Note
COMMERCIAL LIABILITY INSURANCE; TORT REFORM
The following provisions on liability insurance are excerpts from L Sp 1986, c 2, some provisions of which were scheduled for repeal on October 1, 1995, by L 1993, c 238, §1. L 1995, c 130 deleted this repeal date thereby making the provisions permanent:
"SECTION 1. Legislative findings and purpose. The legislature finds and declares that a solution to the current crisis in liability insurance has created an overpowering public necessity for a comprehensive combination of reforms to both the tort system and the insurance regulatory system. It is the intent of this Act to alleviate the seriousness of the current insurance crisis and to prevent the reoccurrence of such a crisis. The purpose of this Act is to ensure the widest possible availability of liability insurance at reasonable rates, to ensure a stable market for liability insurers, and to provide for means to adjust insurance premium rates in the context of anticipated cost savings from tort reform legislation affecting the affordability and availability of liability insurance. [L Sp 1986, c 2, §1]
SECTION 2. Definitions. As used in sections 3 to 7 of this Act, unless the context otherwise requires:
1. "Authorized insurer" means insurers licensed to do business in the State.
2. "Commercial liability insurance" means insurance written for businesses providing protection for an insured against loss arising from injuries to other persons or damage to their property. It includes but is not limited to policies providing coverage for errors and omissions, and professional malpractice.
3. "Rebate" means an amount refunded to a policyholder by an insurer to reflect a return of excess premiums with interest.
4. "Surcharge" means an amount assessed by an insurer against a policyholder over and above manual rates. [L Sp 1986, c 2, §§2 and 31; am L 1989, c 300, §2; am L 1991, c 62, §1; am L 1993, c 238, §1; am L 1995, c 130, §1]
SECTION 3. Rate reduction; relief. (a) The insurance commissioner shall effect a moratorium and not approve any rate level increase in commercial liability insurance during the period August 1, 1986, to September 30, 1986. Commencing October 1, 1986, all authorized insurers transacting commercial liability insurance in this State shall implement a ten per cent rate reduction from the rates currently on file with the insurance commissioner for all policies containing commercial liability coverage, except motor vehicle and medical malpractice policies, in effect on September 30, 1986, for each new and renewal policy and provide that the new rates will be in effect and filed during the period October 1, 1986, to September 30, 1987. There shall be no exception to the requirements of this subsection, unless the commissioner, pursuant to an insurer's petition, shall find that the use of the rates required herein by an insurer will be inadequate to the extent that such rates jeopardize the solvency of the insurer required to use such rates.
(b) Commencing on October 1, 1987, all authorized insurers providing commercial liability insurance in this State shall implement a twelve per cent rate reduction for all policies containing commercial liability coverage, except motor vehicle and medical malpractice policies issued by mutual or reciprocal insurers, from the rates in effect on September 30, 1987, for each new and renewal policy, and provide that the new rates will be in effect and filed during the period October 1, 1987, to September 30, 1988.
(c) Commencing on October 1, 1988, all authorized insurers providing commercial liability insurance in this State shall implement a fifteen per cent rate reduction for all policies containing commercial liability coverage, except motor vehicle and medical malpractice policies issued by mutual or reciprocal insurers, from the rates in effect on September 30, 1988, for each new and renewal policy, and provide that the new rates will be in effect and filed during the period October 1, 1988, to September 30, 1989; provided that for purposes of this section, a mutual or reciprocal insurer shall include in any rate filing, information and data regarding the expected impact of the tort reform implemented by sections 11 through 22 of Act 2, First Special Session Laws of Hawaii, 1986.
(d) Except as otherwise provided in this Act, all rates for commercial liability insurance shall comply with the provisions of the casualty rating law contained in chapter 431, Hawaii Revised Statutes. Any insurer which contends that the rate provided for in subsection (b) or (c) is inadequate shall state in its filing the rate it contends is appropriate and shall state with specificity the factors or data which it contends should be considered in order to produce such appropriate rate. The insurer shall be permitted to use all of the generally accepted actuarial techniques in making any filing pursuant to this subsection. It shall be the insurer's or rating organization's burden to actuarially justify any rate increase from the reduced rates provided for in subsection (b) or (c). The insurer or rating organization shall include in the filing the expected impact of the tort reform implemented by Sections 11 to 22 of this Act on losses, expenses and rates. In making this filing as provided for by this subsection, the insurer or rating organization shall comply with the following provisions:
(1) Any rate filing contending that the rates established in subsections (b) or (c) is inadequate shall be filed ninety days prior to October 1, 1987, or October 1, 1988.
