HB58INTRODUCED
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QNJ851-1
By Representative Ellis
RFD: Insurance
First Read: 07-Mar-23
PFD: 06-Mar-23
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5 QNJ851-1 11/28/2022 FC (L) ma 2023-314
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SYNOPSIS:
Under existing law, insurance placed by lenders
on real property is subject to the general laws
applicable to property insurance.
This bill would provide a specific framework for
regulating lender-placed insurance on real property in
order to help maintain the separation between lenders
and insurers and minimize unfair competitive practices
in the sale, placement, solicitation, and negotiation
of lender-placed insurance. The bill is based on a
model act adopted by the National Association of
Insurance Commissioners (NAIC).
This bill would further define the term of the
lender-placed insurance on real property and would
provide for the calculation of coverage and payment of
premium.
This bill would further provide for prohibited
practices in the issuance of lender-placed insurance on
real property, would require certain details of the
insurance to be set forth in the policy or certificate
of insurance, and would require for the filing and
approval of the forms and rates to be charged for the
insurance.
This bill would further provide for the
enforcement of the act, penalties for violations of the
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act, and for judicial review of orders by the
Commissioner of Insurance.
A BILL
TO BE ENTITLED
AN ACT
Relating to insurance; to define lender-placed
insurance on real property and provide a framework for
regulating lender-placed insurance; to require separation
between lenders and insurers and define unfair competitive
practices in the sale, placement, solicitation, and
negotiation of lender-placed insurance; to further provide for
the term of the lender-placed insurance on real property and
for the calculation of coverage and payment of premium; to
provide for prohibited practices in the issuance of
lender-placed insurance on real property; to require certain
details of the insurance to be set forth in the policy or
certificate of insurance; to require for the filing and
approval by the Department of Insurance of the forms and rates
to be charged for the insurance; to provide for the
enforcement of the act and penalties for violations of the
act; and to provide for judicial review of orders of the
Commissioner of Insurance.
BE IT ENACTED BY THE LEGISLATURE OF ALABAMA:
Section 1. The purposes of this act are to:
(1) Promote the public welfare by regulating
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lender-placed insurance on real property.
(2) Create a legal framework within which lender-placed
insurance on real property may be written in this state.
(3) Help maintain separation between a lender or
servicer and an insurer or insurance producer.
(4) Minimize the possibilities of unfair competitive
practices in the sale, placement, solicitation, and
negotiation of lender-placed insurance.
Section 2. (a) This act applies to insurers and
insurance producers engaged in any transaction involving
lender-placed insurance on real property as defined in this
act.
(b) All lender-placed insurance written in connection
with mortgaged real property, including manufactured and
mobile homes, is subject to this act, except for the
following:
(1) Transactions involving extensions of credit
primarily for business, commercial, or agricultural purposes.
(2) Insurance offered by the lender or servicer and
elected by the mortgagor at the mortgagor's option.
(3) Insurance purchased by a lender or servicer on real
property owned by the lender or servicer.
(4) Insurance for which no specific charge is made to
the mortgagor or the mortgagor's account.
(c) Nothing in this act shall be construed to create or
imply a private cause of action for violation of this act.
(d) Nothing in this act shall be construed to
extinguish any rights of a mortgagor available under common
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law or other state statutes.
(e) The Commissioner of Insurance may enforce this act
subject to the laws of this state.
Section 3. For purposes of this act, the following
definitions shall apply:
(1) AFFILIATE. A person that directly, or indirectly
through one or more intermediaries, controls or is controlled
by, or is under common control with, the person specified.
(2) COMMISSIONER. The Commissioner of the Department of
Insurance.
(3) INDIVIDUAL LENDER-PLACED INSURANCE. Coverage for
individual real property evidenced by a certificate of
coverage under a master lender-placed insurance policy or a
lender-placed insurance policy for individual real property.
(4) INSURANCE PRODUCER. A person or its affiliates
required to be licensed under the laws of this state to sell,
solicit, or negotiate insurance.
(5) INSURER. An insurance company, association, or
exchange authorized to issue lender-placed insurance in this
state, or its affiliates.
