PAMIC 360 October 11, 2017 by PAMIC

October 11, 2017

Workersâ&#x20AC;&#x2122; Compensation: Protz Case - an Update

PID Introduces Corporate Governance Bill (HB 1848)

PA Supreme Court: Malice Not A Prerequisite to Bad Faith

Pamic@pamic.org

1017 Mumma Road, Suite 202 Wormleysburg, PA 17043

(717) 303-0197

Contents

Workers’ Compensation: Protz Case - an Update

PID Introduces Corporate Governance Bill (HB 1848)

PA Supreme Court: Malice Not A Prerequisite to Bad Faith

The Pennsylvania Supreme Court is-

PAMIC has been very active in trying to

sued a workers’ compensation decision

influence the CGAD model law, start-

In a much anticipated decision, the

in June of this year that has stunned

ing over a year ago when we provided

Pennsylvania Supreme Court cemented

businesses across Pennsylvania. The

comments to the Insurance Department

and clarified the test for bad faith set

court’s decision in Protz v. WCAB (Derry

focusing on timing, small company im-

out in the 1994 Superior Court decision

Area School District)has stopped all

pact, and use of outside vendors.

Terletsky v. Prudential—that an insurer’s

Impairment Rating Evaluations (IREs),

As recently as October 5, 2017 PAMIC

bad faith is established by demonstrating

raises the question of whether claims

spoke with the House Insurance

it (1) lacked a reasonable basis for deny-

closed as the result of an IRE can be re-

Committee about the January 2018 ef-

ing the policy’s benefits, and (2) knew of

opened, and likely will result in a mid-

fective date (implying that initial reports

or recklessly disregarded its inadequate

year premium increase for employers.

would be due by June 1, 2018) arguing

basis for denial.

that the bill will not likely even become law until next Spring 2018. Continued on...Page 3

Association News

Continued on...Page 7

Continued on...Page 5

Department Transparency Bill (HB 1355)...Page 9 Exam Accountability Bill to be Introduced (HB 1851)...Page 9 Maryland Update: Homeowners’s Insurnace Notices HB 291/SB 279...Page 10

Industry News

Scott White to Lead Virginia Bureau of Insurance...Page 11 White House Asks Congress for $29 Billion in Hurricane Aid...Page 11 State Auto Labs Launches Corporate Venture Fund to Drive Insurance Innovation...Page 12 Maryland Insurance Administration Continues to Focus on Stopping Insurance Fraud...Page 12

Events

Check it Out!

PAMIC 360

Regulatory Resources

Upcoming Events

Name

PAMIC Educational Calendar 2017 Date

Time

Location

PAC Fall Golf Outing

October 11, 2017

1:00 p.m. - 5:30 p.m.

Dauphin Highlands Golf Course

Insurance Technology Trends

October 12, 2017

8:00 a.m. - 4:00 p.m.

Sheraton Harrisburg Hershey

Western Group Meeting

October 16, 2017

9:00 a.m. - 12:00 p.m. Park Inn, Indiana, PA

Eastern Group Meeting

October 17, 2017

9:00 a.m. - 12:00 p.m. Pine Barn Inn, Danville, PA

Congressional Contact Program

October 23 & 24, 2017

1:00 p.m. - 5:30 p.m.

Washington D.C.

Underwriting & Loss Prevention Seminar

November 9, 2017

8:00 a.m. - 4:00 p.m.

Sheraton Harrisburg Hershey

Volunteer Recognition Luncheon

December 8, 2017

TBD

Hershey Country Club

For more information on PAMIC events please visit our website. There you will find our full details on all of our upcoming events. Also check out our general education calendar to see our entire slate of events.

