04-03: Legislation Enacted in the 2004 Legislative Session

* This bulletin was repealed by 08-05

To:           All Insurance Companies, Health Services Corporations, Health Maintenance Organizations, and                 Fraternal Benefit Societies Licensed in Missouri

From:      Scott B. Lakin, Director, Missouri Department of Insurance

Re:          Legislation Enacted in the 2004 Legislative Session

Date:       October 1, 2004

This bulletin presents a brief summary of certain insurance related legislation enacted earlier this year in the Second Regular Session of the 92nd Missouri General Assembly. Although we have attempted to highlight legislation relevant to the insurance industry, please be advised that this bulletin is not intended to be a comprehensive analysis of all the new legislative provisions. Additional legislation may have been enacted that could require action on the part of your company or insurance licensees. The Department strongly cautions you to independently review all recent legislation to ensure your continued compliance with Missouri law. The following is intended only to assist you in identifying particular legislative proposals that may be of significance to your company (section references herein are to the Revised Statutes of Missouri):

Financial Regulation/Receivership/Taxation

HB 1182: This bill allows Agricultural Product Utilization Contributor Tax Credits and New Generation Cooperative Incentive Tax Credits to be taken against estimated quarterly taxes and to be carried back to the contributor's three prior tax years. The Missouri assessment forms have been amended to allow a designation of the specific credit claimed and the requested credit amount. In order for a company to apply the two credit types against the quarterly tax due, copies of the credit receipt(s) must be submitted along with the assessment form showing the application of the credit amount(s) and type(s) to the Missouri Department of Revenue. While submission of a copy of the credit receipt with the assessment form will help satisfy a company's obligation to pay the quarterly tax payment, the credit will not be considered to be "redeemed" for tax accounting purposes at that time. The actual redemption of the credit will occur when a company subsequently files its premium tax return setting forth its annual premium tax liability. Accordingly, companies should continue to submit the original credit receipts establishing the credit to be redeemed to the Department of Insurance along with the premium tax return in the same manner as they currently do.

HB 1198/SB 1078: These bills revise Section 382.210 to make property and casualty insurance companies subject to the same type of extraordinary dividend/distribution restrictions and requirements as life and title insurers. For the purposes of applying the standard of Section 382.210 to property and casualty insurers, the bill provides a definition of "net income" that excludes net realized capital gains to the extent that realized capital gains exceed realized capital losses.

HB 1253/SB 1235: These bills modify Missouri's credit for reinsurance and receivership statutes to make them more consistent with similar laws in other states. HB 1253 also updates the authorized coverage limit in Missouri's FAIR Plan law. Highlights of the bill are as follows:

Credit for Reinsurance: Section 375.246, which is based upon the NAIC "Credit for Reinsurance Model Law," allows primary insurers that purchase reinsurance to claim a credit on their financial statements if the reinsurance and the reinsurer meet certain standards. One of these standards is a requirement that the reinsurance contract contain an "insolvency clause" that requires the reinsurer to pay the receiver of an insolvent company for amounts that it owes without any diminution due to the insolvency. This statute previously required the insolvency clause to apply to "impaired or insolvent" insurance companies, and the bills have removed the term "impaired" to make it consistent with other states.

Receiverships: Section 375.1198 deals with the setoff of mutual debts and credits in the event of an insurance company receivership. Language added to this section makes it clear that setoff is not allowed whether the insolvent insurer is the primary insurer or the reinsurer in a situation where the primary insurer enters into reinsurance contracts that first transfer the risk to a reinsurer and then transfer that same risk back to the primary insurer.

Section 375.1220 allows a receivership to estimate its future claims for the purpose of figuring out how much a reinsurer might ultimately owe to the receivership estate; however, such estimates could not be used to compel payment from a reinsurer on the basis of estimated incurred but not reported losses. This limitation on the use of claims estimation was subject to a sunset provision due to expire the end of 2005. The bills have removed the sunset provision and added language allowing evidence of the estimated incurred but not reported losses to be admissible in a court or other tribunal.

