Arbitration An Issue For NCOIL Market Conduct Model

By Jim Connolly

NU Online News Service, Feb. 12, 3:32 p.m.EST?A national state legislators' group constructing amodel market conduct surveillance law is considering a provision tolet insurers seek arbitration when they dispute a conductruling.[@@]

Discussions on the arbitration issue have been held by theNational Conference of Insurance Legislators, Albany, N.Y.

The organization has put its Market Conduct Surveillance modelact draft on a fast track for possible adoption when the fullmembership meets two weeks from now..

According to NCOIL, a model act enacted by state legislatureswould serve to quell criticism that states are not effectivelyregulating insurers' market conduct activities.

Toward that end, a vote is possible at the organization's Feb.26-29 meeting in San Antonio.

Legislators involved in the drafting process recently held adiscussion with regulators and insurers' representatives.

Carriers support an arbitration provision because they areconcerned that a state insurance department has the potential to bea "prosecutor, judge and jury," according to Don Cleasby, assistantvice president and assistant general counsel with the PropertyCasualty Insurers Association of America, Des Plaines, Ill.

Mr. Cleasby said, in such cases, there is a cost to litigate adispute. So, there needs to be an avenue of redress that is "shortof full scale litigation," he said.

In his view, such a system would not be a delegation of acommissioner's authority because it could only be used if acomponent of a market conduct review was outside of thatauthority.

Mr. Cleasby noted that such a provision is in use in Florida.However, NCOIL President Sen. Steven Geller, D-Hallandale Beach,Fla., noted that the language under discussion is a lot broaderthan the arbitration provision in Florida.

The insurance commissioner in Florida is actually trying to havethe arbitration law repealed, Mr. Geller noted.

"I trust you are not saying that if there is a finding of actualwrongdoing, that you should toss out that finding of wrongdoing?"Mr. Geller said.

There are current checks, including a hearing and court process,according to Joel Ario, Oregon insurance administrator andSecretary-Treasurer of the National Association of InsuranceCommissioners, Kansas City, Mo.

If arbitration is included in the model, then there is thepotential for loss of uniformity because arbitrators could reachdifferent conclusions on similar issues, Mr. Ario added.

Mr. Geller said that if the insurance industry is looking forguidance, arbitration would eliminate guidance established by courtdecisions that create a precedence of law.

Insurers countered that if an insurance company needs to waitfor a year or more before a market conduct report is concluded,there is not proper redress if a commissioner acts outside of hisauthority.

A question was raised over why arbitration would be after thefact rather than when the exam is in process and any allegedactivity exceeding authority is being conducted.

The courts in any state would say that if authority is exceeded,the department could not continue that action, Mr. Ario said.

The issue of a regulator taking action within his authority, butaction considered excessive, was also raised by companies.

It comes down to a discussion of who is the appropriatedecision-maker, Mr. Ario responded. "You want an arbitrator, and Iwant a court of law. These kinds of discussions give me heartburnand would give NAIC enormous heartburn."

Arbitration would affect regulatory authority and raise concernamong regulators, he continued. Mr. Ario added that there is a"disconnect" on this issue, since many times regulators have beenasked to weigh in on cases against insurers. In such instances, hesaid, the argument put forth is that regulators should be grantedmore deference.

Mr. Connolly is senior editor with the National UnderwriterLife edition.