News Briefs

November 6, 2005

California

CDI Amends Proposed “Action Notice” Filing Regulations

The California Department of In-surance has deleted a section of proposed regulations that would have required insurers to notify CDI when a notice of agency appointment was terminated “for cause.”

California Insurance Code Section 1704 previously required insurers to notify CDI when an insurance producer is given an agency appointment (known as an action notice), and also when the appointment is terminated.

In proposed regulations titled, “Presc-ribed Method for Filing of Notices of Appointment of Agents and Notices of Ter-mination of Appointment of Agents,” CDI attempted to require insurers to file all action notices electronically, according to IBA West. The department also proposed to require insurers to notify CDI whenever an agency appointment was being terminated “for cause”-a provision that IBA West urged CDI to delete from the regulations.

“This provision is unsupported by the underlying statutory authorities cited by CDI, and the term is nowhere defined in the regulations,” IBA West General Counsel Steve Young said in testimony submitted July 18. “As a consequence, it is impossible for insurers or licensees to know when such explanation would be required.

“A ‘for cause’ termination presumably would always be present in the rationale of the insurer making the termination; yet a termination could be ‘for cause’ without any illegality or other misconduct on the part of the producer,” he added.

California Supreme Court Upholds Insurance Commissioner’s Authority

The California Supreme Court ordered to “de-publish” a Court of Appeal ruling-AIA vs. Garamendi-touted by insurance companies as limiting the regulatory authority of the Insurance Commissioner. The case held that the commissioner had no power under Proposition 103 to adopt regulations to stop the insurance industry from engaging in abusive “use it and lose it” homeowners insurance practices.

The order to “de-publish” the case by the Supreme Court means that the case cannot be cited or relied on by any party in a lawsuit or by a court in any other case.

Insurance companies had sued to invalidate Department regulations that prohibited insurers from employing the “use it and lose it” system to deny homeowners insurance coverage. The Court of Appeal agreed with insurers, tossing out the Commissioner’s regulations.

Insurance companies have been using the Court of Appeal decision to try to evade accountability for other improper practices by arguing that the Commissioner has no power to regulate abusive homeowners insurance underwriting practices.

The Foundation for Taxpayer and Consumer Rights joined the Department of Insurance in a complaint against Farmers Insurance, seeking to stop the company from improperly surcharging or nonrenewing homeowners. In response to the investigation into their company, Farmers’ lawyers cited the Court of Appeal ruling in AIA vs. Garamendi, claiming that the Commissioner has no authority to stop the insurance company from overcharging homeowners. According to FTCR, the Supreme Court’s decision undermines insurers’ efforts to remain above the law, opening the door for enforcement actions against rogue insurers and likely leading to new rules clamping down on bad behavior in the insurance industry.

The “use it and lose it” system has been controversial because it allowed insurance companies to refuse to renew customers after they file an insurance claim, regardless of whether the insurer paid the claim or if the claim was entirely legitimate and did not increase future risk. Consumer groups and Commissioner Garamendi have sought to end the practice. The industry has successfully fought legislative proposals and had pointed to the AIA vs. Garamendi ruling to block regulatory enforcement actions.

Washington

Medical Malpractice Measure Debated

Washingtonians are debating a measure that seeks to lower liability costs and could drastically affect the state’s medical and insurance communities. I-336 is on the state’s November ballot and would establish a supplemental malpractice insurance fund, as well as mandate public hearings before malpractice insurance rate increases, if passed.

Dillon Malone, author of I-336 believes the measure’s focus is aimed at 4 percent of doctors in Washington responsible for more than half of the state’s malpractice payouts.

“If you want to lower the cost of medical malpractice insurance, part of the solution should be lower the incidents of malpractice itself,” Malone told KOMO News. “If they [doctors] lose three jury awards in 10 years, then their license may be revoked.”

Stephen Tarnoff, with the “No on 336” campaign, said the measure was, “highly punitive.”

Whether I-336 is the answer or not, just like another medical malpractice measure I-330, those on both sides of I-336 believe that reform is necessary.

That’s a “good summation,” Tarnoff said. “There are many states that have much more comprehensive and appropriate patient safety and quality improvement legislation.”

Safeco Insurance CEO Retiring; Will Run for U.S. Senate

Insurance executive Mike McGavick, who is retiring as chief executive officer of Safeco Insurance, has announced his bid for Senator of Washington.

For the past three months, McGavick said he has been exploring whether he had enough support and financial backing. To date, he has raised more than $800,000. He will be running against Democratic candidate Maria Cantwell.

Attorney General Rob McKenna, former U.S. Rep. Jennifer Dunn, and state Senate Republican Leader Bill Finkbeiner are backing McGavick. McGavick said he plans to split his time between campaigning and working at Safeco for the remainder of 2005.

Hawaii

Hawaii Insurance Division Approves 18.2 Percent Workers’ Comp Decrease

The state of Hawaii Insurance Division has approved an 18.2 percent decrease in the cost of workers’ compensation claims, which likely will lower premiums for Hawaii companies beginning Jan. 1.

According to the division, the cost of claims for health and indemnity paid by insurance companies in 2003 dropped because there were fewer claims. Health costs are increasing, but at a slower price. Additionally, costs for indemnity (wage loss and other losses workers suffer) are also rising, but because there are fewer claims, the costs insurers pay are lower.

