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NCOIL Writes to State Chief Judges Urging Action on ALI’s Proposed Liability Insurance Restatement

February 27, 2018

The Honorable Thomas A. Balmer
Chief Justice
Oregon Supreme Court
1163 State Street
Salem, OR 97301-2563

Dear Chief Balmer:

On behalf of the National Council of Insurance Legislators (NCOIL), I write to alert you to a project that The American Law Institute (ALI) has underway, which proposes to change basic and settled tenets of insurance law, including in ways that directly conflict with existing state statutory provisions. We therefore believe that your input as a State Judicial Presiding Jurist, is both appropriate and needed before this project – the proposed Restatement of the Law, Liability Insurance, which would purport to set out the common law of insurance nationwide – is finalized.

As you know, the ALI publishes Restatements of the Law, model statutes, and Principles of the Law, which are respected publications that have been cited in published cases over 201,000 times. The ALI now plans to present a Restatement of the Law, Liability Insurance for final approval at its annual meeting in May 2018 addressing, for the first time, the common law governing liability insurance and proposing black-letter rules. Early drafts of this ALI Restatement project, however, have been criticized as designed not to restate the common law as it stands, but to advance aspirational goals of changing the law. NCOIL’s review of drafts of the ALI project found that there are numerous places where this ALI Restatement project draft abandons settled insurance law rules and contradicts state statutory provisions governing insurance, and it repeatedly proposes new law.

Following months of efforts by NCOIL engaging with the ALI to address concerns with this proposed Restatement project, I write to express our continuing concerns and to urge your careful review of this project. NCOIL’s efforts to engage the ALI in dialogue about our concerns have included a May 2017 letter to ALI detailing concerns; an invitation to hear from this project’s ALI Reporter, who addressed a general session of NCOIL’s Annual Meeting in November 2017; and subsequent correspondence both in late 2017 and early 2018 with ALI representatives about NCOIL’s concerns.

Specifically, NCOIL has pressed the ALI to make substantive changes to the project draft to avoid interference with the role of legislators in making state policy when it comes to insurance. Although ALI recently has stated that its leadership group, the ALI Council, directed that some provisions in the draft will be changed, NCOIL has received no assurance that many of the problematic areas that NOCIL has highlighted will be modified.

This ALI liability insurance Restatement project is still in progress. There is time for further modification. Thus, we believe it is critical that you review and evaluate this ALI project before it is finalized due to your standing with the ALI as a State Judicial Presiding Jurist. NCOIL has pointed out specific Sections of the proposed Restatement where modification is needed to avoid impinging on the legislative prerogative. For example:

Section 8, which imposes a new “substantiality” requirement for determining whether an insured’s misrepresentation was material. This is at odds with existing statutory and common law governing misrepresentations and rescission. Existing law asks whether or not — but for the misrepresentation — a policy would have been issued on the same terms, not whether it would have been issued only on substantially different terms.

Section 27, which imposes responsibility for damages for insurer breach of settlement duties, including punitive damages awarded against the policyholder. This proposed rule disregards individual states’ public policy determinations concerning insurability of punitive damages and is unsupported by any common law rulings.

Section 36, which would excuse late notice under a claims-made and reported policy if the claim is considered to be too close to the end of the policy term to permit reporting during the policy period and the policy does not contain an extended reporting period. This overrides insurance contract terms. Whether an extended reporting period should be required in this context is a legislative judgment.

Sections 48, 49(3) and 51(1), which introduce broad one-way fee-shifting and override legislative determinations concerning whether and when there should be any departure from the American Rule concerning who bears litigation fees.

I also want to point out that, in addition to the above provisions, NCOIL is very concerned with provisions of the proposed Restatement that go beyond established common law, which include:

Section 3, which departs from the settled insurance law “plain meaning” rule. The alternative approach proposed in the Restatement is a departure from settled insurance law in approximately 40 states.

Section 13(3) which forbids reliance on undisputed non-liability facts in determining the duty to defend, except in four cases. This alters the common law standards and would force a defense of uncovered claims, thereby increasing costs.

Section 19, which imposes a forfeiture of coverage defense for certain breaches of the duty to defend. It is a punitive provision and does not adhere to the common law.

In light of these concerns, NCOIL’s Executive Committee has passed a Resolution expressing its deep concerns regarding this ALI project, a copy of which is enclosed with this letter. As NCOIL considers further steps consistent with the enclosed Resolution, and as the ALI project progresses, I write both to urge your involvement in the ALI process, and to express NCOIL’s hope that significant changes will be made to the direction of the ALI Restatement of the Law, Liability Insurance project to avoid the problems seen in the drafts produced to date.

Developing a body of aspirational common law, particularly from a group as influential as the ALI, could lead State legislatures to step in to codify existing liability insurance law. Given the significance of this ALI project to insurance law and the insurance system, we believe that members of the judiciary should exercise their right to evaluate and be heard on this ALI Restatement project. This project presents significant questions about the expectations for a Restatement to serve as a resource for the judiciary on the existing common law, as well as the implications of allowing such a project to tread on legislative prerogatives and propose serious changes in insurance law.

We therefore urge you to alert your colleagues to our concerns and to engage with the ALI on the important issues raised by this proposed Restatement project.

Very truly yours,

Thomas B. Considine
Chief Executive Officer
National Council of Insurance Legislators

National Council of Insurance Legislators (NCOIL)

Resolution Encouraging the American Law Institute to Materially Change the Proposed Restatement of the Law of Liability Insurance
Adopted by the NCOIL Property and Casualty Insurance Committee on November 16, 2017, and the NCOIL Executive Committee on January 5, 2018
Sponsored by Sen. Neil Breslin (NY) and Sen. James Seward (NY)

WHEREAS, the American Law Institute (“ALI”) intends to publish a Restatement of the Law of Liability Insurance (the “proposed Restatement” or “Restatement”); and

WHEREAS, ALI Restatements have traditionally been held in high regard and relied upon by courts as authoritative references regarding established rules and principles of law; and

WHEREAS, such Restatements, in the ALI’s own words, are “primarily addressed to courts” and “aim at clear formulations of common law and its statutory elements of variations and reflect the law as it presently stands or might appropriately be stated by a court” (ALI Style Guide, 2015); and

WHEREAS, NCOIL members became aware of this proposed Restatement in the spring of 2017 and upon review of the draft, identified several areas which, contrary to the above-stated intent, are inconsistent with well-established law and purport to address matters which are properly within the legislative prerogative; and

WHEREAS, NCOIL, through its Chief Executive Officer, Thomas B. Considine, addressed a letter dated May 4, 2017 (“the Considine letter”), to ALI leadership in an effort to identify particular concerns and effect reconsideration of and significant changes to the proposed Restatement; and

WHEREAS, NCOIL members were encouraged to learn that, after receipt of the Considine letter, ALI leadership made the decision to defer a final vote on the proposed Restatement until 2018, with the recognition that the Restatement would benefit from another year of work; and

WHEREAS, the subsequent drafts of the proposed Restatement have reflected only very minor changes to the insurance legal rules proposed and have no substantive changes in the rules proposed on the topics of particular concern identified in the Considine letter; and

WHEREAS, during its General Session on November 16, 2017, NCOIL hosted a panel presentation which included the proposed Restatement’s lead Reporter, and it was apparent from Reporter commentary that no or minimal substantive changes to the proposed Restatement are anticipated before it is submitted to the ALI Council and then the ALI membership for final approval;

NOW, THEREFORE, BE IT RESOLVED THAT NCOIL urges ALI leadership, members and Reporters to abide by ALI’s own acknowledgement that “[a]n unelected body like The American Law Institute has limited competence and no special authority to make major innovations in matters of public policy,” and instead afford proper respect to the legislative prerogative, and the expertise and the jurisdiction of NCOIL members; and