Special Thanks to our 2017 Premium Gold Sponsors

PAMIC 360

Association News

Important news impacting our members

Workers’ Compensation: Protz Case - an Update

employee’s disability from permanent to

by Curt Schroder, PCCJR

act states that the degree of impairment

partial status. This same section of the shall be determined “pursuant to the most

The Pennsylvania Supreme Court issued

recent edition of the American Medical

a workers’ compensation decision in June

Association (AMA) Guides to the Evalua-

of this year that has stunned businesses

tion of Permanent Impairment.”

across Pennsylvania. The court’s decision in Protz v. WCAB (Derry Area School Dis-

The claimant in Protz argued that deter-

trict)has stopped all Impairment Rating

mining disability according to the “most

Evaluations (IREs), raises the question

recent” guidelines of the AMA, amount-

of whether claims closed as the result of

ed to an unconstitutional delegation of

an IRE can be re-opened, and likely will

authority by the legislature. The Fourth

result in a mid-year premium increase for

Edition of the Guide was in effect in 1996

employers.

when this provision was enacted into law. When the claimant was evaluated by the

Section 306 (a.2) of the Workers Compen-

IRE physician, the Sixth Edition was the

sation Act allows an employer, once 104

most recent edition and was used by the

weeks of total disability benefits have been

physician as the law required. The claim-

paid, to request an Impairment Rating

ant argued that the law gave the American

Evaluation (IRE) to determine the current

Medical Association, as opposed to the

degree of disability. An IRE rating above

General Assembly, the authority to estab-

50% constitutes total impairment while

lish impairment criteria and thus was a

an IRE below 50% reduces the amount of

delegation of legislative power in violation

time compensation is paid to 500 weeks.

of Article II, Section I of the Pennsylvania

Employers can then file to change the

Constitution. On June 20, 2017, the Pennsylvania Supreme Court issued its

PAMIC 360

Check it Out! 2016/2017 PAMIC Annual Report Check out the latest Annual Report here!

opinion declaring Section 306 (a.2) an unconstitutional delegation of legislative

The legislature is taking notice. This

activity. The impact has been immediate

morning, the House Labor and Industry

and swift.

Committee held a standing room only informational meeting on the impact

Attorneys representing claimants argue

of the Protz decision. Attorney Thomas

that the Protz decision is retroactive to

Baumann, representing the claimant in

previous IRE determinations. They are ac-

Protz as well as the Association for Justice

tively seeking to re-open claims and re-es-

(aka Pennsylvania Trial Lawyers) argued

tablish benefits for their clients. Billboards

against the entire concept of Impairment

in the Philadelphia region blare: “Did the

Rating Evaluations. He stressed that if the

Supreme Court just reinstate your work-

Commonwealth does adopt AMA impair-

ers’ compensation benefits?” Of course

ment guidelines, a committee of “those

you can find out be calling the attorney

answerable to the voters” should have

who paid for the advertisement!

authority and oversight over the guidelines. This would needlessly politicize the

Employers might soon be paying addition-

process, putting at risk the judgement of

al premiums as a result of this decision.

medical professionals in favor of political

On August 15, the Pennsylvania Compen-

calculations.

sation Rating Bureau (PCRB) filed for an unprecedented mid-year loss cost increase

House Labor and Industry Committee

of 6.06%! The PCRB did not mince words

Chairman, Representative Rob Kauffman,

either. PCRB Circular No. 1686 states that

just introduced H.B. 1840 that adopts

this requested increase is “…in response to

the Sixth Edition of the American Medi-

the Pennsylvania Supreme Court ruling in

cal Association “Guides to the Evaluation

Protz v. WCAB (Derry Area School Dis-

of Permanent Impairment. Senator Kim

trict).”

Ward has recently circulated a co-sponsor PAMIC 360

memo indicating her legislation will do the

ing over a year ago when we provided

same thing. The Senator’s office states that

comments to the Insurance Department

the bill will be introduced shortly. With no

focusing on timing, small company im-

reference to “most recent” editions, these

pact, and use of outside vendors.

legislative efforts should withstand constitutional scrutiny.

