AL
Alabama House Bill HB58

Alabama 2023 Regular Session

Alabama House Bill HB58 Compare Versions

Only one version of the bill is available at this time.
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11 HB58INTRODUCED
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33 QNJ851-1
44 By Representative Ellis
55 RFD: Insurance
66 First Read: 07-Mar-23
77 PFD: 06-Mar-23
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1212 5 QNJ851-1 11/28/2022 FC (L) ma 2023-314
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1414 SYNOPSIS:
1515 Under existing law, insurance placed by lenders
1616 on real property is subject to the general laws
1717 applicable to property insurance.
1818 This bill would provide a specific framework for
1919 regulating lender-placed insurance on real property in
2020 order to help maintain the separation between lenders
2121 and insurers and minimize unfair competitive practices
2222 in the sale, placement, solicitation, and negotiation
2323 of lender-placed insurance. The bill is based on a
2424 model act adopted by the National Association of
2525 Insurance Commissioners (NAIC).
2626 This bill would further define the term of the
2727 lender-placed insurance on real property and would
2828 provide for the calculation of coverage and payment of
2929 premium.
3030 This bill would further provide for prohibited
3131 practices in the issuance of lender-placed insurance on
3232 real property, would require certain details of the
3333 insurance to be set forth in the policy or certificate
3434 of insurance, and would require for the filing and
3535 approval of the forms and rates to be charged for the
3636 insurance.
3737 This bill would further provide for the
3838 enforcement of the act, penalties for violations of the
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6868 act, and for judicial review of orders by the
6969 Commissioner of Insurance.
7070 A BILL
7171 TO BE ENTITLED
7272 AN ACT
7373 Relating to insurance; to define lender-placed
7474 insurance on real property and provide a framework for
7575 regulating lender-placed insurance; to require separation
7676 between lenders and insurers and define unfair competitive
7777 practices in the sale, placement, solicitation, and
7878 negotiation of lender-placed insurance; to further provide for
7979 the term of the lender-placed insurance on real property and
8080 for the calculation of coverage and payment of premium; to
8181 provide for prohibited practices in the issuance of
8282 lender-placed insurance on real property; to require certain
8383 details of the insurance to be set forth in the policy or
8484 certificate of insurance; to require for the filing and
8585 approval by the Department of Insurance of the forms and rates
8686 to be charged for the insurance; to provide for the
8787 enforcement of the act and penalties for violations of the
8888 act; and to provide for judicial review of orders of the
8989 Commissioner of Insurance.
9090 BE IT ENACTED BY THE LEGISLATURE OF ALABAMA:
9191 Section 1. The purposes of this act are to:
9292 (1) Promote the public welfare by regulating
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122122 lender-placed insurance on real property.
123123 (2) Create a legal framework within which lender-placed
124124 insurance on real property may be written in this state.
125125 (3) Help maintain separation between a lender or
126126 servicer and an insurer or insurance producer.
127127 (4) Minimize the possibilities of unfair competitive
128128 practices in the sale, placement, solicitation, and
129129 negotiation of lender-placed insurance.
130130 Section 2. (a) This act applies to insurers and
131131 insurance producers engaged in any transaction involving
132132 lender-placed insurance on real property as defined in this
133133 act.
134134 (b) All lender-placed insurance written in connection
135135 with mortgaged real property, including manufactured and
136136 mobile homes, is subject to this act, except for the
137137 following:
138138 (1) Transactions involving extensions of credit
139139 primarily for business, commercial, or agricultural purposes.
140140 (2) Insurance offered by the lender or servicer and
141141 elected by the mortgagor at the mortgagor's option.
142142 (3) Insurance purchased by a lender or servicer on real
143143 property owned by the lender or servicer.
144144 (4) Insurance for which no specific charge is made to
145145 the mortgagor or the mortgagor's account.
146146 (c) Nothing in this act shall be construed to create or
147147 imply a private cause of action for violation of this act.
148148 (d) Nothing in this act shall be construed to
149149 extinguish any rights of a mortgagor available under common
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179179 law or other state statutes.
180180 (e) The Commissioner of Insurance may enforce this act
181181 subject to the laws of this state.
182182 Section 3. For purposes of this act, the following
183183 definitions shall apply:
184184 (1) AFFILIATE. A person that directly, or indirectly
185185 through one or more intermediaries, controls or is controlled
186186 by, or is under common control with, the person specified.
187187 (2) COMMISSIONER. The Commissioner of the Department of
188188 Insurance.
189189 (3) INDIVIDUAL LENDER-PLACED INSURANCE. Coverage for
190190 individual real property evidenced by a certificate of
191191 coverage under a master lender-placed insurance policy or a
192192 lender-placed insurance policy for individual real property.