BE IT FURTHER RESOLVED THAT NCOIL urges the ALI to effect meaningful change to the proposed Restatement so that it is consistent with well-established insurance law and respectful of the role of state legislators in establishing insurance legal standards and practice; and

BE IT FURTHER RESOLVED THAT, should such meaningful change not occur prior to its final approval, NCOIL urges that the Restatement of the Law of Liability Insurance should not be afforded recognition by courts as an authoritative reference regarding established rules and principles of insurance law, as Restatements traditionally have been afforded; and

BE IT FURTHER RESOLVED THAT NCOIL urges state legislators across the country to adopt resolutions declaring that this Restatement should not be afforded such recognition by courts; and

BE IT FURTHER RESOLVED THAT NCOIL shall develop and promulgate, as appropriate, model legislation intended to maintain the viability, predictability and optimal functionality of the insurance market and its practices; and

BE IT FURTHER RESOLVED THAT, a copy of this Resolution shall be sent to ALI Leadership, the reporters of the Restatement of the Law of Liability Insurance, and further published in such a manner to reach and inform ALI members, and

BE IT FINALLY RESOLVED THAT a copy of this Resolution expressing NCOIL’s concern that the Restatement does not afford proper respect to the expertise and jurisdiction of state insurance legislators and that the Restatement of the Law of Liability Insurance should not be afforded recognition as an authoritative reference, shall be sent to state chief justices, state legislative leaders and members of the committees with jurisdiction over insurance public policy, as well as to all state insurance regulators.

NCOIL To Have Star-Studded Speakers At 2018 Spring Meeting

For Immediate Release
February 27, 2018
Contact: Paul Penna
(732) 201-4133

NCOIL TO HAVE STAR-STUDDED SPEAKERS AT 2018 SPRING MEETING
Georgia Governor Deal, Florida CFO Patronis Highlight Special Guests

Manasquan, NJ – NCOIL is proud to announce a star-studded list of speakers and presenters at the 2018 Spring Meeting in Atlanta, GA including Georgia Governor Nathan Deal, who will keynote the Welcome Breakfast; Florida CFO Jimmy Patronis, who will keynote the luncheon on Saturday; CCIIO Director and CMS Deputy Director Randy Pate who will participate in the Health General Session “Health Insurance Exchanges in the Trump Administration- Are Waivers the Solution?”; and FEMA Assistant Administrator for Federal Insurance David Maurstad will participate in the Joint State-Federal Relations and International Issues Committee “Discussion on the Status of the NFIP and State Flood Insurance Markets.”

“Tom and the team have done a fantastic job putting together a comprehensive agenda with top-tier speakers and presenters” said AR Sen. Jason Rapert, NCOIL President. “Our continued growth as an organization is in no small measure because of these speakers and agendas that are insightful,
educational and allow us to solve policy challenges.”

In addition, 5 Insurance Commissioners/Directors are registered to attend the Spring Meeting including SC Director and NAIC Vice-President Raymond Farmer; NC Commissioner Mike Causey; MS Commissioner Mike Chaney; GA Commissioner Ralph Hudgens; and NH Commissioner Roger Sevigny. There will be 11 Insurance Departments represented at the Spring Meeting. Registration for the Spring Meeting has already exceeded total registrants for last year’s Spring Meeting in New Orleans and there are more than 45 legislators from 24 states registered.

“We strive to continually listen to and learn from speakers that can help NCOIL legislators make informed public-policy decisions on a variety of insurance subject matters” said Commissioner Tom Considine, NCOIL CEO. “That, coupled with the timeliness with which NCOIL deals with policy
matters, has led to reinvigorated NCOIL meetings.”

The 2018 NCOIL Spring Meeting will be held at the Whitley in Buckhead, GA from March 2nd to March 4th. A full agenda can be viewed here –https://ncoil.org/wp-content/uploads/2018/02/AtlantaSchedule-2-22-18.pdf and registration is still open at www.ncoil.org/register-now.

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NCOIL is a legislative organization comprised principally of legislators serving on state insurance and financial institutions
committees around the nation. NCOIL writes Model Laws in insurance, works to both preserve the state jurisdiction over
insurance as established by the McCarran-Ferguson Act seventy years ago and to serve as an educational forum for public
policy makers and interested parties. Founded in 1969, NCOIL works to assert the prerogative of legislators in making
state policy when it comes to insurance and educate state legislators on current and perennial insurance issues.

Florida CFO Jimmy Patronis to Keynote NCOIL Luncheon

For Immediate Release
February 15, 2018
Contact: Paul Penna
(732) 201-4133

FLORIDA CFO JIMMY PATRONIS TO KEYNOTE NCOIL LUNCHEON
Constitutional Officer Oversees Insurance Consumer Protection, Financial Regulation & Insurance
Licensing in Florida

Manasquan, NJ – Commissioner Tom Considine, NCOIL CEO announces that Florida CFO Jimmy Patronis will be the Keynote Speaker at the 2018 Spring Meeting luncheon on March 3rd.

“We are excited to hear from CFO Patronis about the innovative ideas he has brought forward to protect first responders, combat insurance fraud, and highlight financial literacy” said Considine. “At NCOIL, we strive to bring interesting policy-based speakers that will educate legislators and participants. CFO Patronis fits the bill and will provide a dynamic lunchtime address.”

As CFO, Patronis has advocated legislation that would make mental health services more accessible and affordable for first responders, worked with insurance companies to ensure consumers are protected after natural disasters, fought and highlighted insurance fraud to prevent further occurrences
and introduced tools that ensure financial literacy.

Registration for the 2018 NCOIL Spring Meeting is open at www.ncoil.org/register-now. The meeting takes place at the Whitley Buckhead from March 2nd – 4th. The NCOIL Workers’ Compensation Committee is scheduled to discuss Presumptive PTSD legislation on March 2nd at 3:15 p.m.

About Jimmy Patronis:

Jimmy Patronis is a native Floridian born and raised in Panama City. He earned his associate degree in restaurant management from Gulf Coast Community College and a bachelor’s degree in political science from Florida State University. He is a partner in a family-owned seafood restaurant called Captain Anderson’s that will celebrate its 50th anniversary in 2017. His public service career began with experience as an intern in the Florida Senate and the United Kingdom’s House of Commons. Following his college graduation, Governor Lawton Chiles appointed him to the Florida Elections Commission, and he was later reappointed by Governor Jeb Bush.

He served in the Florida House of Representatives from 2006 to 2014, representing his hometown region in the Florida Panhandle. He was appointed to serve on Florida’s Public Service Commission, as well as the Constitution Revision Commission, which meets once every twenty years to propose
changes to the state constitution.

He is recognized for outstanding leadership in his hometown of Panama City and throughout Florida. Committed to active civic engagement and business development, he has chaired the Greater Panama City Beach Chamber of Commerce’s Economic Development Council, served on the board of the Bay County Economic Development Alliance, the Salvation Army Advisory Board, the Bay County Chapter of the Florida Restaurant and Lodging Association, and as national president for the Florida Vocational Industrial Clubs of America. He is a former trustee of the Gulf Coast Medical Center, and former director of the Bay Medical Center’s Foundation and Gulf Coast Community College Foundation Board.

He was instrumental in the establishment of the Northwest Florida Beaches International Airport in Panama City and has served as chairman and a board member of Bay County-Panama City International Airport and Industrial District.

He and wife Katie are proud parents to two sons, Jimmy Theo III and John Michael.