(6) INVESTOR. A person and its affiliates holding a
beneficial interest in loans secured by real property.
(7) LAPSE. The moment in time in which a mortgagor has
failed to secure or maintain valid or sufficient insurance
upon mortgaged real property as required by a mortgage
agreement.
(8) LENDER. A person and its affiliates making loans
secured by an interest in real property.
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(9) LENDER-PLACED INSURANCE. Insurance obtained by a
lender or servicer when a mortgagor does not maintain valid or
sufficient insurance on mortgaged real property as required by
the terms of the mortgage agreement. Lender-placed insurance
may be purchased unilaterally by the lender or servicer who is
the named insured subsequent to the date of the credit
transaction, providing coverage against loss, expense, or
damage to collateralized property as a result of fire, theft,
collision, or other risks of loss that would either impair a
lender, servicer, or investor's interest or adversely affect
the value of collateral covered by limited dual interest
insurance. The insurance is purchased according to the terms
of the mortgage agreement when the mortgagor fails to provide
evidence of required insurance.
(10) LOSS RATIO. The ratio of incurred losses to earned
premium.
(11) MASTER LENDER-PLACED INSURANCE POLICY. A group
policy issued to a lender or servicer providing coverage for
all loans in the lender or servicer's loan portfolio as
needed.
(12) MORTGAGE AGREEMENT. The written document that sets
forth an obligation or a liability of any kind secured by a
lien on real property and due from, owing, or incurred by a
mortgagor to a lender on account of a mortgage loan, including
the security agreement, deed of trust, and any other document
of similar effect, and any other documents incorporated by
reference.
(13) MORTGAGE LOAN. A loan, advance, guarantee, or
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other extension of credit from a lender to a mortgagor.
(14) MORTGAGE TRANSACTION. A transaction by the terms
of which the repayment of money loaned or payment of real
property sold is to be made at a future date or dates.
(15) MORTGAGEE. The person who holds mortgaged real
property as security for repayment of a mortgage agreement.
(16) MORTGAGOR. The person who is obligated on a
mortgage loan pursuant to a mortgage agreement.
(17) PERSON. An individual or entity.
(18) REAL ESTATE OWNED PROPERTY. Property owned or held
by a lender or servicer following foreclosure under the
related mortgage agreement or the acceptance of a deed in lieu
of foreclosure.
(19) REPLACEMENT COST VALUE (RCV). The estimated cost
to replace covered property at the time of loss or damage
without deduction for depreciation. RCV is not market value,
but it is instead the cost to replace covered property to its
pre-loss condition.
(20) SERVICER. A person and its affiliates
contractually obligated to service one or more mortgage loans
for a lender or investor. The term includes entities involved
in subservicing arrangements.
Section 4. (a) Lender-placed insurance shall become
effective no earlier than the date of lapse of insurance upon
mortgaged real property subject to the terms of a mortgage
agreement or any other state or federal law requiring the
same.
(b) Individual lender-placed insurance shall terminate
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on the earliest of the following dates:
(1) The date insurance that is acceptable under the
mortgage agreement becomes effective, subject to the mortgagor
providing sufficient evidence of the acceptable insurance.
(2) The date the applicable real property no longer
serves as collateral for a mortgage loan pursuant to a
mortgage agreement.
(3) Any other date specified by the individual policy
or certificate of insurance.
(4) Any other date specified by the lender or servicer.
(5) The termination date of the policy.
(c) An insurance charge shall not be made to a
mortgagor for lender-placed insurance for a term longer than
the scheduled term of the lender-placed insurance, nor may an
insurance charge be made to the mortgagor for lender-placed
insurance before the effective date of the lender-placed
insurance.
Section 5. (a) Any lender-placed insurance coverage and
subsequent calculation of premium should be based on the
replacement cost value of the property as best determined as
follows:
(1) The dwelling coverage amount set forth in the most
recent evidence of insurance coverage provided by the last
known coverage amount (LKCA) of the mortgagee, if known to the
lender or servicer.