193193 (4) INSURANCE PRODUCER. A person or its affiliates
194194 required to be licensed under the laws of this state to sell,
195195 solicit, or negotiate insurance.
196196 (5) INSURER. An insurance company, association, or
197197 exchange authorized to issue lender-placed insurance in this
198198 state, or its affiliates.
199199 (6) INVESTOR. A person and its affiliates holding a
200200 beneficial interest in loans secured by real property.
201201 (7) LAPSE. The moment in time in which a mortgagor has
202202 failed to secure or maintain valid or sufficient insurance
203203 upon mortgaged real property as required by a mortgage
204204 agreement.
205205 (8) LENDER. A person and its affiliates making loans
206206 secured by an interest in real property.
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236236 (9) LENDER-PLACED INSURANCE. Insurance obtained by a
237237 lender or servicer when a mortgagor does not maintain valid or
238238 sufficient insurance on mortgaged real property as required by
239239 the terms of the mortgage agreement. Lender-placed insurance
240240 may be purchased unilaterally by the lender or servicer who is
241241 the named insured subsequent to the date of the credit
242242 transaction, providing coverage against loss, expense, or
243243 damage to collateralized property as a result of fire, theft,
244244 collision, or other risks of loss that would either impair a
245245 lender, servicer, or investor's interest or adversely affect
246246 the value of collateral covered by limited dual interest
247247 insurance. The insurance is purchased according to the terms
248248 of the mortgage agreement when the mortgagor fails to provide
249249 evidence of required insurance.
250250 (10) LOSS RATIO. The ratio of incurred losses to earned
251251 premium.
252252 (11) MASTER LENDER-PLACED INSURANCE POLICY. A group
253253 policy issued to a lender or servicer providing coverage for
254254 all loans in the lender or servicer's loan portfolio as
255255 needed.
256256 (12) MORTGAGE AGREEMENT. The written document that sets
257257 forth an obligation or a liability of any kind secured by a
258258 lien on real property and due from, owing, or incurred by a
259259 mortgagor to a lender on account of a mortgage loan, including
260260 the security agreement, deed of trust, and any other document
261261 of similar effect, and any other documents incorporated by
262262 reference.
263263 (13) MORTGAGE LOAN. A loan, advance, guarantee, or
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293293 other extension of credit from a lender to a mortgagor.
294294 (14) MORTGAGE TRANSACTION. A transaction by the terms
295295 of which the repayment of money loaned or payment of real
296296 property sold is to be made at a future date or dates.
297297 (15) MORTGAGEE. The person who holds mortgaged real
298298 property as security for repayment of a mortgage agreement.
299299 (16) MORTGAGOR. The person who is obligated on a
300300 mortgage loan pursuant to a mortgage agreement.
301301 (17) PERSON. An individual or entity.
302302 (18) REAL ESTATE OWNED PROPERTY. Property owned or held
303303 by a lender or servicer following foreclosure under the
304304 related mortgage agreement or the acceptance of a deed in lieu
305305 of foreclosure.
306306 (19) REPLACEMENT COST VALUE (RCV). The estimated cost
307307 to replace covered property at the time of loss or damage
308308 without deduction for depreciation. RCV is not market value,
309309 but it is instead the cost to replace covered property to its
310310 pre-loss condition.
311311 (20) SERVICER. A person and its affiliates
312312 contractually obligated to service one or more mortgage loans
313313 for a lender or investor. The term includes entities involved
314314 in subservicing arrangements.
315315 Section 4. (a) Lender-placed insurance shall become
316316 effective no earlier than the date of lapse of insurance upon
317317 mortgaged real property subject to the terms of a mortgage
318318 agreement or any other state or federal law requiring the
319319 same.
320320 (b) Individual lender-placed insurance shall terminate
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350350 on the earliest of the following dates:
351351 (1) The date insurance that is acceptable under the
352352 mortgage agreement becomes effective, subject to the mortgagor
353353 providing sufficient evidence of the acceptable insurance.
354354 (2) The date the applicable real property no longer
355355 serves as collateral for a mortgage loan pursuant to a
356356 mortgage agreement.
357357 (3) Any other date specified by the individual policy
358358 or certificate of insurance.
359359 (4) Any other date specified by the lender or servicer.
360360 (5) The termination date of the policy.
361361 (c) An insurance charge shall not be made to a
362362 mortgagor for lender-placed insurance for a term longer than
363363 the scheduled term of the lender-placed insurance, nor may an
364364 insurance charge be made to the mortgagor for lender-placed
365365 insurance before the effective date of the lender-placed
366366 insurance.
367367 Section 5. (a) Any lender-placed insurance coverage and
368368 subsequent calculation of premium should be based on the
369369 replacement cost value of the property as best determined as
370370 follows:
371371 (1) The dwelling coverage amount set forth in the most
372372 recent evidence of insurance coverage provided by the last
373373 known coverage amount (LKCA) of the mortgagee, if known to the
374374 lender or servicer.
