Market Conduct Regulation – New Appleman on Insurance Law Library Edition, Chapter 13

Market Conduct Regulation – New Appleman on Insurance Law Library Edition, Chapter 13

   By A. Kenneth Levine

A functional insurance market has become commensurate with the health, safety, and welfare of modern society. Insurance products fulfill the need for financial security of most Americans and the commerce upon which the American economy depends. Conversely, many economic factors affect the manner in which insurers and insurance representatives aspire to meet the public’s demand for insurance. Over the years, society has responded with well-intended regulation to the methods by which insurance products are solicited, negotiated, and made to perform in the insurance marketplace. Market conduct regulation attempts to codify the values by which society gauges these methods, and serves as the means by which government administers the public’s interest in an orderly, efficient, and fair insurance market.
This chapter discusses the manner in which market conduct regulation addresses certain market practices. Other chapters will address the manner in which individual interests may be protected and adjudicated in the context of civil legal process and remedy.
State and federal legislatures have drawn from constitutional, contract, tort, and antitrust legal themes to formulate market conduct regulation.   The confluence of these legal genres, by way of responsive regulation, affects each aspect of an insurance transaction, from the manner in which insurance is negotiated, underwritten, and sold, to the various matters arising out of the effectuation of an insurance contract such as the manner in which an insurer handles claims for which the insurer is legally obliged to respond.
Insurance departments, divisions, offices, or bureaus have been formed in every jurisdiction to administer and enforce regulations designed to curb defined insurance market abuses. Regulatory efforts to sustain the proper and fair treatment of applicants for insurance, policyholders, and beneficiaries, will vary by jurisdiction, the regulatory tools available for utilization, and the manner in which those regulations are applied and enforced. This chapter analyzes some of the common statutes and rules which regulate the conduct of insurers and others transacting in the marketplace for insurance products.
This chapter begins with an overview in Section 13.01, followed by a general description of the insurance marketplace in Section 13.02. The next two sections then describe the basic federal and state regulatory framework for market conduct regulation that has evolved over the years. Section 13.03 addresses the role of federal regulation, which was limited by the McCarran-Ferguson Act, but then expanded by the Employee Retirement Income Security Act (“ERISA”). Section 13.04 describes the state framework for regulation of market conduct. All states have adopted some version of the Model Acts and Regulations of the National Association of Insurance Commissioners, and state regulators have significant regulatory powers.
Section 13.05 of the chapter reviews some of the substantive practices which state legislatures and regulatory officials have identified as unlawful conduct. In the context of market conduct, unlawful conduct often constitutes one or more unfair insurance trade practices. As an unfair insurance trade practice, insurance departments may address the activity of licensees and non-licensees alike. Various unfair insurance trade practices are reviewed in the broad and often overlapping subsections for misrepresentation, economic transgression, unlawful discrimination, claims handling, policyholder service, and conduct between insurers and other persons. This analysis illustrates how market conduct regulation proscribes activities that disserve the insurance consuming community as a body. However, regulations may not adequately address the damage suffered by individual consumers. Often these cases involve unfair claims settlement practices or other “bad faith.” While this chapter is not intended to venture beyond the scope of regulatory jurisdiction, Section 13.06 reviews private causes of action and civil remedies based on regulatory standards.
A. Kenneth Levine manages the Tallahassee, Florida, office and regulated industries practice group of Dunlap Shipman, P.A. For two decades, he has provided substantive insurance regulatory representation for governmental and business clients, in such matters as licensing, mergers and acquisitions, market conduct and financial examinations, rate and form filings, reinsurance concerns, accounting issues, coverage litigation, insolvency proceedings, holding company formation, and administrative litigation. Mr. Levine has published numerous works and spoken on virtually every aspect of insurance and warranty regulation. He has been awarded top national rankings and ratings for his counsel, by Chambers and Partners, Martindale-Hubbell, and A.M. Best.

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