REPORT TITLE:
Insurance


DESCRIPTION:
Recognizes an insurance compliance self-evaluative privilege to
protect the confidentiality of communication relating to
voluntary internal compliance audits.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           940
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO THE INSURANCE PRIVILEGE.



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

 1      SECTION 1.  Chapter 431, Hawaii Revised Statutes, is amended
 
 2 by adding a new part to article 3 to be appropriately designated
 
 3 and to read as follows:
 
 4                 "PART    . INSURANCE COMPLIANCE
 
 5                     SELF-EVALUATIVE PRIVILEGE
 
 6      §431:3-A  Purpose.  To encourage insurers and persons
 
 7 conducting activities regulated under this code, both to conduct
 
 8 voluntary internal audits of their compliance programs and
 
 9 management systems and to assess and improve compliance with
 
10 state and federal statutes, rules and orders, an insurance
 
11 compliance self-evaluative privilege is recognized to protect the
 
12 confidentiality of communication relating to voluntary internal
 
13 compliance audits.  The legislature hereby finds and declares
 
14 that protection of insurance consumers is enhanced by companies'
 
15 voluntary compliance with the insurance and other laws of this
 
16 State and that the public will benefit from incentives to
 
17 identify and remedy insurance and other compliance problems.  It
 
18 is further declared that limited expansion of the protection
 
19 against disclosure will encourage voluntary compliance and
 

 
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 1 improve insurance market conduct quality and that the voluntary
 
 2 provisions of this part will not inhibit the exercise of the
 
 3 regulatory authority by those entrusted with protecting insurance
 
 4 consumers.
 
 5      §431:3-B  Insurance compliance self evaluative privilege;
 
 6 confidentiality.(a)  Except as provided in sections 431:3-C and
 
 7 431:3-D, an insurance compliance self-evaluative audit document
 
 8 is privileged information and is not discoverable, or admissible
 
 9 as evidence in any legal action in any civil, criminal, or
 
10 administrative proceeding.  The privilege created in this section
 
11 is a matter of substantive law of this State and is not merely a
 
12 procedural matter governing civil or criminal procedures in the
 
13 courts of this State.
 
14      (b)  If any insurer, person, or entity performs or directs
 
15 the performance of an insurance compliance audit, an officer,
 
16 employee or agent involved with the insurance compliance audit,
 
17 or any consultant who is hired for the purpose of performing the
 
18 insurance compliance audit, may not be examined in any civil,
 
19 criminal, or administrative proceeding as to the insurance
 
20 compliance audit or any insurance compliance self-evaluative
 
21 audit document, as defined in this section.  This subsection does
 
22 not apply if the privilege set forth in subsection (a) is
 
23 determined inapplicable under section 431:3-C or 431:3-D.
 

 
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 1      (c)  An insurer may voluntarily submit, in connection with
 
 2 examinations conducted under this article, an insurance
 
 3 compliance self-evaluative audit document to the commissioner as
 
 4 a confidential document without waiving the privilege set forth
 
 5 in this section to which the insurer would otherwise be entitled;
 
 6 provided, however, the authority of the commissioner to make
 
 7 confidential documents public shall not apply to the insurance
 
 8 compliance self-evaluative audit document so voluntarily
 
 9 submitted.  To the extent that the commissioner has the authority
 
10 to compel the disclosure of an insurance compliance self-
 
11 evaluative audit document under other provisions of law, any
 
12 report furnished to the commissioner shall not be provided to any
 
13 other persons or entities and shall be accorded the same
 
14 confidentiality and other protections as provided above for
 
15 voluntarily submitted documents.  Any use of an insurance
 
16 compliance self-evaluative audit document furnished as a result
 
17 of a request of the commissioner under a claim of authority to
 
18 compel disclosure shall be limited to determine whether or not
 
19 any disclosed defects in an insurer's policies and procedures or
 
20 inappropriate treatment of customers has been remedied or that an
 
21 appropriate plan for their remedy is in place.
 
22      (1)  An insurer's insurance compliance self-evaluative audit
 
23           document submitted to the commissioner shall remain
 

 
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 1           subject to all applicable statutory or common law
 
 2           privileges including, but not limited to, the work
 
 3           product doctrine, attorney-client privilege, or the
 
 4           subsequent remedial measures exclusion.
 
 5      (2)  Any compliance self-evaluative audit document so
 
 6           submitted and in the possession of the commissioner
 
 7           shall remain the property of the insurer and shall not
 
 8           be subject to any disclosure or production under
 
 9           chapter 92F.
 
