Department of Insurance

(18 Del.C. §§ 311, 2034, 2307and 2312)

18 DE Admin. Code 703

FINAL

ORDER

703 Prohibited Practices Related to the Nonrenewal of Residential Homeowners Policies

The proposed regulation was promulgated to protect individual consumers from a nonrenewal or cancellation of a residential homeowners insurance policy due solely to the fact that the consumer had made a non-claim inquiry about any matter relating to the policy or from a cancellation or nonrenewal of a policy based on a claim that could reasonably have been anticipated by the insurer at the time that it sold the policyholder his or her policy. Insurers would still be permitted under the proposed regulation to underwrite based on claims by increasing the premiums of homeowners who made claims, as permitted by their approved rate schedules. One of the themes common to all of the insurers’ comments was that the proposed regulation exceeded the Commissioner’s authority to promulgate regulations pursuant to State law and that the regulation conflicted with existing State law.

The insurers complained that the scope of the proposed regulation intruded into the insurers’ ability to properly underwrite risks by including information related to actual losses, irrespective of whether payments were made on the claim, of the insured. Some of the insurers took the position that any information obtained by the insurer regarding the insured was an appropriate basis to make underwriting decisions. The insurers also claimed that nothing in 18 Del.C. Ch. 23 authorizes the Commissioner to create new unfair trade practices since 18 Del.C. §2304 legislatively limits those acts that constitute unfair trade practices and anything not included therein is not prohibited.

Findings of Fact

The proposed regulation was promulgated to protect the residential consumer from a nonrenewal or cancellation of a residential homeowners insurance policy due solely to the fact that the consumer had made a non-claim inquiry about any matter relating to the policy or from a cancellation or nonrenewal of a policy based on a claim that could reasonably have been anticipated by the insurer at the time that it sold the policyholder his or her policy. Section 5 of the proposed regulation clearly states that the insurer’s right to terminate or nonrenew a policy is not affected by any claim that substantially changes or increases the insurer’s risk or by the consumer’s refusal or failure to make necessary or material changes or repairs resulting from a notice by the insurer that failure to make such changes or repairs will constitute a breach of contractual duties, conditions or warranties that will result in a change or increase in the hazard or in the risk assumed by the carrier subsequent to the date the policy was issued.

The Commissioner has broad authority to promulgate regulations based on the laws of this State. The Commissioner has specific authority under 18 Del.C. §2304(16)(f) to require insurers in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear. I find, as a matter of law, that the sanction of non-renewal, with its dire consequences for homeowners¹, is not a fair or equitable means of resolving claims which do not fall into the exceptions enumerated in the proposed regulation, especially when insurers retain the ability to adjust premiums based on those claims. Alternatively, 18 Del.C. §2307 gives the Commissioner broad authority to take action against insurers that engage in any practice that the Commissioner, following any inquiry required by law, determines to be an unfair business practice. Section 2307 explicitly gives permission to the Commissioner to define unfair business practices which are not enumerated in other portions of Title 18, Chapter 23.

A mere inquiry about coverage or any matter relating to a policy, or the occurrence of an incident that does not result in any payment or benefit to the policyholder does not represent the type of claim that would justify a rate increase under 18 Del.C. §2503 or an event that would allow cancellation, nonrenewal or termination under 18 Del.C. §4123. A concern was raised at the hearing as to whether Section 5 of the regulation would prohibit an insurer from non-renewing the policy of a policyholder who called the insurer to affirmatively state that the policyholder had commenced activities in his or her home which were in violation of the terms of the policy.  As I stated at the outset of the hearing, nothing in the proposed regulation impedes insurers from using their existing authority under 18 Del.C. §4123 to cancel a homeowners policy for any of the reasons enumerated in that section. To the extent the insurers are already in compliance with Forms and Rates Bulletin 28, it is an indication that the insurers recognize that consumers should not face increases in premiums or cancellation, non-renewal or termination of their policy for an event that does not result in an actual loss for the insurer.

I also note that there were two typographical errors in the regulation as originally proposed and published: The word “nonrenewal” was misspelled in the contents and the word “any” should be substituted for the word “and” in the first line of section 7.0. Those corrections may be made without re-publication pursuant to 29 Del.C. §10113.

Decision and Order

Based on the provisions of 18 Del.C. §§311, 2304, 2307 and 2312 and the record in this docket, I hereby adopt Regulation 703 and make the following non-substantial changes to the text of the proposed regulation: The word “Nonrenewal” is changed in the list of contents and the word “any” is substituted for the word “and” in the first line of section 7.0.

Text and Citation

The text of the proposed amendments to Regulation 907 last appeared in the Register of Regulations Vol. 9, Issue 2, pages 196-7, August 1, 2005.

IT IS SO ORDERED this 14th day of September, 2005.

Matthew Denn, Insurance Commissioner

703 Prohibited Practices Related to the Nonrenewal of Residential Homeowners Policies

This regulation is adopted by the Commissioner pursuant to the authority granted by 18 Del.C. §§311, 2304, 2307 and 2312, and promulgated in accordance with the Delaware Administrative Procedures Act, 29 Del.C. Chapter 101.

This regulation applies to homeowners insurance, as defined herein.

“Homeowners policy” or “homeowners insurance” means property insurance, as defined at 18 Del.C. §4103(4)d and 4120, insuring any real or personal property used by a person as a permanent or temporary place of residence.

“Inquiry” means any contact initiated by an insured that is not the filing or reporting of a claim to an insurer.

“Insurer” shall have the meaning assigned to it at 18 Del.C. §102(3)

“Nonrenew” shall have the meaning assigned to it at 18 Del.C. §4121(c).

“Predicate unfair trade practice” shall mean an act which shall constitute part of the pattern of acts necessary to show activity occurring with sufficient frequency to constitute an unfair trade practice under 18 Del.C. §2304(16).

An insurer that considers an inquiry regarding (1) a homeowners policy or (2) a loss under that policy to be a claim for purposes of making underwriting decisions, including but not limited to decisions to nonrenew a policy, shall have engaged in a predicate unfair trade practice.

An insurer that nonrenews a homeowners policy solely on the basis of claims asserted against that policy shall have engaged in a predicate unfair trade practice, provided that it shall not constitute a predicate unfair trade practice for an insurer to nonrenew a policy:

5.1 on the basis of claims asserted against that policy if the claim or claims demonstrate that there has been a substantial change or increase in the hazard or in the risk assumed by the carrier subsequent to the date the policy was issued and such nonrewnal is applied to other homeowners policies similarly situated; or

5.2 on the basis of the consumer’s refusal or failure to make necessary or material changes or repairs resulting from a notice by the insurer that failure to make such changes or repairs will constitute a breach of contractual duties, conditions or warranties that will change or increase in the hazard or in the risk assumed by the carrier subsequent to the date the policy was issued.

Nothing in this regulation shall limit the Commissioner’s authority under 18 Del.C. §2307(a) to determine that acts which are not specifically enumerated in Title 18 of the Delaware Code constitute unfair trade practices.

If any provision of this Regulation or the application of any such provision to [and any] person or circumstance shall be held invalid the remainder of such provisions, and the application of such provision to any person or circumstance other than those as to which it is held invalid, shall not be affected.

This Regulation shall supersede Insurance Department Form and Rates Bulletin No. 28, issued January 20, 2004.

This Regulation shall become effective October 11, 2005.