Title of Regulation: 14VAC5-400. Rules Governing Unfair Claim Settlement Practices (amending 14VAC5-400-10, through 14VAC5-400-80; adding 14VAC5-400-25, 14VAC5-400-90, 14VAC5-400-100, 14VAC5-400-110).

Statutory Authority: §§ 12.1-13, 38.2-223, and 38.2-510 of the Code of Virginia.

Effective Date: January 1, 2018.

Agency Contact: Katie Johnson, Policy Advisor, Bureau of Insurance, State Corporation Commission, P.O. Box 1157, Richmond, VA 23218, telephone (804) 371-9688, FAX (804) 371-9873, or email katie.johnson@scc.virginia.gov.

Summary:

The amendments closely follow the National Association of Insurance Commissioners' Unfair Claims Settlement Practices Act, Unfair Property/Casualty Claims Settlement Practices Model Regulation, and Unfair Life, Accident and Health Claims Settlement Practices Model Regulation. The amendments (i) set forth claims settlement standards that are specific to automobile insurance, property policies, accident and sickness insurance, life insurance, and annuities; (ii) include clear compliance standards for all insurers and claim settlement standards that are applicable specifically to property policies, accident and sickness insurance, life insurance, and annuities; (iii) clarify that 14VAC5-400 applies to all insurance policies issued in Virginia, except workers' compensation, title insurance, and fidelity and surety insurance; (iv) clarify the definitions of "insured," "insurer," "provider," and "claimant"; (v) include an exception for claims-made policies; (vi) limit the requirement that a signed release indicating payment is final or indicating a settlement has been reached may be obtained from a first party claimant; (vii) limit the release language to the insurer or its insured; (viii) change some of the timeframes; (ix) create an exception to the notification requirement if a provider submits a claim; (x) remove the requirement pertaining to language translations; (xi) add a requirement that a total loss valuation be provided to a claimant upon request; (xii) separate provisions for auto storage and towing; (xiii) specifically address prescription drug claims; and (xiv) allow an insurer to provide to a policyholder a summary of prescription drug claims through an insurer's electronic portal, by telephone, or via written summary upon request.

AT RICHMOND, JUNE 1, 2017

COMMONWEALTH OF VIRGINIA, ex rel.

STATE CORPORATION COMMISSION

CASE NO. INS-2016-00265

Ex Parte: In the matter of
Amending the Rules Governing
Unfair Claim Settlement Practices

ORDER ADOPTING AMENDMENTS TO RULES

By Order to Take Notice ("Order") entered November 14, 2016, insurers and interested persons were ordered to take notice that subsequent to January 31, 2017, the State Corporation Commission ("Commission") would consider the entry of an order adopting amendments to rules set forth in Chapter 400 of Title 14 of the Virginia Administrative Code, entitled "Rules Governing Unfair Claim Settlement Practices" ("Rules"), which amend the Rules at

14 VAC 5-400-10 through 14 VAC 5-400-80, and add new Rules at 14 VAC 5-400-25 and 14 VAC 5-400-90 through 14 VAC 5-400-110, unless on or before January 31, 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 amendments to Chapter 400 are necessary to conform the Rules to the National Association of Insurance Commissioners' Unfair Claims Settlement Practices Act (MDL-900), Unfair Property/Casualty Claims Settlement Practices Model Regulation (MDL-902), and Unfair Life, Accident and Health Claims Settlement Practices Model Regulation (MDL-903). These amendments clarify that Chapter 400 applies to all insurance policies issued in the Commonwealth of Virginia – except policies of workers' compensation insurance, title insurance, and fidelity and surety insurance – including those policies that are issued by health maintenance organizations, dental maintenance organizations, dental provider organizations, health service plans, accident and sickness insurers, and dental and optometric service plans. In addition, the amendments set forth claims settlement standards that are specific to automobile insurance, property policies, accident and sickness insurance, life insurance and annuities.

The Order 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 January 31, 2017.

The Bureau of Insurance ("Bureau") held meetings on January 10, 2017, and January 12, 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 these meetings, the Commission received timely filed comments from the American Council of Life Insurers, the National Risk Retention Association, Allstate Insurance Company, the American Insurance Association, CareFirst BlueCross BlueShield, ProAssurance Corporation, America's Health Insurance Plans, the Property Casualty Insurers Association, the Physician Insurers Association of America, the Virginia Association of Health Plans, and the National Association of Mutual Insurance Companies.