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NCOIL to Discuss Potential Regulation of Pharmacy Benefit Managers (PBMs)

For Immediate Release
February 9, 2018
Contact: Paul Penna
(732) 201-4133

NCOIL TO DISCUSS POTENTIAL REGULATION OF PHARMACY BENEFIT MANAGERS (PBMs)
Need for Model Law to Ensure Consumers Are Protected

Manasquan, NJ – Arkansas Senator Jason Rapert, NCOIL President, announced that the NCOIL Health, Long-Term Care and Health Retirement Issues Committee will be taking a comprehensive look at Pharmacy Benefit Managers (PBMs) at the 2018 NCOIL Spring Meeting in Atlanta, Georgia from March 2nd – 4th with the goal of learning about how PBMs operate and potentially introducing an NCOIL Model Act to have PBMs overseen by state insurance commissioners. PBMs are third-party administrators of prescription drug programs for government programs and self-insured entities.

“I have heard from pharmacists and pharmacy owners in Arkansas and across the country that PBMs reimburse them less than their cost for the medicine, while the PBMs receive far more from the drug companies,” said Rapert, “the time is now to examine the business model of PBMs” he continued.

Confirmed organizations contributing comments include National Community Pharmacists Association, Pharmaceutical Care Management Association, Arkansas Pharmacists Association and America’s Health Insurance Plans. Additional organizations will be added before the committee
convenes.

“NCOIL will examine all aspects of PBMs to educate legislators” said Commissioner Tom Considine, NCOIL CEO. “If a model law is necessary to ensure proper oversight and consumer protections we will draft and debate it through 2018, but will move expeditiously; not drag this process out
indefinitely.”

“PBMs operate outside of typical insurance oversight and it appears that their customers are not receiving benefits to which they are entitled, and the PBM industry threatens the very business model of the local community pharmacy,” concluded Rapert.

The Health Committee is scheduled to meet at 8:45 a.m. on Sunday, March 4th at the Whitley Hotel in Buckhead. Registration and hotel information can be found at www.ncoil.org./register-now.

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CCIIO Director Randy Pate to Participate in 2018 NCOIL Spring Meeting Health General Session

For Immediate Release
January 30, 2018
Contact: Paul Penna
(732) 201-4133

CCIIO DIRECTOR RANDY PATE TO PARTICIPATE IN 2018 NCOIL SPRING MEETING HEALTH GENERAL SESSION

Health Insurance Exchanges in the Trump Administration – Are Waivers the Solution?

Manasquan, NJ – Commissioner Tom Considine announced that Randy Pate, Director of the Center for Consumer Information and Insurance Oversight (CCIIO) and Deputy Administrator, Centers for Medicare and Medicaid Services (CMS) will participate in the Health General Session for the 2018 Spring Meeting in Atlanta, GA titled “Health Insurance Exchanges in the Trump Administration – Are Waivers the Solution?”

“We are proud Director Pate will be lending his expertise at the 2018 NCOIL Spring Meeting Health General Session.” said Considine. “NCOIL continues to examine complex state-based challenges to improve insurance public policy. We strive to hear from experts that have attempted, and in some cases, achieved, innovative solutions” Considine concluded.

Additional panelists will include Angela Lowther, Executive Director of the Arkansas Health Insurance Marketplace; Cecil Bykerk, Executive Director of the Alaska Comprehensive Health Insurance Association and Iowa Comprehensive Health Association; and Laura Colbert, Executive Director of
Georgians for a Healthy Future.

The General Session is scheduled for Friday, March 2nd from 2:30 p.m. to 4:15 p.m. Registration for the meeting is open and can be located here – www.ncoil.org/register-now.

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NCOIL to Discuss Problems Facing Life Insurance Premium Increases

For Immediate Release
January 23, 2018
Contact: Paul Penna
(732) 201-4133

NCOIL TO DISCUSS PROBLEMS FACING LIFE INSURANCE PREMIUM INCREASES
New York Assemblywoman Pam Hunter to Offer Recently Issued New York Regulations as a Starting
Point for Discussion/Development of NCOIL Model Law

Manasquan, N.J. – The NCOIL Life Insurance and Financial Planning Committee will meet at the 2018 Spring Meeting and discuss legislative solutions to unjustified life insurance premium increases.

“This is another example of NCOIL’s emphasis to discuss emerging issues in a timely manner” said Commissioner Tom Considine, NCOIL CEO. “Our continued goal is to educate legislators and determine if a legislative solution is necessary.”

This issue has been examined in New York where the Department of Financial Services (NY DFS) issued regulations that go into effect in March to better protect consumers from increases. The regulations provide the NY DFS the ability to review increases prior to implementation to ensure
compliance with relevant law.

“This is a subject that is worthy of discussion during the Life Insurance & Financial Planning Committee” said AR Rep. Deborah Ferguson, Chair of the NCOIL Life Insurance & Financial Planning Committee. “I look forward to learning more about this issue and hearing about proposed legislative solutions to the problems consumers are facing.” Participants will be announced in the coming days.

“This is an important issue to ensure consumers are protected from unjustified increases” said NY Assemblywoman Pam Hunter. “I am grateful that the committee will discuss potential legislative solutions. The regulations from my home State serve as a solid foundation to begin these
discussions.”

A copy of the New York regulations is below. Interested parties are encouraged to submit any comments to NCOIL Legislative Director, Will Melofchik at [email protected].

The Life Insurance & Financial Planning Committee is scheduled to meet on Saturday, March 3 at 9 a.m. at The Whitley in Atlanta, GA. Registration is open and can be found at www.ncoil.org/register-now/.

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NCOIL is a national legislative organization comprised principally of legislators serving on state insurance and financial
institutions committees around the nation. NCOIL writes Model Laws in insurance and financial services, works to both
preserve the state jurisdiction over insurance as established by the McCarran-Ferguson Act seventy years ago and to serve
as an educational forum for public policy makers and interested parties. Founded in 1969, NCOIL works to assert the
prerogative of legislators in making state policy when it comes to insurance and educate state legislators on current and
perennial insurance issues.

NEW YORK STATE
DEPARTMENT OF FINANCIAL SERVICES
11 NYCRR 48
(INSURANCE REGULATION 210)

LIFE INSURANCE AND ANNUITY NON-GUARANTEED ELEMENTS

I, Maria T. Vullo, Superintendent of Financial Services, pursuant to the authority granted by Sections 202 and 302 of the Financial Services Law, and Sections 301, 1106, 1113, 3201, 3203, 3209, 3219, 3220, 3223, 4216, 4221, 4223, 4224, 4231, 4232, 4238, 4239, 4240, 4511, 4513, 4518 and Article 24 of the Insurance Law, do hereby promulgate a new Part 48 of Title 11 of the Official Compilation of Codes, Rules and Regulations of the State of New York (Insurance Regulation 210) to take effect on March 19, 2018, to read as follows:

(ALL MATERIAL IS NEW)

Section 48.0 Purpose, scope, and unfair trade practice.

(a) The purpose of this Part is to establish standards for the determination and any readjustment of nonguaranteed elements that may vary at the insurer’s discretion for life insurance policies and annuity contracts delivered or issued for delivery in this State, to ensure that policy forms do not contain provisions that may mislead policy owners as to the crediting of non-guaranteed amounts or the deduction of non-guaranteed charges, and to ensure that the issuance of any policy forms would not be prejudicial to the interest of owners or members or contain provisions that are unjust, unfair or inequitable.

(b) (1) This Part shall apply to any determination or readjustment of non-guaranteed elements occurring on or after the effective date of this Part, including any readjustment of nonguaranteed elements occurring on or after the effective date of this Part for life insurance policies or annuity contracts issued prior to the March 19, 2018.

(2) This Part shall apply to all individual life insurance policies, individual annuity contracts, and applicable group certificates, except as otherwise provided in this Part.

(3) This Part shall not apply to any corporate or bank owned individual life insurance policy or group life insurance certificate authorized by Insurance Law section 3205(a)(1)(B) or

(d) where all benefits under the policy are payable to the corporate or bank policy owner.