As recently as October 5, 2017 PAMIC spoke with the House Insurance

It is important that the General Assem-

Committee about the January 2018 ef-

bly take up this issue quickly to avoid the

fective date (implying that initial reports

impact of the interim loss cost increase

would be due by June 1, 2018) arguing

proposed by the PCRB. PCRB President,

that the bill will not likely even become

William Taylor, said at the House meeting

law until next Spring 2018. PAMIC was

that if the legislature enacts a remedy in

also at a drafting meeting on Monday,

the near future, the PCRB will most likely

October 2, 2017 with the Department on

withdraw the interim proposed loss cost

the CGAD Bill and two other bills related

increase.

to exam transparency (HB 1335) and exam accountability (Bill likely to be introduced

Written by Curt Schroder, Executive Di-

by October 16, 2017).

rector of PCCJR, a coalition dedicated to bringing fairness to Pennsylvania’s courts

PAMIC brought up the timing issue with

by elevating awareness of civil justice

the PID and shared a lesson learned at the

issues and advocating for legal reform in

Corporate Governance Seminar where a

the legislature More information at www.

critical issue emerged dealing with the de-

paforciviljusticereform.com.

velopment of a standardized CGAD report

PID Introduces Corporate Governance Bill (HB 1848) PAMIC has been very active in trying to influence the CGAD model law, start5

framework. While the PID agreed that the implementation date and the standardized reports are timely issues, the PID decided to stick with the model law as drafted by the NAIC.

PAMIC 360

The following is PAMIC’s most recent correspondence with the House Insurance Committee sent on Tuesday, October 3, 2018 this week related to CGAD: The CGAD will levy a new regulatory requirement on both the insurance industry and the regulator. The General Assembly (GA) provided the Pennsylvania Insurance Department a tool to address both existing and emerging regulatory needs. The GA created the Insurance Regulatory and Oversight Fund (IROF) as a tool to stabilize the Pennsylvania Insurance Department’s (PID) fiscal needs: all money deposited into the IROF is generated from the regulated industry. The IROF receives approximately $55 million annually with the PID budgeted to use about $24.7 million in the current fiscal year. PAMIC concurs with the IFP recommendation to amend Section 3706(a) related to the use of outside consultants by deleting the language “at the insurer or insurance group’s expense.’” PAMIC also recommends that the CGAD bill provide a “framework” for insurers to develop their CGAD response. These recommendations are based on feedback PAMIC received at a recent Corporate Governance Workshop. A guest insurer domiciled in Indiana shared their experience in developing a CGAD report in their state of domicile. We recommend that the CGAD Bill require the PID to develop the following: • A standard report format. Currently, the CGAD model law anticipates a “free form” report that creates more complexity in developing the report and by the PID in reviewing the report • A standard list of topics and questions that should be covered in the CGAD • A regulatory scheme that “scales” the sophistication of the CGAD report based on the following criteria: • Corporate complexity • PA Direct Written Premium volume, Market segment (Personal lines, Commercial, Health, Life) • Product mix (monoline, primarily property coverages, etc.) • Geographic limitations (single state writer, multi-state writer, national writer, and international writer) PAMIC 360

The Chair of the House Insurance

and given the current acrimony over the

Committee said that they were in discus-

Budget, I do not expect to see this bill

sions with the PID on friendly amend-

becoming law until Spring 2018.

ments dealing with the implementation date and the report framework. The House Insurance Committee is meeting on October 16, 2017, to consider CGAD, HB 1335 and a new bill related to exam accountability provisions among others.

Pennsylvania Supreme Court cemented and clarified the test for bad faith set out

law is lengthy. The House Insurance

in the 1994 Superior Court decision Ter-

Committee will likely move it out of

letsky v. Prudential—that an insurer’s bad

Committee on October 16, 2017 for consideration by the full House. The House would then have to vote on the CGAD Bill and if approved it will go to the Senate for consideration. The Senate Banking and

(1) lacked a reasonable basis for denying the policy’s benefits, and (2) knew of or recklessly disregarded its inadequate bainsurance bad faith claim need not show a

er the House bill and entertain possible changes. When it comes out of the Senate Banking and Insurance Committee, the CGAD bill then goes to the full Senate for consideration. If the House and Senate bills differ a conference committee is convened to work out the difference with the changes going back to each Chamber for

faith is established by demonstrating it

sis for denial. Policyholders asserting an

Insurance Committee will also consid-

As you can tell, this is a lengthy process

by Samuel E. Bordoni-Cowley In a much anticipated decision, the

The process to get the CGAD bill into

concurrence.