375375 (2) The insurer shall inquire of the insured, at least
376376 once, as to the LKCA on the property. If the insurer is not
377377 able to obtain the LKCA from the insured or in another manner,
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407407 the insurer may proceed as provided in this section.
408408 (3) If the LKCA is unknown, the replacement cost of the
409409 property serving as collateral as calculated by the insurer,
410410 unless the use of replacement cost for this purpose is
411411 prohibited by other state or federal law.
412412 (4) If the LKCA is unknown and the replacement cost is
413413 not available or its use is prohibited, the unpaid principal
414414 balance of the mortgage loan.
415415 (b) In the event of a covered loss, any replacement
416416 cost coverage provided by an insurer in excess of the unpaid
417417 principal balance of the mortgage loan shall be paid to the
418418 mortgagor.
419419 (c) An insurer shall not write lender-placed insurance
420420 for which the premium rate differs from that determined by the
421421 schedules of the insurer on file with the commissioner as of
422422 the effective date of the policy.
423423 Section 6. (a) An insurer or insurance producer shall
424424 not issue lender-placed insurance on mortgaged property that
425425 the insurer or insurance producer, or an affiliate of the
426426 insurer or insurance producer owns, performs the servicing
427427 for, or owns the servicing right to the mortgaged property.
428428 (b) An insurer or insurance producer shall not
429429 compensate a lender, insurer, investor, or servicer, including
430430 through the payment of commissions, on policies issued by the
431431 insurer for lender-placed insurance.
432432 (c) An insurer or insurance producer shall not share
433433 lender-placed insurance premium or risk with the lender,
434434 investor, or servicer that obtained the lender-placed
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464464 insurance.
465465 (d) An insurer or insurance producer shall not offer
466466 contingent commissions, profit sharing, or other payments
467467 dependent on profitability or loss ratios to any person
468468 affiliated with a servicer or the insurer in connection with
469469 lender-placed insurance.
470470 (e) An insurer shall not provide free or below-cost
471471 outsourced services to lenders, investors, or servicers, and
472472 an insurer will not outsource its own functions to lenders,
473473 insurance producers, investors, or servicers on an above-cost
474474 basis.
475475 (f) An insurer or insurance producer shall not make any
476476 payments, including, but not limited to, the payment of
477477 expenses to a lender, insurer, investor, or servicer, for the
478478 purpose of securing lender-placed insurance business or
479479 related outsourced services.
480480 Section 7. Nothing in this act shall be construed to
481481 allow an insurance producer or an insurer solely underwriting
482482 lender-placed insurance to circumvent the requirements set
483483 forth in this act. Any part of any requirement, limitation, or
484484 exclusion provided in this act shall apply to any insurer or
485485 insurance producer involved in lender-placed insurance.
486486 Section 8. Lender-placed insurance shall be set forth
487487 in an individual policy or certificate of insurance. A copy of
488488 the individual policy, certificate of insurance, or other
489489 evidence of insurance coverage shall be mailed, first class
490490 mailed, or delivered in person to the last known address of
491491 the mortgagor, or delivered in accordance with the Alabama
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521521 Uniform Electronic Transactions Act, Chapter 1A of Title 8,
522522 Code of Alabama 1975. Notwithstanding any other statutory or
523523 regulatory required information, the individual policy or
524524 certificate of insurance coverage shall include the following
525525 information:
526526 (1) The address and identification of the insured
527527 property.
528528 (2) The coverage amount or amounts if multiple
529529 coverages are provided.
530530 (3) The effective date of the coverage.
531531 (4) The term of coverage.
532532 (5) The premium charge for the coverage.
533533 (6) Contact information for filing a claim.
534534 (7) A complete description of the coverage provided.
535535 Section 9. (a) All policy forms and certificates of
536536 insurance to be delivered or issued for delivery in this state
537537 and the schedules of premium rates pertaining thereto shall be
538538 filed with the Commissioner of Insurance.
539539 (b) The commissioner shall review the rates to
540540 determine whether the rates are excessive, inadequate, or
541541 unfairly discriminatory. This review shall include a
542542 determination as to whether expenses included by the insurer
543543 in the rate are appropriate.
544544 (c) All insurers shall refile lender-placed property
545545 insurance rates at least once every four years.
546546 (d) All insurers writing lender-placed insurance shall
547547 have separate rates for lender-placed insurance and voluntary
548548 insurance obtained by a mortgage servicer on real estate owned
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578578 property.
