2012 -- H 7782

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LC01801

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STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2012

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A N A C T

RELATING TO INSURANCE - UNFAIR COMPETITION AND PRACTICES

     Introduced By: Representatives Ucci, and Winfield

     Date Introduced: February 28, 2012

     Referred To: House Corporations

It is enacted by the General Assembly as follows:

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     SECTION 1. Section 27-29-4 of the General Laws in Chapter 27-29 entitled "Unfair

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Competition and Practices" is hereby amended to read as follows:

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     27-29-4. Unfair methods of competition and unfair or deceptive acts or practices

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defined. -- The following are defined as unfair methods of competition and unfair and deceptive

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acts or practices in the business of insurance:

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      (1) Misrepresentations and false advertising of policies or contracts. - Making, issuing,

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circulating, or causing to be made, issued, or circulated, any estimate, illustration, circular, or

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statement, sales presentation, omission, or comparison misrepresenting the terms of any policy

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issued or to be issued or the benefits, conditions, or advantages promised by any policy or the

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dividends or share of the surplus to be received on any policy, or making any false or misleading

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statement as to the dividends or share of surplus previously paid on any policy, or making any

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misleading representation or any misrepresentation as to the financial condition of any insurer, or

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as to the legal reserve system upon which any life insurer operates, or using any name or title of

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any policy or class of policies misrepresenting the true nature of that policy or class of policies, or

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making any misrepresentation to any policyholder insured in any company including any

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intentional misquote of a premium rate, for the purpose of inducing or tending to induce the

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policyholder to lapse, forfeit, or surrender his or her insurance, or misrepresenting for the purpose

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of effecting a pledge or assignment of or effecting a loan against any policy, or misrepresenting

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any policy as being share or stock;

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      (2) False information and advertising generally. - Making, publishing, disseminating,

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circulating, or placing before the public or causing, directly or indirectly, to be made, published,

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disseminated, circulated, or placed before the public in a newspaper, magazine, or other

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publication, or in the form of a notice, circular, pamphlet, letter, or poster, or over any radio or

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television station, or in any other way, an advertisement, announcement, or statement containing

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any assertion, representation, or statement with respect to the business of insurance or with

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respect to any person in the conduct of his or her insurance business which is untrue, deceptive,

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or misleading;

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      (3) Defamation. - Making, publishing, disseminating, or circulating, directly or

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indirectly, or aiding, abetting, or encouraging the making, publishing, disseminating, or

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circulating of any oral or written statement or any pamphlet, circular, article of literature which is

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false or maliciously critical of or derogatory to the financial condition of an insurer, and which is

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calculated to injure any person engaged in the business of insurance;

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      (4) Boycott, coercion, and intimidation. - Entering into any agreement to commit, or by

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any concerted action committing, any act of boycott, coercion, or intimidation resulting in or

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tending to result in unreasonable restraint of, or monopoly in, the business of insurance;

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      (5) (i) False financial statements. - Knowingly filing with any supervisory or other public

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official, or knowingly making, publishing, disseminating, circulating, or delivering to any person,

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or placing before the public or causing directly or indirectly, to be made, published, disseminated,

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circulated, delivered to any person, or placed before the public any false material statement of

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financial condition of an insurer; or

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      (ii) Knowingly making any false entry of a material fact in any book, report, or statement

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of any insurer or knowingly omitting to make a true entry of any material fact pertaining to the

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business of the insurer in any book, report, or statement of the insurer;

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      (6) Stock operations and advisory board contracts. - Issuing or delivering or permitting

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agents, officers, or employees to issue or deliver agency company stock or other capital stock, or

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benefit certificates or shares in any common law corporation, or securities of any special or

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advisory board contracts or other contracts of any kind promising returns and profits as an

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inducement to insurance;

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      (7) (i) Unfair discrimination. - Making or permitting any unfair discrimination between

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individuals of the same class and equal expectation of life in the rates charged for any policy of

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life insurance or of life annuity or in the dividends or other benefits payable on any such policy or

