REPORT TITLE:
Insurance; 3d Party


DESCRIPTION:
Includes as unfair or deceptive practice that of refusing to
provide past or future coverage or limiting claim.  Exempts
reimbursement of past benefits where damages are recovered or
where there is reimbursement or subrogation otherwise provided by
law.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           2563
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO INSURANCE.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  Section 431:13-103, Hawaii Revised Statutes, is
 
 2 amended by amending subsection (a) to read as follows:
 
 3      "(a)  The following are defined as unfair methods of
 
 4 competition and unfair or deceptive acts or practices in the
 
 5 business of insurance:
 
 6      (1)  Misrepresentations and false advertising of insurance
 
 7           policies.  Making, issuing, circulating, or causing to
 
 8           be made, issued, or circulated, any estimate,
 
 9           illustration, circular, statement, sales presentation,
 
10           omission, or comparison which:
 
11           (A)  Misrepresents the benefits, advantages,
 
12                conditions, or terms of any insurance policy;
 
13           (B)  Misrepresents the dividends or share of the
 
14                surplus to be received on any insurance policy;
 
15           (C)  Makes any false or misleading statement as to the
 
16                dividends or share of surplus previously paid on
 
17                any insurance policy;
 
18           (D)  Is misleading or is a misrepresentation as to the
 
19                financial condition of any insurer, or as to the
 

 
Page 2                                                     
                                     S.B. NO.           2563
                                                        
                                                        

 
 1                legal reserve system upon which any life insurer
 
 2                operates;
 
 3           (E)  Uses any name or title of any insurance policy or
 
 4                class of insurance policies misrepresenting the
 
 5                true nature thereof;
 
 6           (F)  Is a misrepresentation for the purpose of inducing
 
 7                or tending to induce the lapse, forfeiture,
 
 8                exchange, conversion, or surrender of any
 
 9                insurance policy;
 
10           (G)  Is a misrepresentation for the purpose of
 
11                effecting a pledge or assignment of or effecting a
 
12                loan against any insurance policy;
 
13           (H)  Misrepresents any insurance policy as being shares
 
14                of stock;
 
15           (I)  Publishes or advertises the assets of any insurer
 
16                without publishing or advertising with equal
 
17                conspicuousness the liabilities of the insurer,
 
18                both as shown by its last annual statement; or
 
19           (J)  Publishes or advertises the capital of any insurer
 
20                without stating specifically the amount of paid-in
 
21                and subscribed capital.
 
22      (2)  False information and advertising generally.  Making,
 
23           publishing, disseminating, circulating, or placing
 

 
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                                     S.B. NO.           2563
                                                        
                                                        

 
 1           before the public, or causing, directly or indirectly,
 
 2           to be made, published, disseminated, circulated, or
 
 3           placed before the public, in a newspaper, magazine, or
 
 4           other publication, or in the form of a notice,
 
 5           circular, pamphlet, letter, or poster, or over any
 
 6           radio or television station, or in any other way, an
 
 7           advertisement, announcement, or statement containing
 
 8           any assertion, representation, or statement with
 
 9           respect to the business of insurance or with respect to
 
10           any person in the conduct of the person's insurance
 
11           business, which is untrue, deceptive, or misleading.
 
12      (3)  Defamation.  Making, publishing, disseminating, or
 
13           circulating, directly or indirectly, or aiding,
 
14           abetting, or encouraging the making, publishing,
 
15           disseminating, or circulating of any oral or written
 
16           statement or any pamphlet, circular, article, or
 
17           literature which is false, or maliciously critical of
 
18           or derogatory to the financial condition of an insurer,
 
19           and which is calculated to injure any person engaged in
 
20           the business of insurance.
 
21      (4)  Boycott, coercion, and intimidation.
 
22           (A)  Entering into any agreement to commit, or by any
 
23                action committing, any act of boycott, coercion,
 

 
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                                     S.B. NO.           2563
                                                        
                                                        

 
 1                or intimidation resulting in or tending to result
 
 2                in unreasonable restraint of, or monopoly in, the
 
 3                business of insurance; or
 
 4           (B)  Entering into any agreement on the condition,
 
 5                agreement, or understanding that a policy will not
 
 6                be issued or renewed unless the prospective
 
 7                insured contracts for another class or an
 
 8                additional policy of the same class of insurance
 
 9                with the same insurer.
 
10      (5)  False financial statements.
 