579579 (e) Upon the introduction of a new lender-placed
580580 insurance program, the insurer shall reference its experience
581581 in existing programs in the associated filings. Nothing in
582582 this act shall limit an insurer's discretion, as actuarially
583583 appropriate, to distinguish different terms, conditions,
584584 exclusions, eligibility criteria, or other unique or different
585585 characteristics. Moreover, an insurer, where actuarially
586586 acceptable, may rely upon models or, in the case of flood
587587 filings where applicable experience is not credible, on
588588 Federal Emergency Management Agency (FEMA) National Flood
589589 Insurance Program (NFIP) data.
590590 (f)(1) Not later than April 1 of each year, each
591591 insurer with at least one hundred thousand dollars ($100,000)
592592 in direct written premium for lender-placed insurance in this
593593 state during the prior calendar year shall report to the
594594 commissioner the following information for the prior calendar
595595 year:
596596 a. Actual loss ratio.
597597 b. Earned premium.
598598 c. Any aggregate schedule rating debit or credit to
599599 earned premium.
600600 d. Itemized expenses.
601601 e. Paid losses.
602602 f. Loss reserves, including case reserves and reserves
603603 for incurred but not reported losses.
604604 (2) The report shall be separately produced for each
605605 lender-placed program and presented on both an individual
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635635 jurisdiction and countrywide basis.
636636 (g) Except in the case of lender-placed flood insurance
637637 to which this subsection does not apply, if an insurer
638638 experiences an annual loss ratio of less than 35 percent in
639639 any lender-placed program for two consecutive years, it shall
640640 submit a rate filing, either adjusting its rates or supporting
641641 their continuance, to the commissioner no more than 90 days
642642 after the submission of the report required in subsection (f).
643643 The 35 percent trigger for refiling rates is not intended to
644644 be, nor should be construed as, a loss ratio standard for
645645 determining whether rates are excessive or inadequate. The
646646 loss ratio standard in this section is solely directed to
647647 prompt a refiling of rates by the insurer.
648648 (h) Except as specifically set forth in this section,
649649 rate and form filing requirements shall be subject to the
650650 insurance laws of this state.
651651 Section 10. (a) The commissioner shall have all rights
652652 and powers to enforce this act as provided in Chapter 2 of
653653 Title 27, Code of Alabama 1975.
654654 (b) The commissioner may adopt reasonable rules to
655655 carry out and effectuate this act.
656656 Section 11. (a) A person subject to an order or final
657657 determination of the commissioner under Section 8 or Section
658658 12 may obtain a review of the order or final determination by
659659 filing in the Circuit Court of Montgomery County in accordance
660660 with Section 27-2-32, Code of Alabama 1975.
661661 (b) To the extent that the order or final determination
662662 of the commissioner is affirmed, the court shall issue its own
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692692 order requiring compliance with the terms of the order or
693693 final determination of the commissioner. If either party
694694 applies to the court for leave to produce additional evidence
695695 and shows to the satisfaction of the court that the additional
696696 evidence is material and that there were reasonable grounds
697697 for the failure to produce the evidence in the proceeding
698698 before the commissioner, the court may order the additional
699699 evidence to be taken before the commissioner and be presented
700700 on the hearing in the manner on the terms and conditions the
701701 court may deem proper. The commissioner may modify the
702702 findings of fact or make new findings based on the additional
703703 evidence and may file additional or modified findings that are
704704 supported by the evidence with a recommendation for the
705705 modification or setting aside of the original order or final
706706 determination based on the additional evidence.
707707 (c) An order issued by the commissioner under Section
708708 12 shall become final:
709709 (1) Upon the expiration of the time allowed for filing
710710 a petition for review if no petition has been duly filed
711711 within that time, except that the commissioner may thereafter
712712 modify or set aside the order to the extent provided in
713713 Section 12.
714714 (2) Upon the final decision of the court if the court
715715 directs that the order of the commissioner be affirmed or the
716716 petition for review be dismissed.
717717 (d) No order of the commissioner under this act or
718718 order of a court to enforce the same shall relieve or absolve
719719 any person affected by the order from liability under any
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749749 other laws of this state.
750750 Section 12. An insurer that violates an order of the
751751 commissioner while the order is in effect, after notice and
752752 hearing and upon order of the commissioner, may be subject, at
753753 the discretion of the commissioner, to either or both of the
754754 following:
755755 (1) Payment of a monetary penalty of not more than one
756756 thousand dollars ($1,000) for each violation, but not to
757757 exceed an aggregate penalty of one hundred thousand dollars
758758 ($100,000), unless the commissioner determines the violation
759759 was committed flagrantly in a conscious disregard of this act,
760760 in which case the penalty shall not be more than twenty-five
761761 thousand dollars ($25,000) for each violation, but not to
762762 exceed an aggregate penalty of two hundred fifty thousand
763763 dollars ($250,000).
764764 (2) Suspension or revocation of the insurer's license.
765765 Section 13. This act shall become effective on the
766766 first day of January next following its passage and approval
767767 by the Governor, or its otherwise becoming law.
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