfairly withhold payments of legitimate claims.

Section #14 - amends Rule 79 of the Alaska Rules of Civil Procedure.

Rationale: language implemented in sections 7, 12 and 13 of this legislation necessitate amending Rule 79 of the Alaska Rules of Civil Procedure.

Section #15 - amends Rule 82 of the Alaska Rules of Civil Procedure.

Rationale: language implemented in sections 7, 12 and 13 of this legislation necessitate amending Rule 82 of the Alaska Rules of Civil Procedure.

Section #16 - defines the applicability of policies of insurance this act effects.

Rationale: clearly defines which insurance policies will be affected by this act and whether the terms of those polices may be subject to civil action.

Section #17 - sets the effective date of this act on January 1, 1999.

Rationale: gives insurance companies the necessary time to implement the provisions enacted in this legislation.

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