The Bureau considered the comments received and responded to them in its Response to Comments, which the Bureau filed with the Clerk on March 15, 2017. In its Response to Comments, the Bureau recommended numerous revisions to the proposed amendments that addressed many of the comments received.

The Bureau also recommended that the proposed amendments to the Rules and the revisions to these proposed amendments be exposed for additional comment.

On March 20, 2017, the Commission entered an Order to Take Notice of Revised Proposed Rules in which it exposed the revised proposed amendments to the Rules for additional comment until May 1, 2017. The Commission received timely filed comments from Allstate Insurance Company, the National Risk Retention Association, Sentry Insurance Group, Elephant Insurance, the Vermont Captive Insurance Association, the National Association of Mutual Insurance Companies, the Virginia Association of Health Plans, Chubb, the Property Casualty Insurers Association of America, the American Insurance Association, and the State Farm Insurance Companies.

The Bureau considered these comments and responded to them in its Response to Comments, which the Bureau filed with the Clerk on May 22, 2017. In its Response to Comments, the Bureau recommended several revisions to the reproposed amendments that address many of the comments received.

NOW THE COMMISSION, having considered the proposed amendments, the comments filed, the Bureau's Response to Comments, the reproposed amendments to the Rules, 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 January 1, 2018.

Accordingly, IT IS ORDERED THAT:

(1) The amendments to the Rules Governing Unfair Claim Settlement Practices at Chapter 400 of Title 14 of the Virginia Administrative Code, which amend the Rules at 14 VAC 5-400-10 through 14 VAC 5-400-80, and add new Rules at 14 VAC 5-400-25 and 14 VAC 5-400-90 through 14 VAC 5-400-110, which are attached hereto and made a part hereof, are hereby ADOPTED effective January 1, 2018.

(2) The Bureau forthwith shall give notice of the adoption of the amendments to the Rules to all insurers licensed by the Commission to operate in the Commonwealth of Virginia, except for insurers licensed exclusively to write workers' compensation insurance, title insurance, or fidelity and surety insurance, as well as all interested persons.

(3) The Commission's Division of Information Resources forthwith 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: Kiva B. Pierce, Assistant Attorney General, Division of Consumer Counsel, Office of the Attorney General, 900 East Main Street, Second Floor, Richmond, Virginia 23219; 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 Julie Blauvelt and Deputy Commissioner Rebecca Nichols.

Summary of Public Comments and Agency's Response: A summary of comments made by the public and the agency's response may be obtained from the promulgating agency or viewed at the office of the Registrar of Regulations.

14VAC5-400-10. Scope Purpose and scope.

This The purpose of this chapter defines certain is to set forth minimum standards which, if violated with such frequency as to indicate a general business practice, will be deemed to constitute unfair claim settlement practices for the acknowledgment, investigation, and disposition of claims arising under insurance policies issued pursuant to the laws of the Commonwealth of Virginia. This chapter applies to all persons as hereinafter defined in 14VAC5-400-20 and to all insurance policies and insurance contracts except policies of workers' compensation insurance, title insurance, and fidelity and surety insurance and contracts or plans for future hospitalization, medical, surgical, dental, optometric or legal services. This chapter is not exclusive, and other acts, not herein specified, may also be deemed to be a violation of the Unfair Trade Practices Act (§ 38.2-500 et seq. of the Code of Virginia).

14VAC5-400-20. Definitions.

The definition of "person" contained in § 38.2-501 of the Code of Virginia shall apply to this chapter and, in addition, where used in this chapter following words and terms when used in this chapter shall have the following meanings unless the context clearly indicates otherwise:

"Agent" means any individual, corporation, association, partnership or other legal entity person authorized to represent an insurer with respect to a claim;.

"Claim" means a demand for payment by a claimant and does not mean an inquiry concerning coverage;.

"Claimant" means either a first party claimant, a third party claimant, or both, and includes such claimant's a designated legal representative and includes a member of the claimant's immediate family, or [ any other representative a member of the claimant's immediate family ] designated by the claimant;.