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life annuity, or in any other of the terms and conditions of the policy; or

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      (ii) Making or permitting any unfair discrimination between individuals of the same

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class and of essentially the same hazard in the amount of premium, policy fees, or rates charged

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for any policy or contract of accident or health insurance or in the benefits payable under any

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policy or contract, or in any of the terms or conditions of that policy, or in any other manner;

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      (iii) Making or permitting any unfair discrimination between individuals or risks of the

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same class and of essentially the same hazards by refusing to issue, refusing to renew, canceling,

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or limiting the amount of insurance coverage on a property or casualty risk because of the

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geographic location of the risk, unless:

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      (A) The refusal, cancellation, or limitation is for a business purpose that is not a pretext

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for unfair discrimination; or

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      (B) The refusal, cancellation, or limitation is required by law or regulation;

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      (iv) Making or permitting any unfair discrimination between individuals or risks of the

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same class and of essentially the same hazards by refusing to issue, refusing to renew, canceling,

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or limiting the amount of insurance coverage on a residential property risk, or the personal

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property contained in the residential property risk, because of the age of the residential property,

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unless:

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      (A) The refusal, cancellation, or limitation is for a business purpose that is not a pretext

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for unfair discrimination; or

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      (B) The refusal, cancellation, or limitation is required by law or regulation;

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      (v) Refusing to insure, refusing to continue to insure, or limiting the amount of coverage

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available to an individual because of the sex or marital status of the individual; nothing in this

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subsection shall prohibit an insurer from taking marital status into account for the purpose of

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defining persons eligible for dependent benefits; or

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      (vi) To terminate, or to modify coverage, or to refuse to issue or refuse to renew any

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property or casualty policy solely because the applicant or insured or any employee of either is

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mentally or physically impaired; provided, that this subsection shall not apply to accident and

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health insurance sold by a casualty insurer and, provided that this subsection shall not be

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interpreted to modify any other provision of law relating to the termination, modification,

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issuance or renewal of any insurance policy or contract;

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      (8) (i) Rebates. - Except as otherwise expressly provided by law, knowingly permitting

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or offering to make or making any policy or agreement as to the policy other than as plainly

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expressed in the policy issued on it, or paying or allowing or giving or offering to pay, allow, or

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give, directly or indirectly, as inducement to the policy, any rebate of premiums payable on the

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policy, or any special favor or advantage in the dividends or other benefits on the policy, or any

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valuable consideration or inducement not specified in the policy, or giving, selling, or purchasing

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or offering to give, sell, or purchase as inducement to the policy, or in connection with the policy,

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any stocks, bonds, or other securities of any insurance company or other corporation, association,

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or partnership, or any dividends or profits accrued on the security, or anything of value not

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specified in the policy;

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      (ii) Nothing in subdivision (7) of this section or paragraph (i) of this subdivision shall be

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construed as including within the definition of discrimination or rebates any of the following

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practices:

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      (A) In the case of any contract of life insurance policies or life annuity, annuities paying

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bonuses to policyholders or abating their premiums in whole or in part out of surplus accumulated

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from nonparticipating insurance; provided, that any bonuses or abatement of premiums shall be

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fair and equitable to policyholders and for the best interests of the company and its policyholders;

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      (B) In the case of life insurance policies issued on the industrial debit plan, making

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allowance to policyholders who have continuously for a specified period made premium

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payments directly to an office of the insurer in an amount which fairly represents the saving in

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collection expenses; and

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      (C) Readjustment of the rate of premium for a group insurance policy based on the loss

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or expense experience under it, at the end of the first or any subsequent policy year of insurance

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under the policy, which may be made retroactive only for the policy year;

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      (9) (i) Free choice of insurance producer or insurer. - When any person, firm, or

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corporation engaged in the business of lending money on the security of real or personal property,

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or in the business of negotiating, purchasing, selling, or holding loans on the security of real

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property, or in the business of building, selling, or financing the sale or purchase of real property,