11           (A)  Knowingly filing with any supervisory or other
 
12                public official, or knowingly making, publishing,
 
13                disseminating, circulating, or delivering to any
 
14                person, or placing before the public, or knowingly
 
15                causing, directly or indirectly, to be made,
 
16                published, disseminated, circulated, delivered to
 
17                any person, or placed before the public, any false
 
18                statement of a material fact as to the financial
 
19                condition of an insurer; or
 
20           (B)  Knowingly making any false entry of a material
 
21                fact in any book, report, or statement of any
 
22                insurer with intent to deceive any agent or
 
23                examiner lawfully appointed to examine into its
 

 
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                                     S.B. NO.           2563
                                                        
                                                        

 
 1                condition or into any of its affairs, or any
 
 2                public official to whom the insurer is required by
 
 3                law to report, or who has authority by law to
 
 4                examine into its condition or into any of its
 
 5                affairs, or, with like intent, knowingly omitting
 
 6                to make a true entry of any material fact
 
 7                pertaining to the business of the insurer in any
 
 8                book, report, or statement of the insurer.
 
 9      (6)  Stock operations and advisory board contracts.  Issuing
 
10           or delivering or permitting agents, officers, or
 
11           employees to issue or deliver, agency company stock or
 
12           other capital stock, or benefit certificates or shares
 
13           in any common-law corporation, or securities or any
 
14           special or advisory board contracts or other contracts
 
15           of any kind promising returns and profits as an
 
16           inducement to insurance.
 
17      (7)  Unfair discrimination.
 
18           (A)  Making or permitting any unfair discrimination
 
19                between individuals of the same class and equal
 
20                expectation of life in the rates charged for any
 
21                contract of life insurance or of life annuity or
 
22                in the dividends or other benefits payable
 
23                thereon, or in any other of the terms and
 

 
Page 6                                                     
                                     S.B. NO.           2563
                                                        
                                                        

 
 1                conditions of the contract;
 
 2           (B)  Making or permitting any unfair discrimination in
 
 3                favor of particular individuals or persons, or
 
 4                between insureds or subjects of insurance having
 
 5                substantially like insuring, risk, and exposure
 
 6                factors, or expense elements, in the term or
 
 7                conditions of any insurance contract, or in the
 
 8                rate or amount of premium charge therefor, or in
 
 9                the benefits payable or in any other rights or
 
10                privilege accruing thereunder;
 
11           (C)  Making or permitting any unfair discrimination
 
12                between individuals or risks of the same class and
 
13                of essentially the same hazards by refusing to
 
14                issue, refusing to renew, canceling, or limiting
 
15                the amount of insurance coverage on a property or
 
16                casualty risk because of the geographic location
 
17                of the risk, unless:
 
18                (i)  The refusal, cancellation, or limitation is
 
19                     for a business purpose which is not a mere
 
20                     pretext for unfair discrimination; or
 
21               (ii)  The refusal, cancellation, or limitation is
 
22                     required by law or regulatory mandate;
 
23           (D)  Making or permitting any unfair discrimination
 

 
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                                     S.B. NO.           2563
                                                        
                                                        

 
 1                between individuals or risks of the same class and
 
 2                of essentially the same hazards by refusing to
 
 3                issue, refusing to renew, canceling, or limiting
 
 4                the amount of insurance coverage on a residential
 
 5                property risk, or the personal property contained
 
 6                therein, because of the age of the residential
 
 7                property, unless:
 
 8                (i)  The refusal, cancellation, or limitation is
 
 9                     for a business purpose which is not a mere
 
10                     pretext for unfair discrimination; or
 
11               (ii)  The refusal, cancellation, or limitation is
 
12                     required by law or regulatory mandate;
 
13           (E)  Refusing to insure, refusing to continue to
 
14                insure, or limiting the amount of coverage
 
15                available to an individual because of the sex or
 
16                marital status of the individual; however, nothing
 
17                in this subsection shall prohibit an insurer from
 
18                taking marital status into account for the purpose
 
19                of defining persons eligible for dependent
 
20                benefits;
 
21           (F)  To terminate, modify coverage, or refuse to issue
 
22                or refuse to renew any property or casualty policy
 
23                or contract of insurance solely because the
 

 
Page 8                                                     
                                     S.B. NO.           2563
                                                        
                                                        

 
 1                applicant or insured or any employee of either is
 
 2                mentally or physically impaired; provided that
 
 3                this subsection shall not apply to disability
 
 4                insurance sold by a casualty insurer; provided
 
 5                further that this subsection shall not be
 
 6                interpreted to modify any other provision of law
 
 7                relating to the termination, modification,
 
 8                issuance, or renewal of any insurance policy or
 
 9                contract;
 
10           (G)  Refusing to insure, refusing to continue to
 
11                insure, or limiting the amount of coverage
 
12                available to an individual based solely upon the
 
13                individual's having taken a human immunodeficiency
 
14                virus (HIV) test prior to applying for insurance;
 