(c) A contravention of this Part shall be deemed to be an unfair method of competition or an unfair or deceptive act and practice in the conduct of the business of insurance in this State, and shall be deemed to be a trade practice constituting a determined violation, as defined in section 2402(c) of the Insurance Law, in violation of section 2403.

Section 48.1 Definitions.

For purposes of this Part:

(a) Adverse change in the current scale of non-guaranteed elements means any change in the current scale of non-guaranteed elements that increases or may increase a charge or reduces or may reduce a benefit to the policy owner, other than a change in a credited interest rate or an index account parameter based entirely on changes in the insurer’s expected investment income or hedging costs.

(b) Anticipated experience factor means an assumption as to a future experience factor as determined by the insurer.

(1) the group life insurance certificate:

(i) may develop nonforfeiture values that are affected by non-guaranteed elements; or

(ii) the certificate holder is required to contribute to the cost of the certificate, the certificate allows for changes in the rate of the certificate holder’s contributions, and there is a guaranteed maximum contribution scale that exceeds five years; or

(2) the group annuity certificate is:

(i) funding individual retirement accounts or individual retirement annuities, as defined in the Internal Revenue Code at 26 U.S.C. section 408,

(ii) funding annuities in accordance with the Internal Revenue Code at 26 U.S.C. section 403(b), or

(iii) providing a plan of retirement annuities under which the payments are derived substantially from funds contributed by the person covered.

(d) Board-approved criteria means written criteria adopted by the board of directors of an insurer, or a committee of directors thereof, that are the basis for determining non-guaranteed charges or benefits.

(e) Class of policies means all policies with similar expectations as to anticipated experience factors that are grouped together for the purpose of determining non-guaranteed elements.

(f) Current scale of non-guaranteed elements means the non-guaranteed elements that apply to a policy in the current and future years unless changed by the insurer.

(g) Exempt policy provision means a dividend provision, a provision providing for readjustments described in Insurance Law section 4231(g)(1)(C), or any other policy provision that gives the insurer discretion and that in the superintendent’s opinion is not designed to allocate to the policy a portion of the anticipated financial experience of an insurer on the policy, such as minimum transaction amounts, maximum number of transactions, or limits on premiums or deposits. Exempt policy provision also means any separate account expense charge providing solely for the actual expense incurred, without profit to the insurer.

(h) Experience factor means a value or set of values consisting of investment income, mortality, morbidity, persistency, or expense that represents the insurer’s financial experience on a class of policies. Profit margin is not an experience factor.

(i) Indeterminate premium policy means a life insurance policy as described in Insurance Law section 4231(g)(1)(D).

(j) Index account parameter means a feature impacting the net credited rate for an index account such as participation rate, cap, or spread.

(k) Insurer means an authorized life insurance company or authorized fraternal benefit society.

(l) Non-guaranteed element means any element within a policy provision other than an exempt policy provision that may be changed at the insurer’s discretion without the consent or request of the policy owner and that affects the policy charges or benefits. Non-guaranteed element includes
indeterminate premium policy rates, expense and benefit charge rates, interest crediting rates, cost of insurance rates, and index account parameter, but shall not include elements that are not within the insurer’s discretion, such as the pass-through of variable fund returns. Non-guaranteed element does not include current annuity purchase rates.

(m) Policy means any individual life insurance policy, individual annuity contract, or applicable group certificate.

(n) Pricing cell means a collection of policies for which the same anticipated experience factors are used to determine the same current scale of non-guaranteed elements.

(o) Profit margin means expected revenues less costs.

(p) Qualified actuary means an individual who:

(1) is a member in good standing of the American Academy of Actuaries;

(2) meets the American Academy of Actuaries qualification standards for statements of actuarial opinion required by this Part;

(3) is an associate or fellow by examination of either the Society of Actuaries or the Institute of Actuaries or is designated in writing by the superintendent as a qualified actuary after written application to the superintendent providing evidence of the actuary’s actuarial knowledge and experience of non-guaranteed elements, and stating that the actuary is familiar with the New York Insurance Law and regulations promulgated thereunder and the current standards of practice of the American Academy of Actuaries involving non-guaranteed charges or benefits;

(4) has not been found by a commissioner or superintendent of insurance of any state, following appropriate notice and hearing, within the past five years, to:

(i) have violated any provision of, or any obligation imposed by, any law in the course of his or her dealings as a qualified actuary; or

(ii) have demonstrated his or her incompetence, lack of cooperation, or untrustworthiness to act as a qualified actuary;

(5) has not resigned or been removed as a qualified actuary within the past five years as a result of acts or omissions indicated in any adverse report on examination or as a result of a failure to adhere to generally acceptable actuarial standards; and

(6) has not been convicted of any crime involving fraudulent or dishonest practices within the past five years.

Section 48.2 Non-guaranteed elements.

(a) (1) An insurer shall establish board-approved criteria for determining non-guaranteed charges or benefits.

(2) An insurer, in the assignment of policies into classes of policies, for the purpose of determining nonguaranteed elements:

(i) shall not unfairly discriminate among policies with similar expectations as to anticipated experience factors;

(ii) shall assign policies into classes based on sound actuarial principles;

(iii) shall assign policies with material differences in expected costs into different classes;

(iv) shall have sufficient refinement of classes to place reasonable limits on antiselection;

(v) shall distinguish between policies when the cost of guarantees are not similar. For example, policies with a low guaranteed interest rate shall not be combined with policies with a high guaranteed interest rate;

(vi) may distinguish based on the date of policy issue with different issue periods;

(vii) shall not result in a change to a less favorable underwriting risk class applied to existing coverage than the underwriting risk class assigned to existing coverage prior to the change; and

(viii) shall be consistent with the language of the policy and the solicitation, advertising or other material provided by the insurer to the policy owner.

(b) Readjustments to non-guaranteed elements on existing policies shall be subject to the following:

(1) At the time of revision of a scale for an indeterminate premium policy, the difference from the point of revision between the revised scale and the scale in effect at the later of the date of issue or the date of last revision, shall be reasonably based on the difference from the point in time of revision and application of the anticipated experience factors underlying the two scales with respect to expenses, mortality, policy claims, taxes, investment income and lapses.

(2) At the time of revision of a scale of non-guaranteed elements for a policy subject to Insurance Law section 4232(b), the difference from the point in time of revision and application of the revised scale and the scale in effect at the later of the date of issue or the date of last revision, shall be reasonably based on the difference from the point of revision of the anticipated experience factors underlying the two scales with respect to expenses, mortality, investment income and persistency.

(3) At the time of revision of a scale of non-guaranteed elements for a policy subject to Insurance Law section 4232(a), the difference from the point in time of revision and application of the revised scale and the scale in effect at the later of the date of issue or the date of last revision, shall be reasonably based on the difference from the point of revision of the anticipated experience factors underlying the two scales with respect to expenses, mortality and investment income.

(4) At the time of revision of a scale of non-guaranteed elements for a policy not subject to paragraphs (1), (2), or (3) of this subdivision, the difference from the point in time of revision and application of the revised scale and the scale in effect at the later of the date of issue or the date of last revision, shall be reasonably based on the difference from the point of revision of the anticipated experience factors underlying the two scales.

(5) At the time of revision of a scale of non-guaranteed elements for a policy, an insurer shall not increase the profit margins at any policy duration above the profit margin projected at that duration at the date of issue of the policy, unless approved by the superintendent upon a finding that the increase is necessary due to the financial condition of the insurer.

(6) A readjustment to non-guaranteed elements on existing policies shall be based on expectations as to future experience and shall not recoup past losses. Experience factors from the later of the date of issue or the date of last revision and up until the time of new revision shall be assumed to equal the anticipated experience factors as of the later of the date of issue or the date of last revision.

