Insurance; 3rd Party

Deems an unfair or deceptive insurance practice the refusal to
provide or limiting coverage based on a insured's potential third
party claim for damages.  Allows an insurer to be reimbursed for
benefits paid when the insured has recovered damages on the third
party claim by judgment or settlement.  (SD1)

THE SENATE                              S.B. NO.           S.D. 1
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            

                   A  BILL  FOR  AN  ACT



 1      SECTION 1.  Section 431:13-103, Hawaii Revised Statutes, is
 2 amended by amending subsection (a) to read as follows:
 3      "(a)  The following are defined as unfair methods of
 4 competition and unfair or deceptive acts or practices in the
 5 business of insurance:
 6      (1)  Misrepresentations and false advertising of insurance
 7           policies.  Making, issuing, circulating, or causing to
 8           be made, issued, or circulated, any estimate,
 9           illustration, circular, statement, sales presentation,
10           omission, or comparison which:
11           (A)  Misrepresents the benefits, advantages,
12                conditions, or terms of any insurance policy;
13           (B)  Misrepresents the dividends or share of the
14                surplus to be received on any insurance policy;
15           (C)  Makes any false or misleading statement as to the
16                dividends or share of surplus previously paid on
17                any insurance policy;
18           (D)  Is misleading or is a misrepresentation as to the
19                financial condition of any insurer, or as to the
20                legal reserve system upon which any life insurer

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 1                operates;
 2           (E)  Uses any name or title of any insurance policy or
 3                class of insurance policies misrepresenting the
 4                true nature thereof;
 5           (F)  Is a misrepresentation for the purpose of inducing
 6                or tending to induce the lapse, forfeiture,
 7                exchange, conversion, or surrender of any
 8                insurance policy;
 9           (G)  Is a misrepresentation for the purpose of
10                effecting a pledge or assignment of or effecting a
11                loan against any insurance policy;
12           (H)  Misrepresents any insurance policy as being shares
13                of stock;
14           (I)  Publishes or advertises the assets of any insurer
15                without publishing or advertising with equal
16                conspicuousness the liabilities of the insurer,
17                both as shown by its last annual statement; or
18           (J)  Publishes or advertises the capital of any insurer
19                without stating specifically the amount of paid-in
20                and subscribed capital.
21      (2)  False information and advertising generally.  Making,
22           publishing, disseminating, circulating, or placing
23           before the public, or causing, directly or indirectly,

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 1           to be made, published, disseminated, circulated, or
 2           placed before the public, in a newspaper, magazine, or
 3           other publication, or in the form of a notice,
 4           circular, pamphlet, letter, or poster, or over any
 5           radio or television station, or in any other way, an
 6           advertisement, announcement, or statement containing
 7           any assertion, representation, or statement with
 8           respect to the business of insurance or with respect to
 9           any person in the conduct of the person's insurance
10           business, which is untrue, deceptive, or misleading.
11      (3)  Defamation.  Making, publishing, disseminating, or
12           circulating, directly or indirectly, or aiding,
13           abetting, or encouraging the making, publishing,
14           disseminating, or circulating of any oral or written
15           statement or any pamphlet, circular, article, or
16           literature which is false, or maliciously critical of
17           or derogatory to the financial condition of an insurer,
18           and which is calculated to injure any person engaged in
19           the business of insurance.
20      (4)  Boycott, coercion, and intimidation.
21           (A)  Entering into any agreement to commit, or by any
22                action committing, any act of boycott, coercion,
23                or intimidation resulting in or tending to result

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 1                in unreasonable restraint of, or monopoly in, the
 2                business of insurance; or
 3           (B)  Entering into any agreement on the condition,
 4                agreement, or understanding that a policy will not
 5                be issued or renewed unless the prospective
 6                insured contracts for another class or an
 7                additional policy of the same class of insurance
 8                with the same insurer.
 9      (5)  False financial statements.
10           (A)  Knowingly filing with any supervisory or other
11                public official, or knowingly making, publishing,
12                disseminating, circulating, or delivering to any
13                person, or placing before the public, or knowingly
14                causing, directly or indirectly, to be made,
15                published, disseminated, circulated, delivered to
16                any person, or placed before the public, any false
17                statement of a material fact as to the financial
18                condition of an insurer; or
19           (B)  Knowingly making any false entry of a material
20                fact in any book, report, or statement of any
21                insurer with intent to deceive any agent or
22                examiner lawfully appointed to examine into its
23                condition or into any of its affairs, or any