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or any trustee, director, officer, agent, or other employee of that person, firm, or corporation,

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requires that property insurance be procured for the property, the borrower, debtor, or purchaser

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shall have free choice of insurance producer and insurer through or by which the insurance is to

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be placed or written, subject only to the right of the builder, creditor, lender, or seller:

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      (A) To require evidence, to be produced at a reasonable time prior to commencement or

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renewal of risk, that the insurance providing reasonable coverage has been obtained in an amount

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equal to the amount required by the builder, creditor, lender, or seller;

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      (B) To require insurance in an insurer authorized to do business and having a licensed

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resident insurance producer agent in this state; and

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      (C) To refuse to accept insurance in a particular insurer on reasonable grounds related to

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solvency;

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      (ii) When any contractor or subcontractor is required to procure a surety bond or policy

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of insurance with respect to any building or construction contract which is about to be, or which

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has been bid or entered into, the contractor or subcontractor shall have free choice of insurance

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producer and insurer through or by which the surety bond or insurance is to be written; provided,

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that the owner or contractor shall have the right: (A) to require evidence, to be produced at a

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reasonable time prior to commencement or renewal of risk, that the insurance providing

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reasonable coverage has been obtained in an amount equal to the amount required by the builder,

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creditor, lender, or seller; (B) to require insurance in an insurer authorized to do business and

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having a licensed resident insurance producer in this state; and (C) to refuse to accept insurance in

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a particular insurer on reasonable grounds related to solvency; provided, that the owner or

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contractor shall have the right to approve the form, sufficiency, or manner of execution of the

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surety bond or policy or insurance furnished by the insurance company or insurance producer

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selected by the contractor or subcontractor;

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      (iii) No person who lends money or extends credit may:

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      (A) Solicit insurance for the protection of real property after a person indicates interest in

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securing a first mortgage credit extension until that person has received a commitment in writing

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from the lender as to a loan or credit extension;

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      (B) Unreasonably reject a policy furnished by the borrower for the protection of the

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property securing the creditor lien. A rejection shall not be deemed unreasonable if it is based on

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reasonable standards, uniformly applied, relating to the extent of coverage required and the

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financial soundness and the services of an insurer. The standards shall not discriminate against

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any particular type of insurer, nor shall the standards call for rejection of a policy because it

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contains coverage in addition to that required in the credit transaction;

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      (C) Require that any borrower, mortgagor, purchaser, insurer, or insurance producer pay

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a separate charge, in connection with the handling of any policy required as security for a loan on

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real estate, or pay a separate charge to substitute the policy of one insurer for that of another. This

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subsection does not include the interest that may be charged on premium loans or premium

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advancements in accordance with the terms of the loan or credit document;

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      (D) Use or disclose, without the prior written consent of the borrower, mortgagor, or

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purchaser taken at a time other than the making of the loan or extension of credit, information

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relative to a policy which is required by the credit transaction, for the purpose of replacing the

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insurance; or

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      (E) Require any procedures or conditions of duly licensed insurance producers or

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insurers not customarily required of those insurance producers or insurers affiliated or in any way

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connected with the person who lends money or extends credit;

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      (iv) Every person who lends money or extends credit and who solicits insurance on real

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and personal property subject to paragraph (iii) of this subdivision shall explain to the borrower in

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writing that the insurance related to the credit extension may be purchased from an insurer or

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insurance producer of the borrower's choice, subject only to the lender's right to reject a given

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insurer or insurance producer as provided in paragraph (iii)(B) of this subdivision. Compliance

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with disclosures as to insurance required by truth in lending laws or comparable state laws shall

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be compliance with this subsection;

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      (v) This requirement for a commitment shall not apply in cases where the premium for

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the required insurance is to be financed as part of the loan or extension of credit involving

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personal property transactions;

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      (vi) The commissioner shall have the power to examine and investigate those insurance

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related activities of any person or insurer that the commissioner believes may be in violation of

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this section. Any affected person may submit to the commissioner a complaint or material

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pertinent to the enforcement of this section;

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      (vii) Nothing in this section shall prevent a person who lends money or extends credit

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from placing insurance on real or personal property in the event the mortgagor, borrower, or

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purchaser has failed to provide required insurance in accordance with the terms of the loan or

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credit document;

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      (viii) Nothing contained in this section shall apply to credit life or credit accident and

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health insurance.