* See summary of HB 1299 for additional provisions relative to the increase in coverage provided by the FAIR Plan for residential property.

SB 1099: This bill enacts the Missouri Tax Credit Accountability Act of 2004, which establishes mandatory monitoring and disclosure requirements for applicants for designated Missouri business and charitable tax credits. The Act now requires the administering agency to verify whether a taxpayer is delinquent on any state or insurance tax or penalty prior to authorizing the tax credit. Although a delinquency may not affect the approval of the tax credit, the amount of the credit may be reduced by the delinquency. The Act also renders certain documents submitted in conjunction with a tax credit request subject to public disclosure.

Life & Health

HB 855: This bill enacts a new Section 376.1550. For health plans issued in connection with an employee welfare benefit plan (i.e., what HIPAA refers to as the "group market") this section requires insurance companies, health services corporations and health maintenance organizations to provide coverage for mental health conditions on the same basis as coverage for physical health conditions. Excluded from this "mental health parity" mandate, however, is coverage for chemical dependency, including alcoholism. Coverage for chemical dependency/alcoholism in the group market must comply with the requirements of Sections 376.779, 376.810 to 376.814, and 376.825 to 376.836. Sections 376.779, 376.810 to 376.814, and 376.825 to 376.836 will also continue to apply to the provision of benefits for mental illness, chemical dependency and alcoholism in the same manner as currently for "individually underwritten" health coverage (i.e., what HIPAA refers to as the "individual market"). Exempt from the provisions of Sections 376.779, 376.810 to 376.814, 376.825 to 376.836, and 376.1550 are "a supplemental insurance policy, including a life care contract, accident-only policy, specified disease policy, hospital policy providing a fixed daily benefit only, Medicare supplement policy, long-term care policy, hospitalization-surgical care policy, short-term major medical policy of six months or less duration, or any other supplemental policy as determined by the director of the department of insurance."

Because of the many questions received regarding the provisions of this bill, the Department plans on issuing additional guidance soon.

HB 938/SB 1188: In 2002, the Legislature passed HB 1568. HB 1568 reduced the minimum interest rate for individual deferred annuities to 1.5%, but this change had a sunset date of July 1, 2004. HB 938 and SB 1188 amend the formula used for determining the minimum present value of an annuity when it is terminated early (frequently referred to as nonforfeiture benefits or cash value). The new law allows for these annuities to offer a floating rate that is tied to the five-year Constant Maturity Treasury Rate, as reported by the Federal Reserve, and allows sellers of annuities to continue to use the current formula until July 1, 2006. The revised language is model language from the National Association of Insurance Commissioners and has been enacted or introduced in many other states. This legislation will only impact new annuity contracts. Pursuant to an emergency clause incorporated in SB 1188, this change became effective as of June 21, 2004.

HB 1233: Section 376.433 of this bill grants certain public entities that self-insure for health care benefits or other health care services the same rights, obligations and remedies that the Department of Social Services has with the Medicaid program, including subrogation rights. This bill overturns prior case law holding that self-funded public entity employee health plans are prohibited by public policy from requiring "subrogation" or "reimbursement" from plan participants. See, Hays v. Mo. Highway and Transportation Comm., 62 S.W.3d 538 (Mo.App. 2001).

Licensing

HB 978: In 2003, the Missouri General Assembly enacted HB 600, which requires the revocation of the insurance license of any individual who is delinquent on Missouri state taxes or who has failed to file a state income tax return. HB 978 amends Section 324.010 to provide that the license shall be suspended in lieu of revocation. An insurance producer subject to suspension under Section 324.010 is prohibited from acting as an insurance producer in the state of Missouri while the license is suspended.

The Department has received several inquiries regarding the possibility of notifying insurers of a HB 600 related suspension. Pursuant to SB 193, effective January 1, 2003, the Department is no longer notified of producer appointments and no longer maintains such records. The status of a licensee may be verified, however, via the Department's website or through the NAIC Producer Data Base.