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                                     S.B. NO.           S.D. 1

 1                public official to whom the insurer is required by
 2                law to report, or who has authority by law to
 3                examine into its condition or into any of its
 4                affairs, or, with like intent, knowingly omitting
 5                to make a true entry of any material fact
 6                pertaining to the business of the insurer in any
 7                book, report, or statement of the insurer.
 8      (6)  Stock operations and advisory board contracts.  Issuing
 9           or delivering or permitting agents, officers, or
10           employees to issue or deliver, agency company stock or
11           other capital stock, or benefit certificates or shares
12           in any common-law corporation, or securities or any
13           special or advisory board contracts or other contracts
14           of any kind promising returns and profits as an
15           inducement to insurance.
16      (7)  Unfair discrimination.
17           (A)  Making or permitting any unfair discrimination
18                between individuals of the same class and equal
19                expectation of life in the rates charged for any
20                contract of life insurance or of life annuity or
21                in the dividends or other benefits payable
22                thereon, or in any other of the terms and
23                conditions of the contract;

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                                     S.B. NO.           S.D. 1

 1           (B)  Making or permitting any unfair discrimination in
 2                favor of particular individuals or persons, or
 3                between insureds or subjects of insurance having
 4                substantially like insuring, risk, and exposure
 5                factors, or expense elements, in the term or
 6                conditions of any insurance contract, or in the
 7                rate or amount of premium charge therefor, or in
 8                the benefits payable or in any other rights or
 9                privilege accruing thereunder;
10           (C)  Making or permitting any unfair discrimination
11                between individuals or risks of the same class and
12                of essentially the same hazards by refusing to
13                issue, refusing to renew, canceling, or limiting
14                the amount of insurance coverage on a property or
15                casualty risk because of the geographic location
16                of the risk, unless:
17                (i)  The refusal, cancellation, or limitation is
18                     for a business purpose which is not a mere
19                     pretext for unfair discrimination; or
20               (ii)  The refusal, cancellation, or limitation is
21                     required by law or regulatory mandate;
22           (D)  Making or permitting any unfair discrimination
23                between individuals or risks of the same class and

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                                     S.B. NO.           S.D. 1

 1                of essentially the same hazards by refusing to
 2                issue, refusing to renew, canceling, or limiting
 3                the amount of insurance coverage on a residential
 4                property risk, or the personal property contained
 5                therein, because of the age of the residential
 6                property, unless:
 7                (i)  The refusal, cancellation, or limitation is
 8                     for a business purpose which is not a mere
 9                     pretext for unfair discrimination; or
10               (ii)  The refusal, cancellation, or limitation is
11                     required by law or regulatory mandate;
12           (E)  Refusing to insure, refusing to continue to
13                insure, or limiting the amount of coverage
14                available to an individual because of the sex or
15                marital status of the individual; however, nothing
16                in this subsection shall prohibit an insurer from
17                taking marital status into account for the purpose
18                of defining persons eligible for dependent
19                benefits;
20           (F)  To terminate, modify coverage, or refuse to issue
21                or refuse to renew any property or casualty policy
22                or contract of insurance solely because the
23                applicant or insured or any employee of either is

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                                     S.B. NO.           S.D. 1

 1                mentally or physically impaired; provided that
 2                this subsection shall not apply to disability
 3                insurance sold by a casualty insurer; provided
 4                further that this subsection shall not be
 5                interpreted to modify any other provision of law
 6                relating to the termination, modification,
 7                issuance, or renewal of any insurance policy or
 8                contract;
 9           (G)  Refusing to insure, refusing to continue to
10                insure, or limiting the amount of coverage
11                available to an individual based solely upon the
12                individual's having taken a human immunodeficiency
13                virus (HIV) test prior to applying for insurance;
14                or
15           (H)  Refusing to insure, refusing to continue to
16                insure, or limiting the amount of coverage
17                available to an individual because the individual
18                refuses to consent to the release of information
19                which is confidential as provided in section
20                325-101; provided that nothing in this
21                subparagraph shall prohibit an insurer from
22                obtaining and using the results of a test
23                satisfying the requirements of the commissioner,

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                                     S.B. NO.           S.D. 1

