Model Law Targets Judicial Regulation of Insurance

Model Law Targets Judicial Regulation of Insurance

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

Indianapolis-based National Association of Mutual Insurance Companies said it is proposing a "Fair Notice and Market Stability Model Act."

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

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

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

The NAMIC model law states that its purpose is to:

? Eliminate uncertainty by requiring the state insurance department to immediately issue a new regulation if a regulation is stricken down by a court in that state.

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

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

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

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

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