(2) The insurer shall inquire of the insured, at least
once, as to the LKCA on the property. If the insurer is not
able to obtain the LKCA from the insured or in another manner,
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the insurer may proceed as provided in this section.
(3) If the LKCA is unknown, the replacement cost of the
property serving as collateral as calculated by the insurer,
unless the use of replacement cost for this purpose is
prohibited by other state or federal law.
(4) If the LKCA is unknown and the replacement cost is
not available or its use is prohibited, the unpaid principal
balance of the mortgage loan.
(b) In the event of a covered loss, any replacement
cost coverage provided by an insurer in excess of the unpaid
principal balance of the mortgage loan shall be paid to the
mortgagor.
(c) An insurer shall not write lender-placed insurance
for which the premium rate differs from that determined by the
schedules of the insurer on file with the commissioner as of
the effective date of the policy.
Section 6. (a) An insurer or insurance producer shall
not issue lender-placed insurance on mortgaged property that
the insurer or insurance producer, or an affiliate of the
insurer or insurance producer owns, performs the servicing
for, or owns the servicing right to the mortgaged property.
(b) An insurer or insurance producer shall not
compensate a lender, insurer, investor, or servicer, including
through the payment of commissions, on policies issued by the
insurer for lender-placed insurance.
(c) An insurer or insurance producer shall not share
lender-placed insurance premium or risk with the lender,
investor, or servicer that obtained the lender-placed
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insurance.
(d) An insurer or insurance producer shall not offer
contingent commissions, profit sharing, or other payments
dependent on profitability or loss ratios to any person
affiliated with a servicer or the insurer in connection with
lender-placed insurance.
(e) An insurer shall not provide free or below-cost
outsourced services to lenders, investors, or servicers, and
an insurer will not outsource its own functions to lenders,
insurance producers, investors, or servicers on an above-cost
basis.
(f) An insurer or insurance producer shall not make any
payments, including, but not limited to, the payment of
expenses to a lender, insurer, investor, or servicer, for the
purpose of securing lender-placed insurance business or
related outsourced services.
Section 7. Nothing in this act shall be construed to
allow an insurance producer or an insurer solely underwriting
lender-placed insurance to circumvent the requirements set
forth in this act. Any part of any requirement, limitation, or
exclusion provided in this act shall apply to any insurer or
insurance producer involved in lender-placed insurance.
Section 8. Lender-placed insurance shall be set forth
in an individual policy or certificate of insurance. A copy of
the individual policy, certificate of insurance, or other
evidence of insurance coverage shall be mailed, first class
mailed, or delivered in person to the last known address of
the mortgagor, or delivered in accordance with the Alabama
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Uniform Electronic Transactions Act, Chapter 1A of Title 8,
Code of Alabama 1975. Notwithstanding any other statutory or
regulatory required information, the individual policy or
certificate of insurance coverage shall include the following
information:
(1) The address and identification of the insured
property.
(2) The coverage amount or amounts if multiple
coverages are provided.
(3) The effective date of the coverage.
(4) The term of coverage.
(5) The premium charge for the coverage.
(6) Contact information for filing a claim.
(7) A complete description of the coverage provided.
Section 9. (a) All policy forms and certificates of
insurance to be delivered or issued for delivery in this state
and the schedules of premium rates pertaining thereto shall be
filed with the Commissioner of Insurance.
(b) The commissioner shall review the rates to
determine whether the rates are excessive, inadequate, or
unfairly discriminatory. This review shall include a
determination as to whether expenses included by the insurer
in the rate are appropriate.
(c) All insurers shall refile lender-placed property
insurance rates at least once every four years.
(d) All insurers writing lender-placed insurance shall
have separate rates for lender-placed insurance and voluntary
insurance obtained by a mortgage servicer on real estate owned
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property.
(e) Upon the introduction of a new lender-placed
insurance program, the insurer shall reference its experience
in existing programs in the associated filings. Nothing in
this act shall limit an insurer's discretion, as actuarially
appropriate, to distinguish different terms, conditions,
exclusions, eligibility criteria, or other unique or different
characteristics. Moreover, an insurer, where actuarially
acceptable, may rely upon models or, in the case of flood
filings where applicable experience is not credible, on
Federal Emergency Management Agency (FEMA) National Flood
Insurance Program (NFIP) data.