10      (d)  Disclosure of an insurance compliance self-evaluative
 
11 audit document to a governmental agency, whether voluntary or
 
12 pursuant to compulsion of law, shall not constitute a waiver of
 
13 the privilege set forth in subsection (a) with respect to any
 
14 other persons or any other governmental agencies.
 
15      §431:3-C  Privilege inapplicable; when.(a)  The privilege
 
16 set forth in section 431:3-B shall not apply to the extent that
 
17 it is expressly waived by the insurer who prepared or caused to
 
18 be prepared the insurance compliance self-evaluative audit
 
19 document.
 
20      (b)  In a civil or administrative proceeding, the court,
 
21 after an in camera review, may require disclosure of material for
 
22 which the privilege set forth in section 431:3-B is asserted, if
 
23 the court determines any one of the following:
 

 
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 1      (1)  The privilege is asserted for a fraudulent purpose; or
 
 2      (2)  The material is not subject to the privilege.
 
 3      (c)  In a criminal proceeding, a court, after an in camera
 
 4 review, may require disclosure of material for which the
 
 5 privilege described in section 431:3-B is asserted, if the court
 
 6 determines any one of the following:
 
 7      (1)  The privilege is asserted for a fraudulent purpose;
 
 8      (2)  The material is not subject to the privilege; or
 
 9      (3)  The material contains evidence relevant to commission
 
10           of a criminal offense under this code, and all three of
 
11           the following factors are present:
 
12           (A)  The commissioner or the attorney general has a
 
13                compelling need for the information;
 
14           (B)  The information is not otherwise available; and
 
15           (C)  The commissioner or attorney general is unable to
 
16                obtain the substantial equivalent of the
 
17                information by any other means without incurring
 
18                unreasonable cost and delay.
 
19      §431:3-D  Compelling disclosure.(a)  Within thirty days
 
20 after the commissioner or the attorney general serves on an
 
21 insurer a written request by certified mail for disclosure of an
 
22 insurance compliance self-evaluative audit document under this
 
23 section, the insurer that prepared or caused the document to be
 

 
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 1 prepared may file with the appropriate court a petition
 
 2 requesting an in camera hearing on whether the insurance
 
 3 compliance self-evaluative audit document or portions of the
 
 4 document are privileged under this section or subject to
 
 5 disclosure.  The court has jurisdiction over a petition filed by
 
 6 an insurer under this subsection requesting an in camera hearing
 
 7 on whether the insurance compliance self-evaluative audit
 
 8 document or portions of the document are privileged or subject to
 
 9 disclosure.  Failure by the insurer to file a petition waives the
 
10 privilege for this request.
 
11      (b)  An insurer asserting the insurance compliance self-
 
12 evaluative privilege in response to a request for disclosure
 
13 under this subsection shall include in its request for an in
 
14 camera hearing all of the information set forth in subsection
 
15 (e).
 
16      (c)  Upon the filing of a petition under this section, the
 
17 court shall issue an order scheduling, within forty-five days
 
18 after the filing of the petition, an in camera hearing to
 
19 determine whether the insurance compliance self-evaluative audit
 
20 document or portions of the document are privileged under this
 
21 section or subject to disclosure.
 
22      (d)  The court, after an in camera review, may require
 
23 disclosure of material for which the privilege in section 431:3-B
 

 
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 1 is asserted if the court determines, based upon its in camera
 
 2 review, that any one of the conditions set forth in section
 
 3 431:3-C(b)(1) and (2) applies as to a civil or administrative
 
 4 proceeding or that any one of the conditions set forth in section
 
 5 431:3-C(c)(1) to (3) applies as to a criminal proceeding.  Upon
 
 6 making such a determination, the court may only compel the
 
 7 disclosure of those portions of an insurance compliance self-
 
 8 evaluative audit document relevant to issues in dispute in the
 
 9 underlying proceeding.  Any compelled disclosure will not be
 
10 considered to be a public document or be deemed to be a waiver of
 
11 the privilege for any other civil, criminal, or administrative
 
12 proceeding.  A party unsuccessfully opposing disclosure may apply
 
13 to the court for an appropriate order protecting the document
 
14 from further disclosure.
 
