Title of Regulation: 14VAC5-335. Rules Governing Claims-Made Liability Insurance Policies (amending 14VAC5-335-10 through 14VAC5-335-60; adding 14VAC5-335-23, 14VAC5-335-27, 14VAC5-335-45).

Statutory Authority: §§ 12.1-13 and 38.2-223 of the Code of Virginia.

Effective Date: October 1, 2018.

Agency Contact: Eric Lowe, Policy Advisor, Bureau of Insurance, State Corporation Commission, P.O. Box 1157, Richmond, VA 23218, telephone (804) 371-9628, FAX (804) 371-9873, or email eric.lowe@scc.virginia.gov.

Summary:

The amendments update the rules to reflect current positions and practices for filing and approval, establish greater clarity for ease of application, and modernize the rules to create more consistency with the regulatory requirements of other states. The amendments (i) clarify that the rules do not apply to incidental claims-made liability insurance, (ii) make a distinction between a basic extended reporting period and a supplemental reporting period and identify clear standards for each, (iii) change the required consumer notice provided with a claims-made insurance policy, (iv) clarify and simplify the extended reporting period requirements upon policy termination, (v) reduce the period of time for the mandatory offer of a supplemental extended reporting period, (vi) add a requirement for the insurer to provide loss information to the insured, and (vii) clarify certain prohibitions and minimum standards.

In response to comments regarding the proposed changes to the regulation, additional amendments (i) clarify that the rules do not apply to nonadmitted insurers; (ii) adjust definitions; (iii) clarify requirements for a basic extended reporting period, eliminating the time limitation; (iv) clarify offer and effective date provisions for any supplemental extended reporting period; and (v) more clearly define requirements to provide loss information.

AT RICHMOND, MARCH 13, 2018

COMMONWEALTH OF VIRGINIA, ex rel.

STATE CORPORATION COMMISSION

CASE NO. INS-2017-00202

Ex Parte: In the matter of
Amending the Rules Governing
Claims-Made Liability Insurance Policies

ORDER ADOPTING AMENDMENTS TO RULES

By Order to Take Notice ("Order") entered October 2, 2017, insurers and interested persons were ordered to take notice that subsequent to November 30, 2017, the State Corporation Commission ("Commission") would consider the entry of an order adopting amendments to rules set forth in Chapter 335 of Title 14 of the Virginia Administrative Code, entitled "Rules Governing Claims-Made Liability Insurance Policies" ("Rules"), which amend the Rules at 14 VAC 5-335-10 through 14 VAC 5-335-60 and add new Rules at 14 VAC 5-335-23, 14 VAC 5-335-27 and 14 VAC 5-335-45, unless on or before November 30, 2017, any person objecting to the adoption of the amendments to the Rules filed a request for a hearing with the Clerk of the Commission ("Clerk").

The Order also required insurers and interested persons to file their comments in support of or in opposition to the proposed amendments to the Rules with the Clerk on or before November 30, 2017.

The Bureau of Insurance ("Bureau") held a meeting on November 2, 2017 to allow for insurers and interested persons to discuss and address questions about the proposed Rules with Bureau staff. In addition to comments and questions that the Bureau received during this meeting, the Commission received timely filed comments from the American Insurance Association, Insurance Services Office, Inc., Markel Corporation, National Risk Retention Association and the Physician Insurers Association of America. No request for a hearing was filed.

The Bureau considered the comments received and responded to them in its Statement of Position in Response to Comments ("Response to Comments"), which the Bureau filed with the Clerk on March 1, 2018. In its Response to Comments, the Bureau recommended numerous revisions to the proposed amendments that address many of the comments received.

The amendments to Chapter 335 are necessary to update the Rules to reflect current positions and practices for filing and approval, establish greater clarity for ease of application and modernize the Rules to create more consistency with the regulatory requirements of other states.  The proposed amendments and revisions as a result of the comments clarify and further define that the Rules do not apply to non-admitted insurers or to incidental claims-made liability insurance, make a distinction between a basic extended reporting period and a supplemental reporting period and identify clear standards for each, clarify and simplify provisions to offer a supplemental extended reporting period and the effective date for such period, add requirements for the insurer to provide loss information to the insured, and clarify certain prohibitions and minimum standards.