PA Supreme Court: Malice Not A Prerequisite to Bad Faith

dishonest purpose or motive of self-interest or ill will to prove their claim against insurers under Pennsylvania’s insurance bad faith statute, 42 Pa. C.S.A. § 8371. Rancosky v. Washington Nat’l Ins. Co., No. 28 WAP 2016 (Pa. Sept. 28, 2017). In the underlying case, the Pennsylvania Superior Court held that Conseco Health Insurance Co. did not have a reasonable

PAMIC 360

basis for denying waiver of premium bene-

generally and for imposing punitive and

fits to LeAnn Rancosky, who suffered from

other categories of damages. Consequent-

ovarian cancer. The Superior Court, based

ly, while mere negligence is insufficient

upon its reading of Terletsky, partially va-

to establish bad faith, claimants must

cated the trial court’s judgment and held

only show recklessness on the part of the

that bad faith is established by demon-

insurer to prove bad faith and potentially

strating the insurer’s lack of a reasonable

get the attendant punitive damages pro-

basis for denying the claim. The Court

vided for by Section 8371.

further held that, instead of constituting a third element, dishonest purpose and mo-

The Pennsylvania Supreme Court’s opin-

tive of self-interest or ill will are probative

ion in Rancosky sets a clear path for

factors in determining the second prong

plaintiffs to prove bad faith based on

of the Terletsky test, i.e. that the insurer

recklessness, and without any evidence of

knew of or recklessly disregarded its inad-

self-interest or ill will. While this appears

equate basis for denial.

to be largely a continuation of the longstanding Superior Court precedent estab-

The Pennsylvania Supreme Court upheld

lished in Terletsky, it may also signal that

the Superior Court’s decision, examining

the Pennsylvania Supreme Court, which

closely the General Assembly’s intent in

has seen a significant shift in its Justices

enacting Section 8371. The Supreme Court

over the past several years, is becoming

noted that the case law on bad faith was

increasingly friendly to policyholders.

instructive in laying out an overview of

Saul Ewing Arnstein & Lehr’s team of

bad faith, but that no case has squarely ad-

insurance attorneys have a broad range

dressed the legal test of Section 8371. The

of experience in litigating such matters in

Court analyzed whether an award for pu-

Pennsylvania courts, and will continue to

nitive damages under Section 8371 must

monitor and report on developments in

meet a higher evidentiary standard than

the law of bad faith.

that for bad faith generally, concluding that Section 8371 does not distinguish between the standards for finding bad faith

This article was written by Samuel E. Bordoni-Cowley, a member of Saul Ewing’s Insurance Practice. Samuel can be reached at (215) 972-7825 or samuel. bordoni-cowley@saul.com. Copyright Saul Ewing Arnstein & Lehr LLP.

PAMIC 360

Department Transparency Bill (HB 1355)

the Pennsylvania Insurance Department. The bill, while not introduced yet, will likely be considered by the House

PAMIC’s success in introducing HB 1335

Insurance Committee at the October 16,

will be considered by the House Insurance

2017 meeting. The bill recognizes the

Committee on October 16, 2017 with

commitment of the department to work

unanimous approval. The bill then goes to

with the insurance industry to utilize the

the full House for consideration.

most efficient means to conduct examinations, minimize costs, facilitate coopera-

HB 1335, sponsored by Rep Tina Pick-

tion and communication between insurers

ett, Chair, House Insurance Committee,

and the Department, increase transparen-

requires the PID to annually report their

cy and increase efficiencies to the greatest

financial status to the General Assembly

extent possible.

including listing the outside consultants and the amount of money each consultant

Highlights include:

received. In addition the bill requires the PID disclose its income by source as well

• The purpose and scope of the

as its expenditures under the Insurance

examination

Regulation and Oversight Fund.

• The estimated costs for the examination

HB 1335 will be the first time that policy

• Identify individuals or firms to be

makers and the regulated community see

used on the exam

the full cost of regulation on Pennsylvania.

