Model Law Targets Judicial Regulation of Insurance

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NU Online News Service, August 25, 12:06 p.m.EDT?An insurers' trade group said it is mounting acampaign to promote a model law setting procedures to handleoccasions when court findings are at odds with state insuranceregulations.

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Indianapolis-based National Association of Mutual InsuranceCompanies said it is proposing a "Fair Notice and Market StabilityModel Act."

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The group said it is an attempt to remedy inequities anduncertainties that can occur when judges and juries decide casesthat conflict with state insurance regulations,

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"We are going to get the word out to the NAIC and to NCOIL;we're going to get commissioners' and legislators' attention andhave them review the model law," said Peter A. Bisbecos, NAMIC'sdirector of legal and regulatory affairs.

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Mr. Bisbecos noted that, as the model law proposal is so new, hehas yet to receive feedback from commissioners or legislators andhas had no response from the plaintiffs' bar.

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The NAMIC model law states that its purpose is to:

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? Eliminate uncertainty by requiring the state insurancedepartment to immediately issue a new regulation if a regulation isstricken down by a court in that state.

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? Issue an emergency regulation when a statute is stricken downand the legislature is not in session.

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? Provide insurers with defenses when their conduct wascompliant with a statute, regulation, finding, order or emergencyregulation, or when the law is unclear due to a court judgment.

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? Prohibit the use of a court judgment from a different state ifthe laws conflict or the facts differ materially.

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According to a paper entitled "The Damaging Effect of Regulationof Insurance by the Courts," issued by NAMIC and authored by Mr.Bisbecos and attorney Victor E. Schwartz, the problem that themodel law seeks to address occurs when case law diverges fromregulatory law.

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For instance, the paper cites the case of Avery v. StateFarm, a class action in which an Illinois state court requiredthe use of Original Equipment Manufacturer (OEM) parts whenrepairing automobiles, even though such parts were not required bythe state insurance department.

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