15                or
 
16           (H)  Refusing to insure, refusing to continue to
 
17                insure, or limiting the amount of coverage
 
18                available to an individual because the individual
 
19                refuses to consent to the release of information
 
20                which is confidential as provided in section
 
21                325-101; provided that nothing in this
 
22                subparagraph shall prohibit an insurer from
 
23                obtaining and using the results of a test
 

 
Page 9                                                     
                                     S.B. NO.           2563
                                                        
                                                        

 
 1                satisfying the requirements of the commissioner,
 
 2                which was taken with the consent of an applicant
 
 3                for insurance; provided further that any applicant
 
 4                for insurance who is tested for HIV infection
 
 5                shall be afforded the opportunity to obtain the
 
 6                test results, within a reasonable time after being
 
 7                tested, and that the confidentiality of the test
 
 8                results shall be maintained as provided by section
 
 9                325-101.
 
10      (8)  Rebates.  Except as otherwise expressly provided by
 
11           law:
 
12           (A)  Knowingly permitting or offering to make or making
 
13                any contract of insurance, or agreement as to the
 
14                contract other than as plainly expressed in the
 
15                contract, or paying or allowing, or giving or
 
16                offering to pay, allow, or give, directly or
 
17                indirectly, as inducement to the insurance, any
 
18                rebate of premiums payable on the contract, or any
 
19                special favor or advantage in the dividends or
 
20                other benefits, or any valuable consideration or
 
21                inducement not specified in the contract; or
 
22           (B)  Giving, selling, or purchasing, or offering to
 
23                give, sell, or purchase as inducement to the
 

 
Page 10                                                    
                                     S.B. NO.           2563
                                                        
                                                        

 
 1                insurance or in connection therewith, any stocks,
 
 2                bonds, or other securities of any insurance
 
 3                company or other corporation, association, or
 
 4                partnership, or any dividends or profits accrued
 
 5                thereon, or anything of value not specified in the
 
 6                contract.
 
 7      (9)  Nothing in paragraphs (7) or (8) shall be construed as
 
 8           including within the definition of discrimination or
 
 9           rebates any of the following practices:
 
10           (A)  In the case of any contract of life insurance or
 
11                life annuity, paying bonuses to policyholders or
 
12                otherwise abating their premiums in whole or in
 
13                part out of surplus accumulated from
 
14                nonparticipating insurance; provided that any
 
15                bonus or abatement of premiums shall be fair and
 
16                equitable to policyholders and for the best
 
17                interests of the insurer and its policyholders;
 
18           (B)  In the case of life insurance policies issued on
 
19                the industrial debit plan, making allowance to
 
20                policyholders who have continuously for a
 
21                specified period made premium payments directly to
 
22                an office of the insurer in an amount which fairly
 
23                represents the saving in collection expense;
 

 
Page 11                                                    
                                     S.B. NO.           2563
                                                        
                                                        

 
 1           (C)  Readjustment of the rate of premium for a group
 
 2                insurance policy based on the loss or expense
 
 3                experience thereunder, at the end of the first or
 
 4                any subsequent policy year of insurance
 
 5                thereunder, which may be made retroactive only for
 
 6                the policy year; and
 
 7           (D)  In the case of any contract of insurance, the
 
 8                distribution of savings, earnings, or surplus
 
 9                equitably among a class of policyholders, all in
 
10                accordance with this article.
 
11     (10)  Refusing to provide past or future coverage or limiting
 
12           coverage available to an individual because the
 
13           individual may have a third-party claim for recovery of
 
14           damages, provided that reimbursement of past benefits
 
15           paid pursuant to section 663-10 may be allowed where
 
16           damages are recovered; provided that this paragraph
 
17           shall not apply where a reimbursement or subrogation
 
18           right for any coverage is otherwise provided by law.
 
19   [(10)] (11)  Unfair claim settlement practices.  Committing or
 
20          performing with such frequency as to indicate a general
 
21          business practice any of the following:
 
22           (A)  Misrepresenting pertinent facts or insurance
 
23                policy provisions relating to coverages at issue;
 

 
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                                     S.B. NO.           2563
                                                        
                                                        

 
 1           (B)  With respect to claims arising under its policies,
 
 2                failing to respond with reasonable promptness, in
 
 3                no case more than fifteen working days, to
 
 4                communications received from:
 
 5                (i)  The insurer's policyholder;
 
 6               (ii)  Any other persons, including the
 
 7                     commissioner; or
 
 8              (iii)  The insurer of a person involved in an
 
 9                     incident in which the insurer's policyholder
 
10                     is also involved.
 