"Commission" means the State Corporation Commission of the Commonwealth of Virginia;.

"Documentation" includes all pertinent communications, including electronic communications and transactions, data, notes, work papers, claim forms, bills, and explanation of benefits forms relative to the claim.

"Estimate" means a written statement of the cost of repairs to an automobile or to property, including any supplements.

"Explanation of benefits" means any form provided by any insurer that explains the amounts covered under a policy or plan and shows the amounts payable by a covered person to a health care provider.

"First party claimant" means an individual, corporation, association, partnership or other legal entity asserting insured, a beneficiary, a policy owner, or an annuitant who asserts a right to payment under an insurance policy or insurance contract issued to such individual, corporation, association, partnership or other legal entity arising out of the occurrence of the contingency or loss covered by such policy or contract;.

"Insured" means a person covered by an insurance policy with legal rights to the benefits provided by the policy.

"Insurer" means a person licensed to issue or who that issues any insurance policy or insurance contract in this Commonwealth and or any third party acting on its behalf. Insurer shall also include surplus lines brokers;.

"Investigation" means all activities of an insurer directly or indirectly related to the determination of liability and extent of loss under coverages afforded by an insurance policy or insurance contract; used to make a determination that the claim should be paid, denied, or closed.

"Notification of claim" means any notification, whether in writing or other means acceptable under the terms of the insurance policy or insurance contract, to an insurer or its agent, by a claimant, which reasonably apprises the insurer of the facts pertinent to a claim;

"Person" has the same meaning as defined in § 38.2-501 of the Code of Virginia.

"Policy" means insurance policy, contract, certificate of insurance, evidence of coverage, or annuity.

"Proof of loss" means all necessary documentation reasonably required by the insurer to make a determination of benefit or coverage.

"Provider" means any person providing health care services pursuant to any accident and sickness policy.

"Third party claimant" means any individual, corporation, association, partnership or other legal entity person asserting a claim against any individual, corporation, association, partnership or other legal entity an insured or a provider filing a claim on behalf of an insured under an insurance policy or insurance contract of an insurer;.

"Workers' Compensation insurance" includes, but is not limited to, Longshoremen's and Harbor Workers' Compensation.

14VAC5-400-25. Compliance standards.

It shall be a violation of this chapter if any person:

1. Willfully violates any provision of this chapter; or

2. Commits a violation of any provision of this chapter with such frequency as to indicate a general business practice.

14VAC5-400-30. File and record documentation.

The A. An insurer's claim files shall be subject to examination by the Commission or by its duly appointed designees commission. Such files shall contain all notes and work papers pertaining to the claim in such detail that pertinent events and the dates of such events can be reconstructed.

B. An insurer shall maintain all claim data so that it is accessible and retrievable for examination. Claim data includes the claim number, line of coverage, date of loss and date received, as well as date of payment of the claim, date of denial, or date closed without payment.

C. Detailed documentation shall be maintained for each claim file in order to permit reconstruction of [ all transactions the insurer's activities ] relating to each claim.

D. Each document within the claim file shall be noted as to date received, date processed, or date mailed.

E. All data and documentation shall be maintained for all open and closed files for the current year and, at a minimum, the three preceding calendar years.

14VAC5-400-40. Misrepresentation of policy provisions.

A. No person shall knowingly obscure or conceal from first party claimants, either directly or by omission, benefits, coverages or other provisions of any insurance policy or insurance contract when such insurer shall fail to fully disclose to a first party claimant all pertinent benefits, coverages, or other provisions are pertinent to a claim of an insurance policy under which a claim is presented and document the claim file accordingly.

B. No person shall misrepresent benefits, coverages, or other provisions of any insurance policy when such benefits, coverages, or other provisions are pertinent to a claim.

C. No insurer shall deny a claim for failure of a first party claimant to submit to physical examination or for failure of a the first party claimant to exhibit the property which is the subject of the claim without proof of demand by such insurer and unfounded refusal by a claimant to do so unless there is documentation of breach of the policy provisions in the claim file.