 1                which was taken with the consent of an applicant
 2                for insurance; provided further that any applicant
 3                for insurance who is tested for HIV infection
 4                shall be afforded the opportunity to obtain the
 5                test results, within a reasonable time after being
 6                tested, and that the confidentiality of the test
 7                results shall be maintained as provided by
 8                section 325-101.
 9      (8)  Rebates.  Except as otherwise expressly provided by
10           law:
11           (A)  Knowingly permitting or offering to make or making
12                any contract of insurance, or agreement as to the
13                contract other than as plainly expressed in the
14                contract, or paying or allowing, or giving or
15                offering to pay, allow, or give, directly or
16                indirectly, as inducement to the insurance, any
17                rebate of premiums payable on the contract, or any
18                special favor or advantage in the dividends or
19                other benefits, or any valuable consideration or
20                inducement not specified in the contract; or
21           (B)  Giving, selling, or purchasing, or offering to
22                give, sell, or purchase as inducement to the
23                insurance or in connection therewith, any stocks,

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                                     S.B. NO.           S.D. 1

 1                bonds, or other securities of any insurance
 2                company or other corporation, association, or
 3                partnership, or any dividends or profits accrued
 4                thereon, or anything of value not specified in the
 5                contract.
 6      (9)  Nothing in [paragraphs] paragraph (7) or (8) shall be
 7           construed as including within the definition of
 8           discrimination or rebates any of the following
 9           practices:
10           (A)  In the case of any contract of life insurance or
11                life annuity, paying bonuses to policyholders or
12                otherwise abating their premiums in whole or in
13                part out of surplus accumulated from
14                nonparticipating insurance; provided that any
15                bonus or abatement of premiums shall be fair and
16                equitable to policyholders and for the best
17                interests of the insurer and its policyholders;
18           (B)  In the case of life insurance policies issued on
19                the industrial debit plan, making allowance to
20                policyholders who have continuously for a
21                specified period made premium payments directly to
22                an office of the insurer in an amount which fairly
23                represents the saving in collection expense;

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                                     S.B. NO.           S.D. 1

 1           (C)  Readjustment of the rate of premium for a group
 2                insurance policy based on the loss or expense
 3                experience thereunder, at the end of the first or
 4                any subsequent policy year of insurance
 5                thereunder, which may be made retroactive only for
 6                the policy year; and
 7           (D)  In the case of any contract of insurance, the
 8                distribution of savings, earnings, or surplus
 9                equitably among a class of policyholders, all in
10                accordance with this article.
11     (10)  Refusing to provide or limiting coverage available to
12           an individual because the individual may have a third-
13           party claim for recovery of damages; provided that:
14           (A)  Where damages are recovered by judgment or
15                settlement of a third-party claim, reimbursement
16                of past benefits paid shall be allowed pursuant to
17                section 663-10; and
18           (B)  This paragraph shall not apply to entities
19                licensed under chapter 386, 431:10C, 432, or 432D;
20   [(10)] (11)  Unfair claim settlement practices.  Committing or
21          performing with such frequency as to indicate a general
22          business practice any of the following:
23           (A)  Misrepresenting pertinent facts or insurance

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                                     S.B. NO.           S.D. 1

 1                policy provisions relating to coverages at issue;
 2           (B)  With respect to claims arising under its policies,
 3                failing to respond with reasonable promptness, in
 4                no case more than fifteen working days, to
 5                communications received from:
 6                (i)  The insurer's policyholder;
 7               (ii)  Any other persons, including the
 8                     commissioner; or
 9              (iii)  The insurer of a person involved in an
10                     incident in which the insurer's policyholder
11                     is also involved.
12                The response shall be more than an acknowledgment
13                that such person's communication has been
14                received, and shall adequately address the
15                concerns stated in the communication;
16           (C)  Failing to adopt and implement reasonable
17                standards for the prompt investigation of claims
18                arising under insurance policies;
19           (D)  Refusing to pay claims without conducting a
20                reasonable investigation based upon all available
21                information;
22           (E)  Failing to affirm or deny coverage of claims
23                within a reasonable time after proof of loss

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                                     S.B. NO.           S.D. 1

 1                statements have been completed;
 2           (F)  Failing to offer payment within thirty calendar
 3                days of affirmation of liability, if the amount of
 4                the claim has been determined and is not in
 5                dispute;
 6           (G)  Failing to provide the insured, or when applicable
 7                the insured's beneficiary, with a reasonable
 8                written explanation for any delay, on every claim
 9                remaining unresolved for thirty calendar days from
10                the date it was reported;
11           (H)  Not attempting in good faith to effectuate prompt,
12                fair, and equitable settlements of claims in which
13                liability has become reasonably clear;
14           (I)  Compelling insureds to institute litigation to
15                recover amounts due under an insurance policy by
16                offering substantially less than the amounts
17                ultimately recovered in actions brought by the
18                insureds;
19           (J)  Attempting to settle a claim for less than the
20                amount to which a reasonable person would have
21                believed the person was entitled by reference to
22                written or printed advertising material
23                accompanying or made part of an application;