• Disclose their billing rates • Estimate travel, lodging, meals,

Exam Accountability Bill to be Introduced (HB 1851) PAMIC and the Insurance Federation of Pennsylvania have successfully drafted a framework for exam accountability with

supplies and other administrative expenses

• The types of information that the company will be asked to produce • The most efficient means of conducting

PAMIC 360

the examination

• Any alternative approaches in con-

quired notices.

ducting the examination that would be more convenient, less burdensome

The Bill requires the Maryland

or less expensive for the company

Insurance Administration (“Insurance

while still providing for an effective

Administration”) to adopt the new form

examination by the department.

by regulation. Accordingly, the new form,

• Estimate the length of the exam (both inhouse and onsite)

on by the stakeholders mentioned above

• Any changes in the exam that affects

during its development, was published in

cost, timing, etc

the Maryland Register on September 1,

• Requires contractor invoices to:

2017 (44:18 Md. Reg., p. 880), along with relevant proposed regulations. In light of

• Be submitted in ¼ hour incre-

the extensive vetting of the new form, the

ments if billed hourly

Insurance Administration does not ex-

• Be provided to the insurer on a

pect any substantive changes will be made

monthly basis

prior to the final version being placed in

• Payment by insurer within 30

the Code of Maryland Regulations (“CO-

days of non-disputed bill

MAR”). We anticipate the new form will

• Establishes dispute procedures

be published as final in COMAR in No-

Maryland Update: Homeowners’s Insurnace Notices HB 291/SB 279

vember. The Bill has an effective date of October

As a result of many hours of collaboration among insurers, producers, consumer advocates, the Insurance Administration and other interested parties, there is now a single homeowner’s disclosure document (“the new form”) that insurers may elect to utilize in lieu of several individual re-

which was fully vetted and commented

1, 2017. Since, the Maryland Register process will not conclude prior to the effective date, the Insurance Administration provides the following important information to Property & Casualty insurers: • Use of the new form is voluntary. Insurers may use the new form, or may

PAMIC 360

continue to issue all notices required by Title 19 and Title 27 of the Insurance Article individually. • Insurers may implement use of the new form at any time on or after October 1, 2017. Since implementation is voluntary, we suggest waiting for the new form to appear in COMAR before implementation. • An insurer that wishes to implement use of the new form on October 1, 2017 or between October 1, 2017 and the date the new form is published in COMAR, may utilize the new form as it currently appears in the Maryland Register. • A copy of the new form is attached to this communication and is also posted on the Insurance Administration’s website.

Industry

News

News from industry publications

Scott White to Lead Virginia Bureau of Insurance

White House Asks Congress for $29 Billion in Hurricane Aid

The Virginia State Corporation Commis-

On Wednesday, October 4, the White

sion has appointed Scott White to lead the

House asked Congress to approve $29

state’s Bureau of Insurance starting Jan. 1, 2018. White, who is currently the commission’s deputy general counsel for financial services, will succeed Jacqueline Cunningham, who has been insurance commissioner since 2011. White has served as the deputy general counsel for financial services

billion in disaster relief funds to help victims of recent hurricanes that hit Texas, Florida and Puerto Rico. The aid request includes $12.8 billion in new funds for FEMA and $16 billion to cancel debt in the National Flood Insurance Program. The NFIP has al-

at the State Corporation Commission since

ready reached its $30.4 billion borrowing

1999.

limit. The administration would also like

Bell, Allison. “Scott White to Lead Virginia Bureau of Insurance.” ThinkAdvisor, ALM Media, 9 Oct. 2017

to propose several reforms, including

PAMIC 360

raising premiums for flood insurance for

bution technologies and new products

those who can afford them, while ensur-

and solutions that anticipate the changing

ing that insurance remains affordable for

needs of the insurance industry.

low-income homeowners, and encouraging private insurers to write their own flood

“This is a critical time for the insurance

insurance policies. The administration also

industry, and we recognize that there is a

wants another $577 million to pay for fight-

better way to support the development of

ing wildfires in the western United States.

innovations that will fuel business success for startups and deliver cutting-edge tech-

House Appropriations Committee

nologies for enterprises,” said Tom Walker,

Chairman Rodney Frelinghuysen, R-N.J.

