Written by Gary Reinhardt, Esq.
The Virginia Administrative Code provides the framework for insurer market conduct. Recently, the Bureau of Insurance (BOI) proposed changes to Chapter 400 of the Virginia Administrative Code, “Rules Governing Unfair Claim Settlement Practices.” These “rules” currently “define certain minimum standards which, if violated with such frequency as to indicate a general business practice, will be deemed to constitute unfair claim settlement practices.” These changes could significantly impact market conduct issues and audits.
The proposed amendments touch just about every aspect of the regulations. For starters, the BOI even changes the “Scope” of 14 VACS-400-10 to “Purpose and Scope” and provides a lengthier explanation of these regulations: “The purpose of this chapter is to set forth minimum standards for the acknowledgement, investigation, and disposition of claims . . .”
The BOI tweaked many of the definitions contained in 14 VAC5-400-20. The BOI adds definitions for such things as “Documentation,” “Estimate” and even “Person.” Of particular interest is the addition of a “Proof of Loss” definition. While most view “Proof of Loss” as a form completed by the insured as part of the insured’s policy obligations, the BOI actually broadens this definition, defining “Proof of Loss” literally. The proposed definition is “all necessary documentation reasonably required by the insurer to make a determination of benefit or coverage.” This will certainly create confusion during audits when the BOI seeks “Proof of Loss” in the file.
The amendments look to expand the carrier’s duties during audits in amended 14VAC5-400-30. While the current version is vague, the proposed revision requires an insurer keep records so that “each document within the claim file shall be noted as to date received, date processed or date mailed.” The amendments also formally require an insurer to keep all claim files for “a minimum, the three preceding years.”
In 14VAC54-400-40, Misrepresentation of Policy Provisions, the amendments rewrite the intention of section C. Currently, C limits an insurer’s ability to place time limits on “written notice of loss or proof of loss” not contained in the policy. The amendments remove that language, relabel it as Section D, and state that “No insurer shall deny a claim based on the failure of a claimant to give written notice of loss required by the policy provisions unless the failure to comply with the notice requirements prejudices the insurer’s rights.” This amendment seems to impact policy notice provisions requiring an insured to give notice of a loss or occurrence “as soon as practicable” or other similar language. If that is the case, it could run afoul of how many courts interpret notice provisions for property coverage and some liability coverage.
A big issue throughout these proposed amendments comes with timeframe adjustments. Currently, a carrier has “10 working days” to respond to a claimant’s contact, “15 working days” to respond to the BOI (14VAC5-400-50) and “15 working days” to accept or deny a claim or tell a claimant why the insurer needs additional time to make a coverage determination (14VAC5-400-60). The proposed amendments now use calendar days instead of working days. This requires swifter responses from the carrier to comply with market conduct standards.
The BOI added some additional language to the section applicable to auto insurers, 14VAC5-400-80. In new sections G and H, the BOI imposes a “reasonable notice” standard for insurers to advise claimants/insureds that the carrier will no longer pay storage or rental car fees. In G, the new section reads as if the carrier will be responsible for any towing fees associated with removing the insured’s vehicle from the storage lot.
Finally, a new section, 14VAC5-400-90 applies to property policies. This section requires a carrier to give a copy of a repair estimate to the insured. If this revision passes, the carrier should get an insured to sign a specific document acknowledging receipt of the estimate.
These rules pertain solely to market conduct and cannot be the basis for a private cause of action. However, failure to adhere to these rules could be evidence in actions alleging bad faith. (See Va. Code Ann. §38.2-510 B. “No violation of this section shall of itself be deemed to create any cause of action in favor of any person other than the Commission; but nothing in this subsection shall impair the right of any person to seek redress at law or equity for any conduct for which action may be brought.”)
The BOI placed the case, “In the Matter of Amending the Rules Governing Unfair Claim Settlement Practices” on the docket with case number ISN-2016-00265. A hearing regarding these changes is currently set for January 31, 2017, after being continued from January 12, 2017. You can find all of these changes, cluttered with strike outs and underlines, here: http://www.scc.virginia.gov/docketsearch/DOCS/3cm%2401!.PDF. The Bureau Insurance docket for these changes can be reviewed at http://www.scc.virginia.gov/docketsearch/#caseActivity/136669