(c) Any readjustment in non-guaranteed charges and benefits on in-force policies resulting from a change in board-approved criteria shall meet the requirements of subdivision (b) of this section.

(d) An insurer shall not consider cost of reinsurance agreements or other third party agreements, when changing non-guaranteed elements, if it would cause an adverse impact on nonguaranteed elements of any existing policy, unless the costs are consistent with the insurer’s own
anticipated experience assumptions and the insurer would have made the changes to the nonguaranteed elements in the absence of the costs.

(e) An insurer’s procedures for readjustment of non-guaranteed elements on an assumed or acquired class of business shall not be less favorable to policy owners than the procedures used by the original insurer when the policies in the class were issued, unless approved by the superintendent upon a finding that the increase is necessary due to the financial condition of the original insurer.

(f) The board-approved criteria shall:

(1) require that anticipated experience factors be consistent with experience that is credible and relevant, if any;

(2) require the examination, as needed, of anticipated experience factors at specified times and under specified conditions but no less frequently than required by law to determine if the factors are reasonable; and

(3) include a statement of the maximum period, not to exceed five years, between reviews of anticipated experience factors and non-guaranteed elements for reasonableness.

(g) In addition to the criteria required under subdivision (f) of this section, board-approved criteria also may include:

(1) an amount of in-force policies, either by number issued or premium volume, below which no changes in an anticipated experience factor will be made because of a lack of statistical credibility;

(2) a minimum change in anticipated experience factors that will result in readjustment to non-guaranteed elements, provided that the minimum change: shall be reasonable in relation to the value provided to the policy owner and the cost of implementing a change in nonguaranteed
elements; and the minimum change in anticipated experience factors that cause a readjustment in non-guaranteed elements favorable to policy owners shall be no greater than the minimum change in anticipated experience factors that causes a change in non-guaranteed elements adverse to policy owners; and

(3) averaging, smoothing, interpolating and rounding that are reasonable in relation to the values and benefits provided and that do not have a bias toward reducing policy benefits or values.

(h) Board-approved criteria shall place reasonable limits on the policy owner’s exposure to higher unit expense costs from discontinued sales or a volume of sales significantly less than anticipated.

Section 48.3 Disclosure to policy owner.

(a) An insurer shall provide to a policy owner (other than an owner of a group annuity certificate used to fund an employee benefit plan within the meaning of the federal Employee Retirement Income Security Act of 1974, 29 U.S.C. section 1001 et seq.) the current scale of nonguaranteed
elements no later than the date of issue, either in the policy, application, illustration of the policy as sold, or a special disclosure document, in a manner that will allow an easy comparison to the corresponding guarantees. For the purpose of Part 53 of this Title (Insurance Regulation 74), the
special disclosure document by itself shall not constitute an illustration.

(b) An insurer shall provide a disclosure document to a policy owner (other than an owner of a group annuity certificate used to fund an employee benefit plan within the meaning of the federal Employee Retirement Income Security Act of 1974, 29 U.S.C. section 1001 et seq.) at least 60 days
prior to any adverse change in the current scale of non-guaranteed elements. Using the same terminology that is used in the policy, the disclosure shall contain:

(1) the non-guaranteed elements that have changed;

(2) the new current scale of non-guaranteed elements;

(3) the prior current scale of non-guaranteed elements since the last disclosure;

(4) the guaranteed scale; and

(5) a prominent description of any adverse change in the current scale of nonguaranteed elements identifying the nature of the change and that the change is adverse or the conditions under which the change would be adverse.

Section 48.4 Filing and records requirements.

(a) An insurer shall obtain an actuarial memorandum signed and dated by a qualified actuary:

(1) prior to the issuance of any policy of a new policy form;

(2) prior to the issuance of any policy of a policy form for which the non-guaranteed
elements have been changed for only new issues; and

(3) prior to any change to the non-guaranteed elements of an existing policy other than a change in a credited interest rate or an index account parameter based entirely on changes in the insurer’s expected investment income or hedging costs.

(b) The actuarial memorandum shall contain the following as applicable:

(1) sufficient detail of the pricing assumptions by duration of the current scale of nonguaranteed elements and the anticipated experience factors on which they are based. The information shall include:

(i) premium;

(ii) gross investment returns;

(iii) investment expenses;

(iv) investment defaults;

(v) credited rates and index account parameters;

(vi) policyholder behavior assumptions including option elections and persistency;

(vii) benefits paid;

(viii) mortality rates;

(ix) morbidity rates;

(x) insurance expenses, including the allocation of tax, sale, maintenance, service and overhead expenses;

(xi) profit margins;

(xii) policy expense charges; and

(xiii) policy benefit charges;

(2) a description of the experience or other information used to determine the anticipated experience factors, including a description of the reasoning and analysis that led from the information to the anticipated experience factors;

(3) a description of the processes and methods used in the determination of nonguaranteed elements for a pricing cell from the anticipated experience factors;

(4) any formula used to determine index account parameters and a description of the index formula;

(5) the investment strategy, which shall include:

(i) a description of the method used for the allocation of investment income, specifying how trading gains and losses due to interest rate changes are allocated; and

(ii) a description of the methods used to assess deductions from gross earned rates for default, investment expenses and risk items; and

(6) a statement signed and dated by a qualified actuary that the anticipated experience factors in the actuarial memorandum are reasonable assumptions and are the basis for determining the scale of non-guaranteed elements, and that the actuary is familiar with the current requirements in this State for non-guaranteed elements.

(c) An insurer shall have procedures in place to require a qualified actuary acting on the insurer’s behalf to notify the insurer of any action specified in sections 48.1(p)(4), (5), and (6) of this Part. The insurer shall notify the superintendent of the action taken against the actuary as soon as practicable.

(d) An insurer shall file any adverse change in the current scale of non-guaranteed elements applicable to existing life insurance policies or applicable group life insurance certificates with the superintendent at least 120 days prior to implementation. The filing shall include:

(1) the actuarial memorandum required by subdivision (a) of this section;

(2) a tabulation of all proposed changes in the current scale of non-guaranteed elements by pricing cell giving the current scale of non-guaranteed elements, the proposed current scale of non-guaranteed elements, and the changes in the non-guaranteed elements;

(3) a tabulation of all changes in the anticipated experience factors and profit margins by pricing cell giving the prior anticipated experience factors and profit margins, the current anticipated experience factors and profit margins, and the changes in the anticipated experience factors and profit margins;

(4) a narrative description of experience or other rationale that explain the changes in anticipated experience factors; and

(5) for pricing cells, a narrative description of any changes in the methods or procedures for determining non-guaranteed elements from the anticipated experience factors.

(e) By May 1 of each year, the insurer shall file with the superintendent a listing of any adverse change in the current scale of non-guaranteed elements of any existing policy that occurred in the prior calendar year. The filing shall include a statement signed and dated by a qualified actuary that all
changes were in compliance with this Part.

(f) An insurer shall provide all records required by this Part to the Superintendent upon request.

(g) The insurer shall maintain in its records, for six years after the termination of the last policy subject to the board-approved criteria, the written documentation of the determination of non-guaranteed elements required by this Part. The insurer shall maintain the written documentation in accordance with section 243.3 of this Title (Insurance Regulation 152).

NCOIL Property & Casualty Insurance Committee to Have Interim Call on January 29th

For Immediate Release
January 22, 2017
Contact: Paul Penna
(732) 201-4133

NCOIL PROPERTY & CASUALTY INSURANCE COMMITTEE TO HAVE INTERIM
CALL ON JANUARY 29TH
Further Discuss Amendments to NCOIL’s Model State Uniform Building Code

Manasquan, NJ – Chairman Richard Smith (GA) will be hosting an interim NCOIL Property & Casualty Insurance Committee conference call meeting on Monday, January 29th, from 2:00 p.m. to 3:30 p.m. (EST).

