New Commissioner Emphasizes Policy Form Compliance

New Commissioner Emphasizes Policy Form Compliance

August 2008
My recent appointment as Commissioner of the Office of Financial and Insurance Regulation ("OFIR") provides me with the opportunity to highlight our agency's efforts to protect Michigan consumers in a variety of ways. I want to take this chance to focus attention on an often-overlooked but nonetheless important means of consumer protection: insurance form filing review. In Rory v Continental Ins Co.,1 the plaintiffs, who were injured in an automobile accident, filed a claim with the defendant insurer for uninsured motorist benefits. The defendant denied plaintiffs' claim based on a clause in the insurance contract requiring uninsured motorist claims to be filed within one year of the accident.2 The plaintiffs filed suit based on the defendant's denial of plaintiffs' claim and both the trial court and the Michigan Court of Appeals held the one year period of limitations set forth in the insurance contract was unreasonable.3 The Michigan Supreme Court reversed the Court of Appeals, stating that "the judiciary is without authority to modify unambiguous [insurance] contracts or rebalance the contractual equities struck by the contracting parties"....4 In so holding, the Supreme Court noted the review of insurance contracts was a function specifically reserved for the Commissioner of Insurance: Clearly, the Legislature has assigned the responsibility of evaluating the "reasonableness" of an insurance contract to the person within the executive branch charged with reviewing and approving insurance policies: the Commissioner of Insurance.5 What the Supreme Court may or may not have known was that former Insurance Commissioner, D. Joseph Olson, exempted many insurance forms from review in an exemption order issued on January 29, 1997.6 In response to the Rory case, my predecessor, Commissioner Linda A. Watters, established the Rory Group-a committee comprised of OFIR staff supported with legal assistance from the Office of the Attorney General. This group was charged with identifying deceptive or otherwise objectionable insurance policy clauses and providing the Commissioner with recommended courses of action for each clause. Clauses causing concern to various individuals have been brought to the attention of the Rory Group in a number of ways: (1) through data calls by OFIR for the production of certain policy forms (last done in 2006); (2) policy forms submitted with complaints from consumers and/or their attorneys; (3) referrals from the NAIC; or (4) referrals from other consumer advocate sources (legislators, etc.). These clauses were then reviewed by the Rory Group and evaluated taking into account legality, as well as industry and public impact. Clauses found to be "inconsistent, ambiguous, or misleading" or which contain "exceptions and conditions that unreasonably or deceptively affect the risk purported to be assumed"7 could be subject to a variety of potential action by OFIR, including: (1) the promulgation of rules, (2) issuing notices of disapproval, (3) issuing prohibition orders and (4) issuing public warnings and/or advisories regarding the use of such clauses in insurance contracts. The specific clause at issue in the Rory case required a claim against the insurer for uninsured motorist coverage to be filed within one year of the date of the accident, which was significantly shorter than the time period afforded by statute for bringing such claims (six years from the denial of coverage). Further investigation revealed the use of these shortened limitation of action clauses was not merely confined to no-fault insurance policies. Consistent with recommendations made by the Rory Group, OFIR promulgated administrative rules prohibiting prospective use of these clauses and requiring insurers utilizing forms incorporating the shortened limitation of action clauses to file such forms with OFIR.8 Another type of clause identified by the Rory Group and addressed in a similar manner were so called "discretionary clauses", which gave insurers the final say in claim decisions under a particular policy and effectively eliminated any meaningful review of claim denials. As to these discretionary clauses, the Rory Group proposed, and OFIR promulgated, administrative rules prohibiting prospective use of discretionary clauses and requiring insurers utilizing forms containing such clauses to file the forms with OFIR.9 Most recently, a public hearing was held with regard to the Rory Group's work and more specifically, on the issues of electronic form filing and modification of Order No. 97-010-M. At the public hearing, OFIR received and considered both oral and written testimony regarding the public's desire for policyholder protection and industry's concerns relative to any chilling effect additional regulatory controls may have on the industry's ability to bring innovative products to market in an efficient and cost effective manner. While most jurisdictions require insurance forms be filed and reviewed by insurance regulators on the front end, Michigan does not. Since the issuance of Order No. 97-010-M, Michigan has operated on a hold/no file basis with respect to many insurance forms. However, movement toward a more traditional approach appears probable if some insurers continue to be, what might be termed, overly aggressive in the clauses they draft. The experience of the Rory Group has made it clear to me that, particularly in the personal lines area, it is good public policy for OFIR to devote scarce resources to policy form review. I invite all insurers with questions and/or comments concerning the Rory Group or the form review process to contact my Chief of Staff, Joe Garcia, at (517) 373-7466 or via email at garciaj7@michigan.gov. About Commissioner Ken Ross Ken Ross was named Commissioner, Office of Financial and Insurance Regulation, by Governor Jennifer M. Granholm effective February 22, 2008. As Commissioner, Mr. Ross is responsible for, among other things, the regulation of Blue Cross Blue Shield, 27 HMOS, 169 domestic insurance companies, 1,303 foreign insurance companies, and 146,419 insurance agents. Prior to being appointed as Commissioner, Mr. Ross was the Acting Commissioner and the Deputy Commissioner for Policy. In addition to managing Policy Division staff and spearheading the Commissioner's legislative agenda, his duties included serving as the principle liaison to the Michigan Legislature, working with a variety of internal and external stakeholders concerning all legislative issues pertaining to the financial services industries in Michigan, testifying before legislative committees and meeting with state and federal policymakers on issues of concern falling within OFIR's public policy footprint. Prior to coming to OFIR, Mr. Ross served as the Vice President of Regulatory and Legal Affairs for the Michigan Credit Union League (MCUL) and as an Assistant Attorney General in the Tort Defense Division. Mr. Ross earned a J.D. cum laude, from Thomas M. Cooley Law School and a Bachelors degree, double majoring in Philosophy and Political Science from the University of Michigan-Dearborn. _____________________________________________________________________ 1. Rory v Continental Ins Co, 473 Mich 457 (2005) 2. Rory at 462. 3. Rory at 463. 4. Rory at 461. 5. Rory at 475 (footnote omitted). 6. Order No. 97-010-M 7. MCL 500.2236(5) 8. R 500.2211-500.2212 9. R 500.2201-500.2202
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