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                                     S.B. NO.           S.D. 1

 1           (K)  Attempting to settle claims on the basis of an
 2                application which was altered without notice,
 3                knowledge, or consent of the insured;
 4           (L)  Making claims payments to insureds or
 5                beneficiaries not accompanied by a statement
 6                setting forth the coverage under which the
 7                payments are being made;
 8           (M)  Making known to insureds or claimants a policy of
 9                appealing from arbitration awards in favor of
10                insureds or claimants for the purpose of
11                compelling them to accept settlements or
12                compromises less than the amount awarded in
13                arbitration;
14           (N)  Delaying the investigation or payment of claims by
15                requiring an insured, claimant, or the physician
16                of either to submit a preliminary claim report and
17                then requiring the subsequent submission of formal
18                proof of loss forms, both of which submissions
19                contain substantially the same information;
20           (O)  Failing to promptly settle claims, where liability
21                has become reasonably clear, under one portion of
22                the insurance policy coverage in order to
23                influence settlements under other portions of the

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                                     S.B. NO.           S.D. 1

 1                insurance policy coverage;
 2           (P)  Failing to promptly provide a reasonable
 3                explanation of the basis in the insurance policy
 4                in relation to the facts or applicable law for
 5                denial of a claim or for the offer of a compromise
 6                settlement; and
 7           (Q)  Indicating to the insured on any payment draft,
 8                check, or in any accompanying letter that the
 9                payment is "final" or is "a release" of any claim
10                if additional benefits relating to the claim are
11                probable under coverages afforded by the policy;
12                unless the policy limit has been paid or there is
13                a bona fide dispute over either the coverage or
14                the amount payable under the policy.
15    [(11)] (12)  Failure to maintain complaint handling
16           procedures.  Failure of any insurer to maintain a
17           complete record of all the complaints which it has
18           received since the date of its last examination under
19           section 431:2-302.  This record shall indicate the
20           total number of complaints, their classification by
21           line of insurance, the nature of each complaint, the
22           disposition of these complaints, and the time it took
23           to process each complaint.  For purposes of this

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                                     S.B. NO.           S.D. 1

 1           section, "complaint" means any written communication
 2           primarily expressing a grievance.
 3    [(12)] (13)  Misrepresentation in insurance applications.
 4           Making false or fraudulent statements or
 5           representations on or relative to an application for an
 6           insurance policy, for the purpose of obtaining a fee,
 7           commission, money, or other benefit from any insurer,
 8           agent, broker, or individual."
 9      SECTION 2.  Section 663-10, Hawaii Revised Statutes, is
10 amended to read as follows:
11      "[[]663-10[]]  Collateral sources; protection for liens and
12 rights of subrogation.  In any civil action in tort, the court,
13 before any judgment or stipulation to dismiss the action is
14 approved, shall determine the validity of any claim of a lien
15 against the amount of the judgment or settlement by any person
16 who files timely notice of the claim to the court or to the
17 parties in the action.  The judgment entered, or the order
18 subsequent to settlement, shall include a statement of the
19 amounts, if any, due and owing to any person determined by the
20 court to be a holder of a valid lien and to be paid to the
21 lienholder out of the amount of the corresponding special damages
22 recovered by the judgment or settlement.  In determining the
23 payment due the lienholder, the court shall deduct from the

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                                     S.B. NO.           S.D. 1

 1 payment a reasonable sum for the costs and fees incurred by the
 2 party who brought the civil action in tort.  As used in this
 3 section, lien means a lien arising out of a claim for payments
 4 made or indemnified from collateral sources, including health
 5 insurance or benefits, for costs and expenses arising out of the
 6 injury which is the subject of the civil action in tort.  If
 7 there is a settlement before suit is filed or there is no civil
 8 action pending, then any party may petition a court of competent
 9 jurisdiction for a determination of the validity and amount of
10 any claim of a lien."
11      SECTION 3.  Statutory material to be repealed is bracketed.
12 New statutory material is underscored.
13      SECTION 4.  This Act shall take effect upon its approval.