“There was a robust discussion on this issue at the NCOIL Annual Meeting” said Smith. “We wish to continue the dialogue with legislators and interested parties.”

The purpose of the interim conference call meeting is to further discuss amendments to NCOIL’s Model State Uniform Building Code (Model) sponsored by Rep. Lewis Moore (OK).

The Model provides for the adoption of a single, unified State building code that applies to the design, construction, erection, alteration, modification, repair, or demolition of public or private buildings, structures, or facilities, and establishes a Building Code Commission (Commission) to perform those ends. The Model states that counties and municipalities, upon review and approval by the Commission, may adopt amendments to the technical provisions of the State building code that apply solely within their jurisdictions and that provide for more stringent requirements than those specified
in the State building code.

The proposed amendments to the Model are based on legislation adopted in States such as Oklahoma, Mississippi, and Alabama that requires insurance companies to provide a discount, rate reduction or other adjustment for insurable property built to resist loss due to tornado or catastrophic windstorm events, only when the company determines the discount or reduction to be actuarially justified and there is sufficient and credible evidence of cost savings which can be attributed to the construction standards set forth in the legislation.

“The proposed amendments to the existing NCOIL model will make it stronger” said Moore. “After listening to further comments, I hope the committee will consider adopting the amendments at our Summer Meeting in Salt Lake City.”

You can view the proposed amendments and register here. Interested parties are encouraged to submit any comments on the proposed amendments to NCOIL Legislative Director Will Melofchik at [email protected].

Dial-in information and a formal agenda will be circulated prior to the call.

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NCOIL Responds to ALI’s Request for Examples of Proposed Restatement’s Conflict with State Statutes

January 16, 2018

Richard Revesz Stephanie Middleton
Director Deputy Director
American Law Institute American Law Institute
4025 Chestnut St. 4025 Chestnut St.
Philadelphia, PA, 19104 Philadelphia, PA, 19104

Dear Director Revesz and Deputy Director Middleton:

Thank you for your willingness to engage in a continued dialogue regarding the American Law Institute’s (ALI) Proposed Restatement of the Law of Liability Insurance (Proposed Restatement). Per your request, below are some examples of where the National Council of Insurance Legislators (NCOIL) believes the Proposed Restatement directly conflicts with existing State statutory law.

Section 8 – Materiality Requirement

Section 8 of the Proposed Restatement provides:

A misrepresentation by or on behalf of an insured during the application for, or renewal of, an insurance policy is material only if, in the absence of the misrepresentation, a reasonable insurer in this insurer’s position would not have issued the policy or would have issued the policy only under substantially different terms. (emphasis added)

This section imposes a new “substantiality” requirement for determining whether an insured’s misrepresentation was material. This is at odds with existing statutory law governing misrepresentations and rescission. Existing law asks whether or not — but for the misrepresentation — a policy would have been issued on the same terms, not whether it would have been issued only on substantially different terms. Examples of such statutes include:

• Delaware Code Ann. Tit. 18 § 2711
• Florida Stat. Ann. Title 37, § 627.409
• Ga. Code Ann. § 33-24-7
• S.D. Codified Laws § 58-11-44
• Wyo. Stat. Ann. § 26-15-109; Wyo. Stat. Ann. § 26-35-202

Section 27 – Damages for Breach of the Duty to Make Reasonable Settlement Decisions

Section 27 of the Proposed Restatement provides:

An insurer that breaches the duty to make reasonable settlement decisions is subject to liability for any foreseeable harm caused by the breach, including the full amount of damages assessed against the insured in the underlying legal action, without regard to the policy limits.

Comment (e) to Section 27 and its corresponding Reporter’s Note specifically reference punitive damages as among the type of damages that an insurer can be required to pay for a breach of settlement duties.

States have different approaches to the insurability of punitive damages. Some States expressly prohibit insuring punitive damages by statute: Ohio Rev. Code § 3937.182 precludes coverage for punitive damages under UIM policies and policies of casualty or liability insurance. Other States permit insurers to write coverage for punitive damages only in certain instances: Kansas Stat. Ann. § 40-2,115 states that it does not violate public policy to provide coverage for punitive damages that are assessed against an insured on the basis of vicarious liability without the actual prior knowledge of such insured.

Other States regulate the circumstances under which coverage written for punitive damages will be recognized. Montana Code Ann. § 33-15-317 provides that “[i]nsurance coverage does not extend to punitive or exemplary damages unless expressly included by the contract of insurance.” Hawaii Rev. Stat. § 431:10-240 provides that “[c]overage under any policy of insurance issued in this state shall not be construed to provide coverage for punitive damages unless specifically included.”

Section 35(2) – Notice and Reporting Conditions

Section 35(2) of the Proposed Restatement provides:

With respect to claims first reported after the conclusion of the claim-reporting period in a claims-made-and-reported policy, the failure of the insured to satisfy the claim-reporting condition in the policy excuses an insurer from performance under the policy without regard to prejudice, except when:

(a) The policy does not contain an extended reporting period;

(b) The claim at issue is made too close to the end of the policy period to allow the insured a reasonable time to satisfy the condition; and

Legislation addressing whether and to what extent extended reporting periods are required in claims-made-and-reported policies has been adopted in AK, CO, CT, HA, NY, NC and VA. While some States require the inclusion of an extended reporting period in the policy, or require the insurer to allow for the purchase of such additional coverage, none relieve the insureds from the terms of its policy.

Sections 47, 48, 50 – One-way attorneys’ fee-shifting

Section 47(3) provides that available remedies include court costs or attorneys’ fees to a prevailing party “when provided by legislation.” However, other proposed Restatement sections override the legislative determination and expand fee recovery to additional situations. Section 47(4) calls for insurers to pay an insured’s coverage litigation costs when an insured “substantially prevails in a declaratory-judgment action brought by an insurer.” Section 48(3) calls for insurers to assume the insured’s attorneys’ fees if the insured successfully establishes that the insurer breached its duty to defend or pay defense costs with respect to an underlying claim. Section 50(1) calls for the award of “attorneys’ fees and other costs incurred by the insured in the legal action establishing an insurer’s breach” as damages upon a finding of bad faith. Thus, instead of endorsing fee-shifting “when provided by legislation,” the proposed Restatement supplants the legislature by seeking to establish its own rules regarding fee-shifting.

As the Reporters acknowledged in Section 47(3), several States have statutes that provide for recovery of attorneys’ fees in coverage litigation, but said statutes differ in important ways. Some statutes are drafted broadly: N.H. Rev. Stat. Ann. § 491-22-b states “In any action to determine coverage of an insurance policy pursuant to [Section] 491:22, if the insured prevails in such action, he shall receive court costs and reasonable attorneys’ fees from the insurer.” Other statutes are drafted differently: Va. Code Ann. § 38.2-209 permits recovery only in cases in which an insurance company, not acting in good faith, failed to make payments to the policyholder; La. Rev. Stat. Ann. § 22:1220 entitles a policyholder to recover attorneys’ fees if the insurer has acted in bad faith, for example, “[m]isrepresenting pertinent facts or insurance policy provisions relating to any coverage at issue.”

Furthermore, some States which typically do not permit shifting of attorneys’ fees allow policyholders to recover but only under specific circumstances: Del. Code Ann. Tit. 18, § 4102 provides for reasonable attorney fees for “property insurance” coverage actions.

This list likely is illustrative, not exhaustive, as I have not had the opportunity to compare the proposed Restatement to the insurance legislative framework in all fifty states. I also wish to note that in addition to the abovementioned statutory examples, NCOIL is very concerned with the provisions in the proposed Restatement that go beyond established common law. Developing a body of aspirational common law, particularly from a group as influential as the ALI, is extremely problematic and can lead to State legislatures across the country stepping in to codify their relevant liability insurance law, as was done previously with premises liability law and the ALI’s Restatement Third of Torts: Liability for Physical and Emotional Harm (2012).