NOW THE COMMISSION, having considered the proposed amendments, the comments filed, the Bureau's Response to Comments and all the amendments to the Rules, is of the opinion that the attached amendments to the Rules should be adopted as amended, effective October 1, 2018.

Accordingly, IT IS ORDERED THAT:

(1) The amendments to the Rules Governing Claims-Made Liability Insurance Policies at Chapter 335 of Title 14 of the Virginia Administrative Code, which amend the Rules at 14 VAC 5-335-10 through 14 VAC 5-335-60 and add new Rules at 14 VAC 5-335-23, 14 VAC 5-335-27 and 14 VAC 5-335-45, which are attached hereto and made a part hereof, are hereby ADOPTED effective October 1, 2018.

(2) The Bureau shall provide notice of the adoption of the amendments to the Rules to all insurers licensed by the Commission to write insurance as defined in §§ 38.2-117, 38.2-118 and 38.2-111 B of the Code, as well as all interested persons.

(3) The Commission's Division of Information Resources shall cause a copy of this Order, together with the final amended Rules, to be forwarded to the Virginia Registrar of Regulations for appropriate publication in the Virginia Register of Regulations.

(4) The Commission's Division of Information Resources shall make available this Order and the attached amendments to the Rules on the Commission's website: http://www.scc.virginia.gov/case.

(5) The Bureau shall file with the Clerk of the Commission an affidavit of compliance with the notice requirements of Ordering Paragraph (2) above.

(6) This case is dismissed, and the papers herein shall be placed in the file for ended causes.

AN ATTESTED COPY hereof shall be sent by the Clerk of the Commission to: Office of the Attorney General, Division of Consumer Counsel, 202 N. 9th Street, 8th Floor, Richmond, Virginia 23219-3424; and a copy hereof shall be delivered to the Commission's Office of General Counsel and the Bureau of Insurance in care of Deputy Commissioner Rebecca Nichols.

14VAC5-335-10. Scope.

The provisions of this chapter shall apply to all policies of liability insurance, as defined in §§ 38.2-117, 38.2-118, and subsection B of § 38.2-111 of the Code of Virginia, that limit the time allowed for reporting claims arising out of injury, damage, or wrongful act or omission covered by the policy. Any such policy shall be deemed to be a claims-made liability insurance policy for purposes of this chapter. The provisions of this chapter shall apply to all claims-made liability insurance policies delivered or issued for delivery in the Commonwealth [ by an admitted insurer ] to become effective on or after January 1, 2005 [ July October ] 1, 2018.

This chapter shall not apply to incidental claims-made liability insurance.

14VAC5-335-20. Definitions.

The following words and terms when used in this chapter shall have the following meanings unless the context clearly indicates otherwise:

[ "Admitted insurer" means an insurer licensed in the Commonwealth to engage in the business of insurance. An admitted insurer does not include any surplus lines insurer. ]

"Basic extended reporting period" means an [ extension of the time allowed for reporting claims, after termination of any claims-made liability coverage, for injury, damage, or wrongful act or omission that occurred prior to termination of the coverage and that, except for the requirement to report claims during the policy period, was otherwise covered by the policy automatic extended reporting period provided at no additional premium charge ].

"Claims-made liability insurance policy" means an insurance policy or endorsement providing coverage for the insured's liability for injury, damage, or wrongful act or omission occurring prior to the termination of coverage but subsequent to any applicable retroactive date, provided the claim for such injury, damage, or wrongful act or omission is first made during the policy period or any extended reporting period.

[ "Extended reporting period" means an extension of the time allowed for reporting claims, after termination of any claims-made liability ] coverage, [ policy for injury, damage, or wrongful act or omission that occurred prior to termination of the ] coverage [ policy and that, except for the requirement to report claims during the policy period, was otherwise covered by the policy. ]

"Incidental claims-made liability insurance" means any claims-made liability [ insurance that is coverage ] contained in [ any or attached to a ] policy [ of insurance in which the coverage is provided with either no separate or identifiable charge or with a premium amount that does not exceed 10% of the total premium charged for the policy providing liability insurance on other than a claims-made basis ].