15      (e)  An insurer asserting the insurance compliance self-
 
16 evaluative privilege in response to a request for disclosure
 
17 under this section shall provide to the commissioner or attorney
 
18 general, as the case may be, at the time of filing any objection
 
19 to the disclosure, all of the following information:
 
20      (1)  The date of the insurance compliance self-evaluative
 
21           audit document;
 
22      (2)  The identity of the entity conducting the audit;
 
23      (3)  The general nature of the activities covered by the
 

 
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 1           insurance compliance audit; and
 
 2      (4)  An identification of the portions of the insurance
 
 3           compliance self-evaluative audit document for which the
 
 4           privilege is being asserted.
 
 5      431:3-E  Burden of proof.(a)  An insurer asserting the
 
 6 insurance compliance self-evaluative privilege set forth in
 
 7 section 431:3-B has the burden of demonstrating the applicability
 
 8 of the privilege.  Once an insurer has established the
 
 9 applicability of the privilege, the party seeking disclosure
 
10 under section 431:3-C(b)(1) has the burden of proving that the
 
11 privilege is asserted for a fraudulent purpose.  The commissioner
 
12 or attorney general seeking disclosure under section 431:3-C(c)
 
13 has the burden of proving the elements set forth in that
 
14 provision.
 
15      (b)  The parties may at any time stipulate in proceedings
 
16 under section 431:3-C or 431:3-D to entry of an order directing
 
17 that specific information contained in an insurance compliance
 
18 self-evaluative audit document is or is not subject to the
 
19 privilege provided under section 431:3-B.  Any such stipulation
 
20 may be limited to the instant proceeding and, absent specific
 
21 language to the contrary, shall not be applicable to any other
 
22 proceeding.
 
23      §431:3-F  Exceptions.(a)  The privilege set forth in
 

 
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 1 section 431:3-B shall not extend to any of the following:
 
 2      (1)  Documents, communications, data, reports, or other
 
 3           information expressly required to be collected,
 
 4           developed, maintained, or reported to a regulatory
 
 5           agency pursuant to this code, or other federal or state
 
 6           law;
 
 7      (2)  Information obtained by observation or monitoring by
 
 8           any regulatory agency; or
 
 9      (3)  Information obtained from a source independent of the
 
10           insurance compliance audit.
 
11      431:3-G  Definitions.  As used in this part:
 
12      "Insurance compliance audit" means a voluntary, internal
 
13 evaluation, review, assessment, audit, or investigation for the
 
14 purpose of identifying or preventing noncompliance with, or
 
15 promoting compliance with laws, rules, orders, or industrial or
 
16 professional standards, which is conducted by or on behalf of a
 
17 company licensed under this chapter, or which involves an
 
18 activity regulated under this chapter.
 
19      "Insurance compliance self-evaluative audit document" means
 
20 documents prepared as a result of or in connection with an
 
21 insurance compliance audit.  An insurance compliance self-
 
22 evaluative audit document may include a written response to the
 
23 findings of an insurance compliance audit.  An insurance
 

 
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 1 compliance self-evaluative audit document may include field notes
 
 2 and records of observations, findings, opinions, suggestions,
 
 3 conclusions, drafts, memoranda, drawings, photographs, exhibits,
 
 4 computer-generated or electronically recorded information, phone
 
 5 records, maps, charts, graphs, and surveys, provided this
 
 6 supporting information is collected or developed for the primary
 
 7 purpose and in the course of an insurance compliance audit.  An
 
 8 insurance compliance self-evaluative audit document also includes
 
 9 any of the following:
 
10      (1)  An insurance compliance audit report prepared by an
 
11           auditor, who may be an employee of the insurer or an
 
12           independent contractor, which may include the scope of
 
13           the audit, the information gained in the audit, and
 
14           conclusions and recommendations, with exhibits and
 
15           appendices;
 
16      (2)  Memoranda and documents analyzing portions or all of
 
17           the insurance compliance audit report and discussing
 
18           potential implementation issues;
 
19      (3)  An implementation plan that addresses correcting past
 
20           noncompliance, improving current compliance, and
 
21           preventing future noncompliance; or
 
22      (4)  Analytic data generated in the course of conducting the
 
23           insurance compliance audit.
 

 
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 1      §431:3-H  Applicability.  The insurance compliance self-
 
 2 evaluative privilege shall apply to all litigation or
 
 3 administrative proceedings pending at the effective date of this
 
 4 Act."
 
 5      SECTION 2.  In codifying the new sections added by section
 
 6 1, and referred to in section 1 of this Act, the revisor of
 
 7 statutes shall substitute appropriate section numbers for the
 
 8 letters used in designating the new sections in this Act.
 
 9      SECTION 3.  This Act shall take effect upon its approval.
 
10 
 
11                           INTRODUCED BY:  _______________________