“The drop in the number of claims is primarily due to businesses implementing safe workplace programs, which the Insurance Division has been encouraging them to do in order to get a discount in their work comp rates,” said J.P. Schmidt, insurance commissioner. “It’s very good news that we’re having a reduction, but we need to keep in mind that we were the fourth-highest premium in the United States … so there are still very important reforms in the work comp system that we need to undertake.”

Hawaii Crop Losses Amount to $11.4 Million Per Year

Hawaii farmers report crop theft cost them $11.4 million a year, according to Pacific Business News.

That amount is equal to 9 percent of Hawaii annual net farm income of $122 million as estimated by the U.S. Department of Agriculture’s Economic Research Service, according to the paper. The amount includes security expenses, as well as actual losses, of which: $1.95 million was for theft of crops and property, $2.02 million was for vandalism and $7.4 million was for security costs.

There were 39,632 trespassing incidents on farms across Hawaii last year of which 1,237 were reported to law enforcement, according a survey funded by the Hawaii Department of Agriculture and conducted by the National Agricultural Statistics Service Hawaii Field Office with the cooperation of the Hawaii Farm Bureau Federation. The number of arrests resulting from reported theft and/or vandalism is estimated at 119, resulting in 34 people facing guilty verdicts.

The survey asked farmers if they were satisfied with law enforcement response to the issue. Almost two-thirds were neutral on the issue, while 11 percent said they were satisfied or very satisfied and 25 percent said they were unsatisfied or very unsatisfied. Farmers were similarly divided on whether they thought farm theft and vandalism was getting better or worse.

Arizona

Arizona Auto Insurance Rates Rising

Automobile ins-urance costs in Arizona are on the rise and remain on the high side nationally. The average rate has gone up 16.6 percent in Arizona in the latest five-year measurement, although the increase is lower than the national average.

Campaigns to cut red-light running, slow speeders and cut drunken driving are paying off, and the industry remains competitive, with more than 270 firms licensed to write auto policies in Arizona, according to James Frederikson, executive director of the Arizona Insurance Information Association.

However, the state’s auto-theft rate remains high, 136 percent above the national average, which contributed to the average six-month Arizona auto premium of $920.38, the 13th-highest cost in the United States as measured in 2003 by the National Association of Insurance Commissioners. From 1999 to 2003, the latest year for which data is available, commission statistics show Arizona costs rose 16.6 percent, below the national average of 19.9 percent.

Industry observers say there are several trends that explain the moderation in insurance price increases. Crashes dropped 2.5 percent from 2002 to 2003, according to the latest data Frederikson analyzed. He credits red-light cameras, photo radar and police enforcement as reasons for improvements. However, he notes more accidents are occurring on speedier freeways. Those driving conditions help keep Arizona in the upper tier of states when it comes to auto insurance costs.

Speeding drivers typically cause more severe collisions, driving up the cost of medical payments and repairs. Arizona insurers pay $563 more than the national average to cover medical costs due to collisions, Frederikson said. The state also has a higher rate of people claiming to be injured in an accident: 19.5 percent greater than the national average, he said.

Frederikson said he suspects that’s because Arizonans also like to hire attorneys to represent them in collision claims: 42 percent of Arizonans get a lawyer to represent them, compared with 24 percent nationally.

Utah

Judge Rules Insurance Carrier Doesn’t Have to Pay ClearOne

A federal judge has ruled that an insurance carrier does not have to help ClearOne Commun-ications cover a $10 million settlement with its shareholders.

U.S. District Court Judge Tina Campbell said ClearOne, a maker of audio and video conferencing equipment, had provided the National Union Fire Insurance Co. of Pittsburgh the same doctored financial statements that it gave the Securities and Exchange Commission and its stockholders.

Under Utah law, an insurance provider can rescind its coverage if it relied on such misrepresentations in issuing its policy.

“We were reasonably confident going in that the court would ultimately grant a recession (of the policy),” said Salt Lake City attorney Phillip S. Ferguson, who represents National Union.

The SEC filed a lawsuit three years ago alleging the company and two of its top executives schemed to inflate ClearOne’s share price by doctoring its books.

ClearOne eventually settled that dispute without receiving a fine or admitting wrongdoing.

However, a class-action lawsuit by shareholders raised many of the same allegations as the SEC’s action. ClearOne agreed to pay $5 million in cash and issue an additional 1.2 million shares to settle with it stockholders.

ClearOne recently received a notice from the SEC’s Salt Lake City that it wants to revoke the registration of the company’s stock because if failed to file current annual and quarterly reports. If SEC officials in Washington adopt the recommendation of the Salt Lake City office, ClearOne’s stock will no longer trade.

ClearOne filed a statement with the SEC detailing its reasons why it believes it isn’t necessary for regulators to revoke its stock to protect shareholders.

It has not made the statement public or revealed it to its shareholders.

“That is private information,” ClearOne spokeswoman DeLonie Call said. “We’re not going to make it public.”

The company has promised its shareholders that it will complete the audit of its 2004 financial results before year end and that it will submit its 2005 documents by the end of the first quarter in 2006.

In August, ClearOne finally filed its financial reports for the years questioned by the SEC in its lawsuit. The reports revealed the company had gone from a $3.6 million profit in fiscal 2001 to a $35.9 million loss in fiscal 2003.

Copyright 2005 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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