(2) The insurance commissioner shall review and approve or disapprove the rate filing thirty days prior to October 1, 1987, or with respect to filings submitted pursuant to subsection (c) thirty days prior to October 1, 1988. A filing shall be deemed to meet the requirements of the casualty rating law unless disapproved by the commissioner within the 60-day waiting period. All filings submitted under this Act shall be deemed public records.
(3) In the event the filing is approved under subsection (d)(2), a contested case hearing in accordance with the provisions of chapter 91, Hawaii Revised Statutes, may be convened. Notwithstanding the provisions of section 431-61, Hawaii Revised Statutes, a petition and demand for hearing shall not stay the implementation of the rate approved by the commissioner or the rates in effect as of September 30, 1986, whichever is higher. A final order of the commissioner may be appealed in accordance with the provisions of section 431-69, Hawaii Revised Statutes.
(4) In the event a filing is disapproved in whole or in part, a petition and demand for a contested case hearing may be filed in accordance with chapter 91, Hawaii Revised Statutes. The insurer or rating organization shall have the burden of proving that the disapproval is not justified. While the action of the commissioner in disapproving the rate filing is being challenged, the aggrieved insurer shall be entitled to charge the rates established as of September 30, 1986 or the filed rates, whichever is lower.
(5) With respect to any approval or disapproval by the commissioner regarding any rate filing focusing upon the October 1, 1988, reduction, the aggrieved insurer shall be entitled to charge the rates established as of September 30, 1988, while the action of the commissioner is being challenged and contested.
(6) Upon final disposition, pursuant to chapter 91, Hawaii Revised Statutes, or by a court of competent jurisdiction of the insurance commissioner's approval or disapproval of the rates, the insurance commissioner shall immediately determine and order that the insurer make the appropriate rebates of premiums to policyholders or allow the insurer to exact a surcharge on premiums.
(e) The insurance commissioner shall publish a notice of every filing submitted by insurers pursuant to this section in a newspaper of general circulation in the State. [L Sp 1986, c 2, §§3 and 31; am L 1987, c 231, §1; am L 1989, c 300, §2; am L 1991, c 62, §1; am L 1993, c 238, §1; am L 1995, c 130, §1]
SECTION 4. Excessive rates; rebate or credit. In reviewing the information gathered from the closed case reports provided for under Section 26 of this Act, and from any other relevant information, if there is reason to believe that the rates are excessive, the insurance commissioner shall request a hearing to determine the adequate rate. If as a result of the hearing it is determined that insurers are charging excessive rates, the insurance commissioner shall issue an order specifying that a new rate or schedule be filed by the insurer or rating organization which responds to the findings made through the hearing. The insurance commissioner shall further order that premiums charged each policyholder constituting the portion of the rate above that which is actuarially justified be returned to such policyholder in the form of a rebate or credit. [L Sp 1986, c 2, §§4 and 31; am L 1989, c 300, §2; am L 1991, c 62, §1; am L 1993, c 238, §1; am L 1995, c 130, §1]
SECTION 5. Cancellation of policy; prohibition. No policies to which the reductions on insurance rate apply shall be canceled by the insurer prior to the expiration of the agreed term or one year from the effective date of the policy or renewal, whichever is less, except under the following grounds:
(1) Failure to pay a premium when due;
(2) Fraud or material misrepresentation;
(3) Risk hazard increases substantially and the insurer could not have reasonably foreseen the change when entering into the contract;
(4) Substantial breaches of contractual duties, conditions, or warranties;
(5) Violation of any local fire, health, or safety statute or ordinance;
(6) Conviction of the named insured for a crime having as one of its necessary elements, an act increasing any hazard that is insured against;
(7) The insurance commissioner determines that the continuation of the policy places the insurer in violation of chapter 431, Hawaii Revised Statutes;
(8) For any good faith reason with the approval of the insurance commissioner. [L Sp 1986, c 2, §§5 and 31; am L 1989, c 300, §2; am L 1991, c 62, §1; am L 1993, c 238, §1; am L 1995, c 130, §1]