NCOIL hopes that the abovementioned conflicts will be considered during the upcoming meeting of the ALI Council and the necessary changes will be made.

If you have any questions or wish to discuss this matter further, please do not hesitate to contact me.

Sincerely,

William D. Melofchik
Legislative Director
National Council of Insurance Legislators

cc: Hon. Thomas B. Considine
Chief Executive Officer
National Council of Insurance Legislators

NCOIL Executive Committee Adopts Resolution Urging the ALI to Change Proposed Liability Insurance Restatement

For Immediate Release
January 8, 2017
Contact: Paul Penna
(732) 201-4133

NCOIL EXECUTIVE COMMITTEE ADOPTS RESOLUTION URGING THE ALI TO CHANGE PROPOSED LIABILITY INSURANCE RESTATEMENT
Measure Held to Communicate with ALI, Without Success

Manasquan, NJ – The NCOIL Executive Committee met in public session via teleconference on January 5th to consider the Resolution Encouraging the American Law Institute to Materially Change the Proposed Restatement of the Law of Liability Insurance. The bipartisan Resolution, sponsored by NY Sens. Neil Breslin and James Seward, passed the NCOIL Property and Casualty Committee at the Annual Meeting in November but was held by the Executive Committee which directed Commissioner Tom Considine, NCOIL CEO, to communicate with the ALI. Based on the latest version, the ALI has not materially changed the proposed Restatement. The Executive Committee passed the Resolution unanimously.

“It is exceptionally disappointing that this has occurred” said AR Sen. Jason Rapert, NCOIL President. “We have worked tirelessly and in good faith, but the ALI seems intent on its ‘NEWStatement,’ which misrepresents the law as written.”

“It is disappointing that, despite our repeated efforts, there continues to be little movement to make this a true ‘Restatement’ of existing majority law” said NCOIL CEO Commissioner Tom Considine. “NCOIL legislators made clear during both the general session and the Property & Casualty Insurance Committee that they closely guard legislative prerogatives as their right. The letter cites more than 10 instances where the proposed Restatement goes beyond existing law. We appear to be at the point where NCOIL will take action to ensure that the proposed Restatement is not afforded recognition as an authoritative reference.”

After a General Session at the 2017 NCOIL Annual Meeting titled ‘A Restatement or NEWstatement? Examining the ALI’s Proposed Restatement of the Law of Liability Insurance’ with a panel consisting of the proposed Restatement’s Reporter Professor Tom Baker, and project participants Professor Peter Kochenburger, Laura Foggan, and Victor Schwartz, NCOIL expressed renewed concern that the proposed Restatement will proceed towards final adoption by the ALI Council without any meaningful changes.

NCOIL will transmit the adopted resolution to ALI leadership, with one final pause for ALI modification before transmitting it with other appropriate communications to State Chief Justices, State legislative leaders, members of the committees with jurisdiction over insurance public policy, as well as to State insurance regulators. A full copy of the letter, ALI response and the Resolution are below.

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NCOIL is a legislative organization comprised principally of legislators serving on state insurance and financial institutions
committees around the nation. NCOIL writes Model Laws in insurance and financial services, works to both preserve the
state jurisdiction over insurance as established by the McCarran-Ferguson Act seventy years ago and to serve as an
educational forum for public policy makers and interested parties. Founded in 1969, NCOIL works to assert the
prerogative of legislators in making state policy when it comes to insurance and educate state legislators on current and
perennial insurance issues.

November 28, 2017

David F. Levi Roberta Cooper Ramo
President Council Chair
American Law Institute American Law Institute
4025 Chestnut St. 4025 Chestnut St.
Philadelphia, PA, 19104 Philadelphia, PA, 19104

Dear President Levi and ALI Council Chair Ramo:

I write on behalf of the National Council of Insurance Legislators (NCOIL)1 to express NCOIL’s serious and continuing concern regarding the American Law Institute’s (ALI) proposed Restatement of the Law of Liability Insurance (the proposed Restatement).

NCOIL, as you may know, is a national legislative organization created by and comprised of State legislators, principally serving on State insurance and financial institutions committees around the nation. NCOIL develops model laws in insurance and financial services, works to preserve the State jurisdiction over insurance as established by the McCarran-Ferguson Act seventy years ago, and serves as an educational forum for public policy makers and interested parties. Founded in 1969, NCOIL works to assert the primacy of legislators in making State policy when it comes to insurance and educate State legislators on current and longstanding insurance issues. I ask that you share NCOIL’s concerns with the proposed Restatement’s Advisers, ALI Council, and others in its leadership.

On May 5, 2017, NCOIL wrote to Director Revesz and Deputy Director Middleton, with copies to the proposed Restatement’s Reporters Professors Tom Baker and Kyle Logue, about the need to ensure that all interested voices are truly heard, considered, and reflected in a work that is a Restatement of the Law, Liability Insurance, in substance as well as title. Our May 5, 2017 letters explained that several of the proposed Restatement’s provisions go beyond established insurance law and thus were of immediate concern because they appear to address matters which are properly within the legislative prerogative. We gave specific examples of these concerns, where the draft proposes significant changes to current common law. These included its departure from the plain meaning rule (Section 3), the forfeiture of coverage defenses for certain breaches of the duty to defend (Section 19), the breadth of damages to be payable by insurers for failure to settle (Section 27), and the imposition of one-way fee-shifting (Sections 48, 49(3) and 51(1)). As our May 5, 2017 letter stated, such matters are, in the first instance, the primary prerogative of the legislative branch of government, which consists of publicly elected and accountable individuals who must consider all relevant policy considerations such as the impact of proposed law changes on the availability and affordability of insurance. We note that the fact that state legislatures have not adopted provisions in these areas noted above, as well as others, does not mean they have not considered them.

NCOIL made clear that we would welcome representatives of the ALI to come to an NCOIL meeting to have a dialogue around the Restatement issues. After our letter was sent, the ALI leadership decided to defer the organization’s final consideration of the proposed Restatement, indicating that the project would benefit from another year of work. NCOIL applauded this recognition of the need for additional work on this project. Consistent with that decision, and to follow up on its concerns, NCOIL invited the proposed Restatement Reporters to speak during a general session at its Annual meeting earlier this month in Phoenix, AZ. During that general session on November 16, 2017, NCOIL heard Professor Tom Baker and project participants, Laura Foggan, Peter Kochenburger, and Victor Schwartz, speak about the Restatement project and its approach to liability insurance
law.

NCOIL members, who are State insurance legislators from across the country, then had the opportunity to ask questions about the Restatement; they expressed deep concerns about the project’s intrusion into making law – rather than restating or reporting the law of liability insurance. It was apparent from the general session at NCOIL’s Annual meeting earlier this month that the Reporters continue to adhere to the same approach in going beyond established law that NCOIL expressed concern about in our May 5 letter. Specifically, in multiple instances, the proposed Restatement engages in law-making by announcing new legal rules rather than articulating the law impartially according to existing precedents. The ALI Reporters should not be exercising the legislative power to make new laws through Restatement proposals. In fact, in the general session at its Annual meeting earlier this month, NCOIL learned that the Black-letter rules on the topics highlighted in our May 5 letter, as well as other Sections of concern, remain unchanged even as this ALI project apparently nears completion.

Following the general session described above, at the meeting of the NCOIL Property-Casualty Insurance Committee, the proposed Restatement was again a topic of discussion, and a Resolution was passed by unanimous voice vote by said Committee. On behalf of the NCOIL Executive Committee, I
am writing to share this Resolution with you, and to again urge the ALI to conform the Restatement to existing law, and to defer to legislative bodies better suited to make public policy determinations on areas of new law.