C. D. No insurer shall, except where there is a time limit specified in the policy, make statements, written or otherwise, requiring a deny a claim based on the failure of a claimant to give written notice of loss or proof of loss within a specified time limit and which seek to relieve the company of its obligations if such a time limit is not complied with required by the or give notice of loss within a specified period of time unless either or both requirements are policy provisions conditions. [ An If a policy requires a demonstration of prejudice for a claimant's failure to comply with a notice condition, an ] insurer shall not be relieved of its obligations under the policy unless the failure of a claimant to comply with [ give either written notice of loss or meet time limit requirements for notice comply with the notice condition ] such time limit in fact the notice requirements prejudices the insurer's rights in accordance with the policy.

D. E. No insurer shall request a first party claimant to sign a release that extends beyond the subject matter that gave rise to the claim payment. An insurer shall not include with any payment or in any accompanying correspondence an indication that payment is "final" or "a release" of any claim unless the policy limit has been paid or a compromise settlement has been agreed to by the first party claimant.

E. F. No insurer shall issue checks or drafts a payment in partial settlement of a loss or claim under for a specific coverage which contain that contains language that purports purporting to release the insurer or its insured the first party claimant its insured from its total liability.

14VAC5-400-50. Failure to acknowledge Acknowledgment of pertinent communications.

A. Every An insurer, upon receiving notification of a claim shall, within 10 working 15 calendar days, acknowledge the receipt of such notice to the first party claimant unless payment is made within such period of time. Acknowledgment may be sent to a provider claimant, except that if a provider submits a claim, acknowledgment of the claim is satisfied if payment or denial of the claim is made to the provider within 21 calendar days. If an acknowledgement acknowledgment is made by means other than writing, an appropriate notation of such acknowledgement acknowledgment shall be made in the claim file of the insurer and dated. Notification given by a claimant to an agent of an insurer shall be notification to the insurer.

B. Every insurer, upon Upon receipt of any inquiry from the Commission commission respecting a claim, an insurer shall, within 15 working days of receipt of such inquiry, furnish an adequate a complete response to the inquiry within 14 15 calendar days of receipt.

C. An appropriate reply shall be made within 10 working 15 calendar days on all other pertinent communications from a claimant which that reasonably suggest that a response is expected.

D. Every insurer, upon Upon receiving notification of a first party claim, an insurer shall promptly provide necessary claim forms, instructions, and reasonable assistance so that first party claimants can, including language translations, in order for the claimant to comply with the [ applicable ] policy conditions and the insurer's reasonable requirements; provided, however, every insurer, upon receiving notification of a third party claim, shall promptly provide the third party claimant with all necessary claim forms. Compliance with this subdivision subsection within 10 working 15 calendar days of notification of a claim shall constitute compliance with subsection A of this section.

14VAC5-400-60. Standards for prompt investigation of claims.

A. Unless otherwise specified in the policy, within 15 working Within 10 15 calendar days after receipt by the insurer of any required properly executed proofs proof of loss, a first party claimant shall be advised of the acceptance or denial of the claim by the insurer. If the insurer needs more time to determine whether a first party claim should be accepted or denied, it shall notify the first party claimant within 15 working 10 calendar days after receipt of the proofs proof of loss giving the reasons more time is needed.

B. Unless otherwise specified in the policy, if If an investigation of a first party claim has not been completed, every an insurer shall, within 45 calendar days from the date of the notification of a first party claim and every 45 calendar days thereafter, send to the first party claimant a letter written notice setting forth the reasons additional time is needed for investigation.

14VAC5-400-70. Standards for prompt, fair and equitable settlement of claims Claims settlement standards applicable to all insurers.

A. Any denial of a claim must, including a partial denial, shall be given to a claimant in writing and the claim file of the insurer shall contain a copy of the denial.

B. No An insurer shall deny a claim unless provide a reasonable written explanation of the basis for such any claim denial is included in the written denial. Specific The written explanation shall provide a specific reference to a policy provision, condition, or exclusion shall be made when a denial is based on such provision, condition or exclusion, if any.

C. Insurers An insurer shall not fail to settle first party claims deny a first party claim on the basis that responsibility for payment should be assumed by others except as may otherwise be provided by policy provisions.

D. In any case where there is no dispute as to coverage or liability, every an insurer must shall offer to a first party claimant, or to a first party claimant's authorized representative, an amount which that is fair and reasonable as shown by the investigation of the claim, provided the amount so offered is within policy limits and in accordance with policy provisions.