SB 1122: This bill establishes the "Professional Bail Bondsman and Surety Recovery Agent Licensure Act". This Act substantially revises the current licensing and compliance requirements for bail bond licensees, and grants the Department regulatory jurisdiction over surety recovery agents operating in the state of Missouri. Effective January 1, 2005, the Department must license all persons performing surety recovery functions in the state of Missouri. The Department is issuing a separate bulletin that provides further guidance on the requirements of SB 1122 and addresses immediate compliance/licensing concerns.

* See summary for SB 1299 for additional licensing provisions relating to surplus lines licensees.

Property & Casualty

HB 1090: Currently, Section 461.025 authorizes the transfer of real property by deed to a beneficiary upon the death of the owner. HB 1090 enacted Section 379.808, which makes the beneficiary of property transferred pursuant to a Section 461.025 beneficiary deed an insured under any property insurance policy in effect on the property at the time of the original owner's death. Coverage for the new insured will extend for 30 days after the original owner's death, or until the current policy expires, or until the beneficiary obtains alternative coverage, whichever occurs first. The required coverage does not affect any coverage provided under the policy to any person deemed to be an insured on the death of the owner.

Current insurance contracts covering real property (personal or commercial) will be required to provide the benefits for this extension of coverage to any person who might receive the insured real property by a beneficiary deed. The contract will need to provide for the extension of this coverage for the time frame identified in the statute. The law goes into effect on August 28, 2004, on all new policies.

The next endorsement filed on existing policy forms and any new policy form submitted for review should include this change. The Department will be adding this requirement to the checklist for policy form submissions for real property. If you have any questions regarding this change, please contact Susan Schulte, Property & Casualty Section Chief, at (573) 751-3365.

HB 1284: This bill amends Missouri law by redefining a salvage vehicle under Section 301.010(50) to include a vehicle for which the cost of repairs exceeds 75% of its "fair market value." This bill defines "fair market value" for purposes of calculating when a vehicle is salvage and makes a salvage title negotiable with one reassignment on the title by a registered dealer or an insurance company.

As a result of this legislation (and of additional notification requirements for insurance companies for salvage vehicles contained in Section 301.020 of SB 1233, 840 & 1043) the titling process for insurance companies acquiring vehicles as a result of a claim settlement has been changed by the Department of Revenue. The Department of Revenue has issued a bulletin detailing the specific provisions of the law and the related compliance/titling requirements. The Department of Revenue's bulletin and related forms may be requested from the Department of Revenue.

HB 1285: This bill prohibits car rental companies from requiring the purchase of a collision damage waiver or car rental insurance as a condition for rental. Additionally, rental companies are required to inform consumers of the optional availability of car rental insurance or a waiver and that the insurance/waiver may already be provided by the renter's personal insurance or credit card. Any fee charged for insurance or a collision damage waiver must be separately identified in the car rental agreement. The Department will be updating its consumer informational brochures to incorporate the legislative changes.

HB 1291/SB 1086: Under these bills, the current Section 375.937 has been revised to prohibit certain lenders from requiring borrowers to obtain homeowners insurance in an amount exceeding the replacement value of the improvements and contents of the real property as a condition of financing a residential mortgage or providing financial arrangements for residential property. However, a violation of the new legislation does not affect the validity of the loan, mortgage, deed of trust or a note secured by a deed of trust.

SB 1233, 840 & 1043: Effective January 1, 2007, all administrators of motor vehicle extended service contracts must be registered with the Department. The new law defines a service contract as any contract or agreement for consideration or a specific duration to repair, replace or maintain a motor vehicle, or to indemnify for such repair, replacement or maintenance, for any operational or structural failure of the motor vehicle due to a defect in materials, workmanship or normal wear and tear. Mechanical breakdown insurance, maintenance agreements, warranties, commercial transactions and service contracts not offered to consumers are excluded from this definition. All service contracts are required to comply with certain notification and disclosure requirements and must clearly disclose all contractual terms and any prior approval provisions.