"Medical [ malpractice professional liability ] insurance" means insurance coverage against the legal liability of the insured and against loss, damage, or expense incident to a claim arising out of the death or injury of any person as the result of [ actual or alleged ] negligence in rendering or failing to render professional service by any provider of health care.

"Policy" means a coverage part, form, or endorsement that is contained in a contract of insurance.

"Retroactive date" means the date on or after which injury, damage, or wrongful act or omission may occur and be covered under a claims-made liability insurance policy.

"Supplemental extended reporting period" means an extended reporting period that is available for the insured to purchase.

[ "Unimpaired limit of liability" means a limit equal to the dollar amount shown as the aggregate limit in the declarations (i) at the inception of the policy period or (ii) as amended in the policy thereafter, and in force at the time of the termination of the policy. ]

14VAC5-335-23. Required notice.

The following notice, or a notice that is substantially similar, shall be provided in writing with each new and renewal claims-made liability insurance policy [ issued or delivered in this Commonwealth ]:

You have purchased claims-made liability insurance. When this insurance terminates, the insurer will send an offer with the available options for purchasing the supplemental extended reporting period. You may be entitled to receive information on claims under this policy. If you have any questions regarding your claims-made coverage or the importance of purchasing the supplemental extended reporting period, please contact your insurance company or your insurance agent.

14VAC5-335-27. Standards for basic extended reporting period.

An insurer may offer a basic extended reporting period [ that is included in the policy and incurs no additional charge. The basic extended reporting period shall not be longer than 12 months. If a basic extended reporting period is offered, it shall be included in the policy ].

14VAC5-335-30. Insurers Requirement to offer supplemental extended reporting period coverage.

A. Every claims-made liability insurance policy [ issued or delivered in this Commonwealth ] shall include a provision which shall offer to that the named insured extended reporting period coverage upon termination of claims-made coverage may purchase a supplemental extended reporting period in accordance with the provisions of 14VAC5-335-40 upon policy termination. To the extent that policy limits apply separately to each named insured, each named insured shall be separately entitled to purchase an a supplemental extended reporting period. Termination Policy termination of claims-made coverage shall include:

1. Cancellation or nonrenewal of the policy by the insurer or the insured;

2. Advancement of any applicable retroactive date; or

3. Renewal of the coverage policy on other than a claims-made basis.

B. The insured shall be allowed at least 30 days after termination in which to purchase the extended reporting period coverage.

C. Notwithstanding the foregoing, B. No offer of a supplemental extended reporting period coverage does not have to be offered is required if cancellation or nonrenewal of a claims-made liability insurance policy is due to:

1. Nonpayment of premium;

2. Failure to comply with terms or conditions of the policy; or

3. Fraud.

C. Each claims-made liability insurance policy shall contain provisions that clearly state when the supplemental extended reporting period will and will not be offered.

D. No insurer shall deliver or issue for delivery a claims-made liability insurance policy in this Commonwealth unless such policy contains the provisions set forth in subsections A, B and C of this section Upon a policy termination [ in accordance with as set forth in ] subsection A of this section, the insurer shall offer in writing to the named insured a supplemental extended reporting period. The offer shall include the duration and premium of the [ minimum ] required supplemental extended reporting period coverage in 14VAC5-335-40 and [ all any ] other available duration and premium options. The offer shall be sent no earlier than the date of notification of termination of the policy and not later than 15 days after the termination of the policy. The named insured shall have a minimum of 30 days from [ the termination of the ] policy [ termination ] to purchase the supplemental extended reporting period.

E. The following notice, or a notice that is substantially similar, shall be provided in writing with each new and renewal claims-made liability insurance policy issued or delivered in this Commonwealth:

You have purchased a claims-made liability insurance policy. Please read this policy carefully to understand your coverage. There are certain circumstances in which you must be provided the opportunity to purchase an extended reporting period for reporting claims. These are explained in your policy. If you have any questions regarding the cost of an extended reporting period or the available options under the extended reporting period, please contact your insurance company or your insurance agent.