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      (10) Notice of free choice of insurance producer or insurer. - Every debtor, borrower, or

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purchaser of property with respect to which insurance of any kind on the property is required in

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connection with a debt or loan secured by the property or in connection with the sale of the

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property, shall be informed in writing by the builder, creditor, lender, or seller, of his or her right

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of free choice in the selection of the insurance producer and insurer through or by which the

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insurance is to be placed. There shall be no interference, either directly or indirectly, with the

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borrower's, debtor's, or purchaser's free choice of an insurance procedure and of an insurer which

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complies with the requirements of this section, and the builder, creditor, lender, seller, owner, or

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contractor shall not refuse the policy tendered by the borrower, debtor, purchaser, contractor, or

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subcontractor. Upon notice of any refusal of the tendered policy, the insurance commissioner

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shall order the builder, creditor, lender, seller, owner, or contractor to accept the tendered policy,

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if the commissioner determines that the refusal is not in accordance with the requirements of this

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section. Failure to comply with an order of the insurance commissioner shall be deemed a

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violation of this section;

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      (11) Using insurance information to detriment of another. - Whenever the instrument

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requires that the purchaser, mortgagor, or borrower furnish insurance of any kind on real property

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being conveyed or is collateral security to a loan, the mortgagee, vendor, or lender shall refrain

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from disclosing or using any and all insurance information to his or her or its own advantage and

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to the detriment of either the borrower, purchaser, mortgagor, insurance company, or agency

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complying with the requirements relating to insurance;

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      (12) Prohibited group enrollments. - No insurer shall offer more than one group policy of

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insurance through any person unless that person is licensed, at a minimum, as an insurance

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producer. This prohibition shall not apply to employer-employee relationships, or to any of these

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enrollments;

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      (13) Failure to maintain complaint handling procedures. - No insurer shall fail to

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maintain a complete record of all the complaints it received since the date of its last examination

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pursuant to the general laws providing for examination of insurers. This record shall indicate the

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total number of complaints, their classification by line of insurance, the nature of each complaint,

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the disposition of each complaint, and the time it took to process each complaint. For the

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purposes of this subsection, "complaint" means any written communication primarily expressing

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a grievance;

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      (14) Misrepresentation in insurance applications. - Making false or fraudulent statements

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or representations on or relative to an application for a policy, for the purpose of obtaining a fee,

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commission, money, or other benefit from any insurers, insurance producer, or individual person;

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and

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      (15) Requiring that repairs be made to an automobile at a specified auto body repair shop

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or interfering with the insured's or claimant's free choice of repair facility. - The insured or

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claimant shall be promptly informed by the insurer of his or her free choice in the selection of an

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auto body repair shop. Once the insured or claimant has advised the insurer that an auto body

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repair shop has been selected, the insurer may not recommend that a different auto body repair

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shop be selected to repair the automobile. An auto body repair shop may file a complaint with the

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department of business regulation alleging a violation of this subdivision (15). Whenever the

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department of business regulation has reason to believe that an insurer has violated this

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subdivision (15), the department shall conduct an investigation and may convene a hearing. A

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complaint filed by an auto body repair shop must be accompanied by a statement written and

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signed by the insured or claimant setting forth the factual basis of the complaint, and the insured

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or claimant must voluntarily appear and testify at any administrative proceedings on the

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complaint.

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     SECTION 2. This act shall take effect upon passage.

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LC01801

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO INSURANCE - UNFAIR COMPETITION AND PRACTICES

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     This act would delete the section of law which requires that an insured or claimant be

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promptly informed by the insurer of his or her free choice in the selection of an auto body repair

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shop.

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     This act would take effect upon passage.

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LC01801

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