SECTION 6. Cancellation of policies; effective date. In the event there is cancellation pursuant to sections 5 and 7 of this Act, such cancellation will be effective thirty days after the insurer delivers written notice of the cancellation to the policyholder. [L Sp 1986, c 2, §§6 and 31; am L 1989, c 300, §2; am L 1991, c 62, §1; am L 1993, c 238, §1; am L 1995, c 130, §1]
SECTION 7. Nonrenewal of policies; notice. An insurer may refuse to renew a commercial liability policy if notice to the policyholder of the reasons for nonrenewal are provided to the insured forty-five days prior to the intended nonrenewal date. A commercial liability insurance policy, once issued shall not be cancelled or refused renewal by an insurer based upon the mandatory rate reductions as required by this Act." [L Sp 1986, c 2, §§7 and 31; am L 1989, c 300, §2; am L 1991, c 62, §1; am L 1993, c 238, §1; am L 1995, c 130, §1]
§431:14-116.6 Assigned risk pool; residual market plan. (a) The commissioner shall establish a residual market plan to provide equitable apportionment of insurance that may be afforded to applicants who are in good faith entitled to, but who are unable to procure, such insurance through ordinary methods. The residual market plan shall include rules for classification of risks and rates.
(b) Any insured placed with the plan shall be notified that insurance coverage is being afforded through the plan and not through the private market. Written notification shall be given to the insured within ten days of placement with the plan.
(c) To ensure that plan rates are made adequate to pay claims and expenses, insurers shall develop a means of obtaining loss and expense experience at least annually. Each insurer shall submit a report on loss and expense experience, when available, with the department in sufficient detail to make a determination of rate adequacy.
(d) The plan shall provide a formula allowing an insurer who voluntarily removes an insured risk from the residual market to be eligible for a take-out credit applicable against that insurer's residual market assessment base levied by the plan. The terms and conditions of the take-out credit shall be as follows:
(1) An insurer shall receive a credit against its assessment base for the amount of the annual premium reflected in its financial statements for the respective calendar year. This reported premium shall be stated on the same financial basis as the premiums that are reported for use in determining each insurer's residual market assessment base and shall be subject to subsequent adjustments and audits;
(2) The credit applicable to the residual market assessment base shall be as follows:
First year: $2 credit for every $1 of premium removed;
Second year: $1 credit for every $1 of premium removed; and
Third year: $1 for every $1 of premium removed;
(3) If the insurer keeps the insured risk out of the residual market for three years, that insurer shall receive credit for each of three years. If the insurer does not write the business for three years, it shall receive credit only for the period of time that it covered the risk in the voluntary market. Under no circumstances shall an insurer receive credit for risks returned to the residual market within one policy year;
(4) An insurer shall not return an insured taken from the residual market to the residual market after one year of coverage to subsequently reissue insurance to the insured to obtain the higher credit established for the first year of residual market removal in paragraph (2);
(5) There shall be no maximum limit on credits received; provided that the credits shall not reduce the insurer's assessment base below zero;
(6) The kind and amount of coverage to be offered to voluntary risks shall not be less than those afforded by the policy being replaced, unless the kinds and amounts are refused by the insureds;
(7) The commissioner may approve loss sensitive rating plans for larger companies that generate more than $150,000 in insurance premiums; and
(8) The commissioner may adjust or terminate the credit program depending on market conditions, provided that any adjustment or termination shall not affect any credit earned prior to the adjustment or termination.
(e) The commissioner may adopt rules in accordance with chapter 91 to effectuate the purposes of this section.
(f) As used in this section, unless the context otherwise requires:
"Plan" means the residual market plan.
"Residual market assessment base" means the basis for assessing insurers for losses from the residual market, as provided for in a residual market plan. [L 1995, c 234, pt of §20; am L 1996, c 224, §2]
Cross References
Discontinuation of residual market plan, see §431:14A-118.
Pooled insurance policies, see §431:10-222.5.
Section: Previous 431-14-111 431-14-112 431-14-113 431-14-114 431-14-115 431-14-116 431-14-116.5 431-14-116.6 431-14-117 431-14-118 431-14-119 431-14-120 431-14a-101 431-14a-102 431-14a-103 NextLast modified: October 27, 2016