Again, we would like to point out specific Sections of the proposed Restatement that impinge on the legislative prerogative, which include:

Section 12, which introduces new liability on insurers, for defense counsel’s malpractice, if defense counsel is an employee of the insurer and/or if the insurer “has undertaken a duty to select defense counsel [or] . . . to supervise defense counsel and the insurer breaches that duty.” This newly invented
rule creates tension with attorneys’ professional responsibilities to exercise independent professional judgment and would alter the relationship between defense counsel, their clients, and insurers;

Section 13(3), which forbids reliance on undisputed non-liability facts in determining the duty to defend, except in four cases. This alters the common law standards and would force a defense of uncovered claims, thereby increasing costs;

Section 18, which introduces a new rule that, with limited exceptions, the duty to defend terminates only on court adjudication that the insurer does not have a duty to defend the action. This requirement for court approval does not reflect existing law, and will increase costs and burdens on courts and the parties with unnecessary litigation;

Section 19, which imposes a forfeiture of coverage defense for certain breaches of the duty to defend. It is a punitive provision and does not adhere to the common law;

Section 48, which ignores the important principle of mitigation of damages, although the common law provides that any party seeking recovery under a contract has a duty to mitigate its damages and cannot recover for loss it could have avoided without undue risk, burden or humiliation; and

NCOIL respectfully requests that the ALI carefully review what positions the Restatement should take, as well as when it should defer action to legislative determinations. This request is driven in no small part by the weight the ALI’s Restatements have historically been accorded by the bench and bar. Should there not be meaningful change in the proposed Restatement, NCOIL will be forced to oppose the proposed Restatement project as a misrepresentation of the law of liability insurance, and as a usurpation of lawmaking authority from State insurance legislators. Shortly, NCOIL’s Executive Committee will be determining what action to take in relation to the Property-Casualty Insurance Committee Resolution enclosed, including the role NCOIL will take alerting State Chief Justices, State legislative leaders and members of the committees with jurisdiction over insurance public policy, as well as State insurance regulators, about NCOIL’s concern that the Restatement is, in numerous places, a misstatement of the law, and does not afford proper respect to the expertise and jurisdiction of State insurance legislators and should not be afforded recognition as an authoritative reference.

Before taking any further action, NCOIL writes now to ensure that the ALI leadership has the opportunity to consider these concerns. We request the courtesy of a reply on or before December 18, 2017, addressing whether or not the ALI will make the type of substantive changes NCOIL has requested to avoid interference with the role of legislators in making State policy when it comes to insurance.

Very truly yours,
Thomas B. Considine
Chief Executive Officer – National Council of Insurance Legislators

National Council of Insurance Legislators (NCOIL)

Resolution Encouraging the American Law Institute to Materially Change the Proposed Restatement of the Law of Liability Insurance

Adopted by the NCOIL Property and Casualty Insurance Committee on November 16, 2017, and the NCOIL Executive Committee on January 5, 2018.
Sponsored by Sen. Neil Breslin (NY) and Sen. James Seward (NY)

WHEREAS, the American Law Institute (“ALI”) intends to publish a Restatement of the Law of Liability Insurance (the “proposed Restatement” or “Restatement”); and

WHEREAS, ALI Restatements have traditionally been held in high regard and relied upon by courts as authoritative references regarding established rules and principles of law; and

NOW, THEREFORE, BE IT RESOLVED THAT NCOIL urges ALI leadership, members and Reporters to abide by ALI’s own acknowledgement that “[a]n unelected body like The American Law Institute has limited competence and no special authority to make major innovations in matters of
public policy,” and instead afford proper respect to the legislative prerogative, and the expertise and the jurisdiction of NCOIL members; and

BE IT FURTHER RESOLVED THAT, should such meaningful change not occur prior to its final approval, NCOIL urges that the Restatement of the Law of Liability Insurance should not be afforded recognition by courts as an authoritative reference regarding established rules and principles of
insurance law, as Restatements traditionally have been afforded; and

BE IT FURTHER RESOLVED THAT NCOIL urges state legislators across the country to adopt resolutions declaring that this Restatement should not be afforded such recognition by courts; and

BE IT FINALLY RESOLVED THAT a copy of this Resolution expressing NCOIL’s concern that the Restatement does not afford proper respect to the expertise and jurisdiction of state insurance legislators and that the Restatement of the Law of Liability Insurance should not be afforded
recognition as an authoritative reference, shall be sent to state chief justices, state legislative leaders and members of the committees with jurisdiction over insurance public policy, as well as to all state insurance regulators.

12/6/17 ALI Response:
https://ncoil.org/wp-content/uploads/2017/12/Considine-response-ltr-Dec6-2017.pdf

12/12/17 NCOIL response to letter:
https://ncoil.org/wp-content/uploads/2017/12/ALI-letter-12-12-17.pdf

NCOIL President Announces 2018 Committee Leadership

For Immediate Release
January 5, 2018
Contact: Paul Penna
(732) 201-4133

NCOIL PRESIDENT ANNOUNCES 2018 COMMITTEE LEADERSHIP
Strong Group of Insurance Legislators to Lead Committees

Manasquan, NJ – AR Senator Jason Rapert, NCOIL President, announced the lineup of Committee Chairs and Vice Chairs for 2018. “This is a geographically and politically diverse group of legislative leaders that will help NCOIL continue to examine and enact sound insurance public policy” said Rapert. “I am confident these legislators will do an admirable job leading these committees throughout the year at NCOIL meetings and interim committee calls.”

The NCOIL Chairs and Vice Chairs are:

Financial Services: Property & Casualty Insurance:
Chair: Sen. Bob Hackett, OH Chair: Rep. Richard Smith, GA
Vice Chair: Rep. Sam Kito, AK Vice Chair: Rep. David Santiago, FL

Health, Long Term Care & Health State-Federal Relations:
Retirement Issues: Chair: Sen. Dan “Blade” Morrish, LA
Chair: Asm. Kevin Cahill, NY Vice Chair: Rep. Glen Mulready, OK
Vice Chair: Rep. Tom Oliverson, M.D., TX

International Insurance Issues: Workers’ Compensation Insurance:
Chair: Sen. Jerry Klein, ND Chair: Rep. Marguerite Quinn, PA
Vice Chair: Sen. Roger Picard, RI Vice Chair: Asw. Maggie Carlton, NV

Life Insurance & Financial Planning: Articles of Incorporation/Bylaws:
Chair: Rep Deborah Ferguson, AR Chair: Rep. Joe Fischer, KY
Vice Chair: Rep. Joe Hoppe, MN Vice Chair: Rep. Martin Carbaugh, IN

NCOIL-NAIC Dialogue: Audit Committee:
Chair: Rep. Bill Botzow, VT Chair: Rep. Bill Botzow, VT
Vice Chair: Sen. Jim Seward, NY Vice Chair: Asm. Ken Cooley, CA

Budget Committee: Business Planning:
Chair: Rep. Matt Lehman, IN Chair: Sen. Jason Rapert, AR
Vice Chair: Rep. Lois Delmore, ND Vice Chair: Rep. Bill Botzow, VT

Nominating:
Chair: Rep. Steve Riggs, KY*
Vice Chair: Sen. Travis Holdman, IN

The NCOIL Spring Meeting will be in Atlanta, GA from March 2 – 4 at the Buckhead Whitley.

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NCOIL is a legislative organization comprised principally of legislators serving on state insurance and financial
institutions committees around the nation. NCOIL writes Model Laws in insurance and financial services, works to
both preserve the state jurisdiction over insurance as established by the McCarran-Ferguson Act seventy years ago
and to serve as an educational forum for public policy makers and interested parties. Founded in 1969, NCOIL works
to assert the prerogative of legislators in making state policy when it comes to insurance and educate state legislators
on current and perennial insurance issues.