Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2001

State of Hawaii

Sir:

Your Committee on Commerce, Consumer Protection and Housing, to which was referred S.B. No. 940 entitled:

begs leave to report as follows:

The purpose of this measure is to make mutual benefit societies (societies) and health maintenance organizations (HMOs) subject to the unfair methods of competition and unfair and deceptive acts and practices of the business of insurance, for refusing to provide or limiting coverage to an individual having a third-party claim for damages.

Your Committee received testimony in support of this measure from the Insurance Division, Consumer Lawyers of Hawaii, and a private citizen. Testimony in opposition was received from the Hawaii Medical Service Association.

Testimony of the State Insurance Commissioner indicated that this measure corrects an oversight in Act 29, Session Laws of Hawaii (SLH) 2000, which should not have exempted societies and HMOs from insurance unfair practices for refusing to provide or limiting coverage to the insured who has a third-party claim. Act 29, SLH 2000, established lien rights for health insurance benefits paid, which is a complement to revisions in the same measure to the insurance code relating to unfair insurance practices.

The usual priority of payment process in a motor vehicle accident case, for example, is first the workers' compensation carrier (if applicable), second the motor vehicle insurance carrier, and third the health insurance carrier after the policy limits of the motor vehicle insurance have been exhausted (section 431:10C-305(b)(2)(A), Hawaii Revised Statutes (HRS)). The intent of your Committee is that societies and HMOs promptly pay the benefits owing under their policies, and recoup their payments from a third-party claim by lien as provided under section 663-10, HRS. Testimony indicated that under current law, societies and HMOs may be interfering with a third-party settlement by claiming that they are exempt from insurance unfair trade practice as a result of Act 29, SLH 2000. This was clearly not the intent of the legislature. This measure clears up that confusion.

As affirmed by the record of votes of the members of your Committee on Commerce, Consumer Protection and Housing that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 940 and recommends that it pass Second Reading and be referred to the Committee on Judiciary.