E. An insurer shall not unreasonably refuse to pay any claim in accordance with the provisions of the policy.

F. An insurer shall not compel a first party claimant to institute a suit to recover amounts due under the policy by offering substantially less than the amounts ultimately recovered in a suit brought by the first party claimant. 

14VAC5-400-80. Standards for prompt, fair and equitable settlements Claims settlement standards applicable to automobile insurance.

A. Where liability is reasonably clear, insurers an insurer shall not recommend that a third party claimants claimant make claims a claim under their its own policies policy solely to avoid paying claims a claim under such insurer's insurance the insured's policy or insurance contract.

B. Insurers An insurer shall not require a claimant to travel unreasonably either to inspect a replacement automobile, to obtain a repair estimate, or to have the automobile repaired at a specific repair shop.

C. Insurers An insurer shall, upon the claimant's request, include the first party claimant's insured's deductible, if any, in subrogation demands. Subrogation recoveries shall be shared on a proportionate basis with the first party claimant insured, unless the deductible amount has been otherwise recovered. No deduction for expenses can be made from the deductible recovery unless an outside attorney is retained to collect such recovery. The deduction may then be for only a pro rata share of the allocated loss adjustment expense.

D. If When an insurer prepares an estimate of the cost of automobile repairs, such the estimate shall be in an amount for which it may be reasonably expected the damage can may reasonably be expected to be satisfactorily repaired. The insurer shall give a copy of the estimate to the claimant and may furnish to the claimant the names of one or more conveniently located qualified repair shops. A total loss valuation shall be provided to the claimant upon request.

E. When the amount claimed is reduced because of betterment or depreciation, all information for such reduction shall be contained in the claim file. Such deductions shall be itemized and specified as to dollar amount and shall be appropriate for the amount of deductions.

F. When an insurer elects to repair and the automobile is in fact repaired in a repair shop selected by the insurer or designated by the insurer as a repair shop that will repair the automobile for the amount offered by the insurer, the insurer shall cause the damaged automobile to be restored to its condition prior to the loss at no additional cost to the claimant other than as stated in the policy and within a reasonable period of time.

G. An insurer shall provide reasonable notice to a claimant prior to termination of payment for automobile storage charges. The insurer shall provide reasonable time for the claimant to remove the automobile from storage prior to the termination of payment.

Unless H. If towing is a result of a covered loss, unless the insurer has provided a claimant with the name names of a specific towing company companies prior to the claimant's use of another towing company, the insurer shall pay all reasonable towing charges irrespective of the towing company used by the claimant.

H. I. Prior to termination of payment for transportation or rental reimbursement expenses, the insurer shall provide reasonable time for the claimant to receive payment for automobile repairs or replacement. In the event of a total loss, the insurer shall provide reasonable time for a claimant to acquire receive payment for a replacement automobile.

14VAC5-400-90. Claims settlement standards applicable to property policies.

When an insurer prepares an estimate of the cost of repairs to property, the estimate shall be an amount for which the damage [ can may reasonably be expected to ] be satisfactorily repaired. The insurer shall give a copy of the estimate to the claimant.

14VAC5-400-100. Claims settlement standards applicable to accident and sickness insurance, life insurance, and annuities.

A. An A life or annuity insurer shall review any notice of claim or proof of loss submitted against one policy to determine if such notice of claim or proof of loss may fulfill the insured's obligation under any other policy issued by that insurer.

B. For accident and sickness claims, an insurer shall provide to [ a first party claimant the insured ] an explanation of benefits describing the coverage for which the claim is paid or denied within 10 [ 15 21 ] calendar days of receipt of proof of loss, unless otherwise specified in the policy. [ If an insurer needs additional time to make a determination, it shall send a notice giving the reasons more time is needed to the insured within the timeframe in this subsection. ]

C. An insurer shall provide an explanation of benefits for make available a summary of prescription drug claims that may be provided in the aggregate no less frequently than quarterly electronically or provide a written summary at the request of the insured. A summary of prescription drugs shall describe the amounts covered under the policy, amounts denied, and amounts payable by the insured and insurer.

C. D. An insurer shall not arbitrarily or unreasonably deny or delay payment of a claim in which liability has become reasonably clear.

14VAC5-400-110. Severability.

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