11                The response shall be more than an acknowledgment
 
12                that such person's communication has been
 
13                received, and shall adequately address the
 
14                concerns stated in the communication;
 
15           (C)  Failing to adopt and implement reasonable
 
16                standards for the prompt investigation of claims
 
17                arising under insurance policies;
 
18           (D)  Refusing to pay claims without conducting a
 
19                reasonable investigation based upon all available
 
20                information;
 
21           (E)  Failing to affirm or deny coverage of claims
 
22                within a reasonable time after proof of loss
 
23                statements have been completed;
 

 
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                                     S.B. NO.           2563
                                                        
                                                        

 
 1           (F)  Failing to offer payment within thirty calendar
 
 2                days of affirmation of liability, if the amount of
 
 3                the claim has been determined and is not in
 
 4                dispute;
 
 5           (G)  Failing to provide the insured, or when applicable
 
 6                the insured's beneficiary, with a reasonable
 
 7                written explanation for any delay, on every claim
 
 8                remaining unresolved for thirty calendar days from
 
 9                the date it was reported;
 
10           (H)  Not attempting in good faith to effectuate prompt,
 
11                fair, and equitable settlements of claims in which
 
12                liability has become reasonably clear;
 
13           (I)  Compelling insureds to institute litigation to
 
14                recover amounts due under an insurance policy by
 
15                offering substantially less than the amounts
 
16                ultimately recovered in actions brought by the
 
17                insureds;
 
18           (J)  Attempting to settle a claim for less than the
 
19                amount to which a reasonable person would have
 
20                believed the person was entitled by reference to
 
21                written or printed advertising material
 
22                accompanying or made part of an application;
 
23           (K)  Attempting to settle claims on the basis of an
 

 
Page 14                                                    
                                     S.B. NO.           2563
                                                        
                                                        

 
 1                application which was altered without notice,
 
 2                knowledge, or consent of the insured;
 
 3           (L)  Making claims payments to insureds or
 
 4                beneficiaries not accompanied by a statement
 
 5                setting forth the coverage under which the
 
 6                payments are being made;
 
 7           (M)  Making known to insureds or claimants a policy of
 
 8                appealing from arbitration awards in favor of
 
 9                insureds or claimants for the purpose of
 
10                compelling them to accept settlements or
 
11                compromises less than the amount awarded in
 
12                arbitration;
 
13           (N)  Delaying the investigation or payment of claims by
 
14                requiring an insured, claimant, or the physician
 
15                of either to submit a preliminary claim report and
 
16                then requiring the subsequent submission of formal
 
17                proof of loss forms, both of which submissions
 
18                contain substantially the same information;
 
19           (O)  Failing to promptly settle claims, where liability
 
20                has become reasonably clear, under one portion of
 
21                the insurance policy coverage in order to
 
22                influence settlements under other portions of the
 
23                insurance policy coverage;
 

 
Page 15                                                    
                                     S.B. NO.           2563
                                                        
                                                        

 
 1           (P)  Failing to promptly provide a reasonable
 
 2                explanation of the basis in the insurance policy
 
 3                in relation to the facts or applicable law for
 
 4                denial of a claim or for the offer of a compromise
 
 5                settlement; and
 
 6           (Q)  Indicating to the insured on any payment draft,
 
 7                check, or in any accompanying letter that the
 
 8                payment is "final" or is "a release" of any claim
 
 9                if additional benefits relating to the claim are
 
10                probable under coverages afforded by the policy;
 
11                unless the policy limit has been paid or there is
 
12                a bona fide dispute over either the coverage or
 
13                the amount payable under the policy.
 
14    [(11)] (12)  Failure to maintain complaint handling
 
15           procedures.  Failure of any insurer to maintain a
 
16           complete record of all the complaints which it has
 
17           received since the date of its last examination under
 
18           section 431:2-302.  This record shall indicate the
 
19           total number of complaints, their classification by
 
20           line of insurance, the nature of each complaint, the
 
21           disposition of these complaints, and the time it took
 
22           to process each complaint.  For purposes of this
 
23           section, "complaint" means any written communication
 

 
Page 16                                                    
                                     S.B. NO.           2563
                                                        
                                                        

 
 1           primarily expressing a grievance.
 
 2    [(12)] (13)  Misrepresentation in insurance applications.
 
 3           Making false or fraudulent statements or
 
 4           representations on or relative to an application for an
 
 5           insurance policy, for the purpose of obtaining a fee,
 
 6           commission, money, or other benefit from any insurer,
 
 7           agent, broker, or individual."
 
 8      SECTION 2.  Statutory material to be repealed is bracketed.
 
 9 New statutory material is underscored.
 
10      SECTION 3.  This Act shall take effect upon its approval.
 
11 
 
12                           INTRODUCED BY:  _______________________