14VAC5-335-40. Extended Supplemental extended reporting period requirements.

A. Each insurer shall offer a supplemental extended reporting period to allow an extension of the time [ allowed ] to report claims as follows:

1. For medical [ professional liability malpractice ] insurance, an unlimited [ supplemental ] extended reporting period shall be offered with unimpaired limits of liability and shall be effective the same day as the termination of the policy; or

2. For all other claims-made liability insurance policies, a two-year [ one-year supplemental ] extended reporting period [ of at least one year ] shall be offered.

However, this shall not prohibit In addition, the insurer from may also offering offer greater or more limited extensions of time in which to report claims. No insurer shall deliver or issue for delivery a claims-made liability insurance policy in this Commonwealth unless such policy contains the applicable provisions set forth in this subsection.

B. Each insurer shall offer an extended reporting period that includes unimpaired limits of liability equal to the limits of the policy being extended. However, this shall not prohibit the insurer from also offering higher or lower limits of liability applicable to the extended reporting period. No insurer shall deliver or issue for delivery a claims-made liability insurance policy in this Commonwealth unless such policy contains the applicable provisions set forth in this subsection. This subsection shall not apply to excess or umbrella liability coverage, or environmental impairment or pollution liability coverage, or to a limited extended reporting period of 60 days or less provided automatically without an additional premium charge; nor shall this subsection apply to any class, line, subclassification, or market segment exempted from this requirement by order of the commission [ In the event the policy contains no basic extended reporting period or the insured purchases reinstated limits A supplemental extended reporting period purchased with unimpaired limits of liability ] in whole or in part [ , the supplemental extended reporting period ] shall be effective the same day as the termination of the policy. [ In all other instances, the policy provisions shall establish the effective date of the supplemental extended reporting period as (i) the same day as the termination of the policy if no basic extended reporting period applies, or (ii) the same day the basic extended reporting period expires if a basic extended reporting period applies. ]

C. When an insurer excludes any existing coverage from a claims-made liability insurance policy and the policy remains in effect or is renewed, the insurer shall offer an extended reporting period for such coverage on the same basis that the extended reporting period would be offered if the entire policy were being terminated. For purposes of this subsection, the exclusion of any existing coverage shall not include changes in policy limits or deductibles.

14VAC5-335-45. Requirement to provide loss information.

[ A. ] If the policy is issued with an aggregate limit [ , the:

1. The ] insurer shall provide loss information to the named insured with the notice of cancellation or nonrenewal of the [ claims-made ] policy [ ; ] or

[ 2. The named insured may request loss information within 120 days from the date of policy renewal. The insurer shall provide such loss information ] within 15 calendar days of the insured's request.

[ B. ] The loss information shall [ include the aggregate amount of payments and reserves subject to the aggregate limit for any closed claims, open claims, or notices of occurrence for the period to which the aggregate applies be sufficient to inform the named insured regarding the remaining or potentially remaining limits of coverage available under the terminating policy.

C. This section shall apply to medical professional liability insurance only if the insurer offers an extended reporting period with other than unimpaired limits of liability ].

14VAC5-335-50. Prohibitions.

A. Once purchased by the insured, The supplemental extended reporting period coverage shall not be cancelled canceled by the insurer without the consent of the insured except for nonpayment of premium or fraud. No extended reporting endorsement shall be delivered or issued for delivery in this Commonwealth unless it contains this provision.

B. Except with respect to a limited extended reporting period of 60 days or less provided automatically without an additional premium charge, an insurer shall be prohibited from voiding No insurer shall deny coverage under a supplemental extended reporting period coverage on the basis that other applicable insurance coverage is in effect. However, this shall not prohibit an An insurer from applying may apply the supplemental extended reporting period coverage as excess over such other insurance.

14VAC5-335-60. Severability.

If any provision of this chapter or the its application thereof to any person or circumstance is for any reason held to be invalid by a court, the remainder of the this chapter and the application of such provision the provisions to other persons or circumstances shall not be affected thereby.