(f)(1) Not later than April 1 of each year, each
insurer with at least one hundred thousand dollars ($100,000)
in direct written premium for lender-placed insurance in this
state during the prior calendar year shall report to the
commissioner the following information for the prior calendar
year:
a. Actual loss ratio.
b. Earned premium.
c. Any aggregate schedule rating debit or credit to
earned premium.
d. Itemized expenses.
e. Paid losses.
f. Loss reserves, including case reserves and reserves
for incurred but not reported losses.
(2) The report shall be separately produced for each
lender-placed program and presented on both an individual
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jurisdiction and countrywide basis.
(g) Except in the case of lender-placed flood insurance
to which this subsection does not apply, if an insurer
experiences an annual loss ratio of less than 35 percent in
any lender-placed program for two consecutive years, it shall
submit a rate filing, either adjusting its rates or supporting
their continuance, to the commissioner no more than 90 days
after the submission of the report required in subsection (f).
The 35 percent trigger for refiling rates is not intended to
be, nor should be construed as, a loss ratio standard for
determining whether rates are excessive or inadequate. The
loss ratio standard in this section is solely directed to
prompt a refiling of rates by the insurer.
(h) Except as specifically set forth in this section,
rate and form filing requirements shall be subject to the
insurance laws of this state.
Section 10. (a) The commissioner shall have all rights
and powers to enforce this act as provided in Chapter 2 of
Title 27, Code of Alabama 1975.
(b) The commissioner may adopt reasonable rules to
carry out and effectuate this act.
Section 11. (a) A person subject to an order or final
determination of the commissioner under Section 8 or Section
12 may obtain a review of the order or final determination by
filing in the Circuit Court of Montgomery County in accordance
with Section 27-2-32, Code of Alabama 1975.
(b) To the extent that the order or final determination
of the commissioner is affirmed, the court shall issue its own
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order requiring compliance with the terms of the order or
final determination of the commissioner. If either party
applies to the court for leave to produce additional evidence
and shows to the satisfaction of the court that the additional
evidence is material and that there were reasonable grounds
for the failure to produce the evidence in the proceeding
before the commissioner, the court may order the additional
evidence to be taken before the commissioner and be presented
on the hearing in the manner on the terms and conditions the
court may deem proper. The commissioner may modify the
findings of fact or make new findings based on the additional
evidence and may file additional or modified findings that are
supported by the evidence with a recommendation for the
modification or setting aside of the original order or final
determination based on the additional evidence.
(c) An order issued by the commissioner under Section
12 shall become final:
(1) Upon the expiration of the time allowed for filing
a petition for review if no petition has been duly filed
within that time, except that the commissioner may thereafter
modify or set aside the order to the extent provided in
Section 12.
(2) Upon the final decision of the court if the court
directs that the order of the commissioner be affirmed or the
petition for review be dismissed.
(d) No order of the commissioner under this act or
order of a court to enforce the same shall relieve or absolve
any person affected by the order from liability under any
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other laws of this state.
Section 12. An insurer that violates an order of the
commissioner while the order is in effect, after notice and
hearing and upon order of the commissioner, may be subject, at
the discretion of the commissioner, to either or both of the
following:
(1) Payment of a monetary penalty of not more than one
thousand dollars ($1,000) for each violation, but not to
exceed an aggregate penalty of one hundred thousand dollars
($100,000), unless the commissioner determines the violation
was committed flagrantly in a conscious disregard of this act,
in which case the penalty shall not be more than twenty-five
thousand dollars ($25,000) for each violation, but not to
exceed an aggregate penalty of two hundred fifty thousand
dollars ($250,000).
(2) Suspension or revocation of the insurer's license.
Section 13. This act shall become effective on the
first day of January next following its passage and approval
by the Governor, or its otherwise becoming law.
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