CEO of Rev1 Ventures.

said his committee would introduce legislation “as soon as possible” in order to secure federal funding for those in need. Thomas Kaplan, and Mary Williams Walsh. “White House Asks Congress for $29 Billion in Hurricane Aid.” The New York Times, The New York Times, 4 Oct. 2017

State Auto Labs Launches Corporate Venture Fund to Drive Insurance Innovation

Eichelberger, Aimee. “State Auto Labs Launches Corporate Venture Fund to Drive Insurance Innovation.” Stateauto.com, State Auto, 26 Sept. 2017

Maryland Insurance Administration Continues to Focus on Stopping Insurance Fraud The Maryland Insurance Administration’s Fraud Division, made up of former law enforcement officers and prosecutors,

State Auto Labs Corp., the innovation arm

continues to investigate all tips and reports

of the State Automobile Mutual Insurance

they receive pertaining to insurance fraud.

Company, has collaborated with Rev1 Ven-

So far, in 2017, criminal and civil orders

tures to launch a $25 million corporate ven-

have resulted in over $400,000 in fines

ture fund. The goal of the fund is to connect

and penalties including $347,284 in resti-

InsurTech and FinTech startups with capital,

tution paid to insurance carriers and indi-

technologists and insurance industry ex-

viduals impacted by the fraudulent activity.

perts.

Insurance fraud is one of the most costly crimes in the United States, often resulting

The venture fund will focus on four key areas of investment: Internet of Things, machine learning and artificial intelligence, distri-

in higher premiums for consumers. Balaji, Sam. “The Strategic Value of Risk Taking.” Risk Management, Risk Management, 25 Sept. 2017

PAMIC 360

Regulatory Resources PAMIC takes great care in recognizing regulatory updates that affect our member companies. Listed below are links to useful regulatory resources. If you would like to see any additional resources in this section please contact us.

Recent Bulletin Notices For access to current Pennsylvania Bulletins from the Commonwealth of Pennsylvania click below:

October 7, 2017

September 30, 2017

PA Insurance Department

PA Department of Labor & Industry To access PA Department of Labor and Industry

Please use the following links to stay updated with the PA Insurance Department.

notices and newsletters click below. • Department of Labor and Industry Notices • Department of Labor and Industry Newsletter

• Insurance Department Notices • Insurance Department Press Releases • Insurance Department Newsletter

Maryland Insurance Administration Property & Casualty Update: Bulletin 17-10 Summary of Insurance Laws Enacted in 2017

General Regulatory Information Please use this table to discover important links to the most up to date information regarding the respective Insurance Department’s that affect PAMIC members.

Pennsylvania Insurance Department Bulletins

Regulations

Notices

Title 40 Statutes

Press Releases

Unconsolidated Statutes

PID Newsletter

SOP’s

Consumer Alerts

Delaware Department of Insurance Bulletins

Regulations

Title 18 Statutes

News

NJ Department of Banking & Insurance Bulletins 13

Regulations

Title 11 Statutes PAMIC 360

General Info

Maryland Insurance Administration Bulletins

Regulations

Statutes

News

Virginia SCC - Bureau of Insurance Admin Letters

Regulations

Title 38.2 Statutes

News

Admin Orders

West Virginia Office of the Insurance Commissioner Info Letters

Regulations

Statutes

Consumer Advocate

Statutes

News Releases

Ohio Department of Insurance Bulletins

Regulations

Newsletters

New York Department of Financial Services - Insurance Opinions

Regulations

Statutes

Circular Letter

Press Releases Statements

Michigan Department of Insurance and Financial Services Bulletins

Regulations

Statutes

Press Releases

Maine Department of Professional & Financial Regulation Bulletins

Regulations

Statutes

Press Releases

California Department of Insurance Bulletins

Regulations

Statutes

PAMIC 360

Press Releases

Pamic@pamic.org

1017 Mumma Road, Suite 202 Wormleysburg, PA 17043

(717) 303-0197