In addition to registering with the Department, all administrators must demonstrate financial responsibility by either insuring the service contract under a reimbursement insurance policy, maintaining a sufficiently funded reserve account or by posting a financial security deposit with the Department (i.e., a bond). Reimbursement policies may only be issued by an authorized insurer and must disclose the insurer's obligations pursuant to the policy. Insurers are prohibited from terminating a reimbursement policy until notification has been provided to the Department.

The Department may issue further guidance on specific requirements of this legislation prior to the January 1, 2007, effective date. In the interim, the Department will review applicable filings to identify potential compliance issues.

* Portions of this bill are identical to HB 1284 and HB 1285 which were also enacted in the 2004 legislative session and have been separately summarized in this bulletin.

SB 1299: The following statutory changes have been made to Missouri laws governing the Missouri Property and Casualty Insurance Guaranty Association, renewal of automobile insurance and surplus lines licensing requirements:

Guaranty Association: The bill amends Missouri's property and casualty guaranty association statutes to include provisions from a model law adopted by the National Council of Insurance Guaranty Funds. In part, these changes: (1) expand the coverage provided by the guaranty association to claimants, including reimbursement for non-economic damages and higher limits for return of unearned premium; (2) clarify what items are and are not covered by the guaranty association; and (3) clarify the guaranty association's powers to seek reimbursement from third parties.

Automobile Insurance: The bill amends the current definition of renewal in Section 379.110(4) to provide that an automobile insurance policy with less than a six-month term or a term without a fixed expiration date shall be considered as if written for successive 6-month policy periods. However, the revised definition does not supersede the current Section 375.918.9, which prohibits an insurer from taking adverse action based on a credit report or an insurance credit score "until or after the third anniversary date of the initial contract." For purposes of Section 375.918.9, the bill defines the term "third anniversary date of the initial contract" as three years after the date of the initial contract.

Surplus Lines Licensing Requirements: Sections 384.043, 384.062, and 384.065 have been amended to eliminate the requirement that applicants for a surplus lines insurance license file a bond with the Department. To implement this new law, all holders of a surplus lines license may have their current surplus lines licensee bond cancelled effective August 28, 2004. Questions regarding the surplus lines portions of SB 1299 should be directed to the Department at (573) 526-1589.

FAIR Plan Coverage: Section 379.825 has been amended by SB 1299 to increase the maximum limit of coverage for residential property insurance provided through the FAIR Plan from $100,000 to $200,000. Although homes have increased in value over the years, the FAIR Plan statutes have not been amended to increase the coverage limit for homes since the FAIR Plan statutes were first enacted in 1969.

Miscellaneous

SB 974: Coverage under the State Legal Expense Fund has been extended to physicians licensed pursuant to Chapter 334 who provide free health screenings without receiving compensation. The new law also clarifies that malpractice insurance obtained by or on behalf of designated health care providers shall not be considered available to pay any portion of a judgment or claim for which the State Legal Expense Fund is liable.

SB 1020, 889 & 869: This act, which is a consolidation of three bills, revises various provisions of Missouri's Sunshine Law relating to the disclosure of public records. In addition to general restrictions applicable to public entities, this act limits copying fees for public records to 10 cents per page for copies no larger than 9 by 14 inches. The hourly fees for copying time by a Department employee are limited to the average hourly rate of pay for the Department's clerical staff while fees for researching a record request may be charged at the actual cost of research time. The Department's current average hourly rate is $11.84 per hour. The fee for maps, copies larger than 9 by 14 inches and for access to computer records may include the cost of copies, the cost of any disk used for duplication and the cost of staff research time. If specialized personnel are needed to copy documents, a different fee may be charged for personnel time.

Individuals requesting documents pursuant to Missouri's Sunshine Law may request an estimate of the costs prior to the production of the records.

Once again, all interested persons are encouraged to independently review legislation passed in the 2004 legislative session. A list of all legislation enacted in the 2004 session may be obtained at http://governor.mo.gov/legis04/laf2004.htm. The full bill text of all legislative bills may be individually accessed through the Missouri General Assembly's website at http://www.house.state.mo.us/jointsearch/.