DEPARTMENT OF BANKING AND INSURANCE
DIVISION OF INSURANCE
Legal Services Insurance
Proposed Readoption with Amendments: N.J.A.C 11:12
Authorized By: Karen L. Suter, Commissioner, Department of Banking and Insurance
Authority: N.J.S.A. 17:1-8.1 and 15(e) and 17:46C-1 et seq.
Proposal Number: PRN 2001-378
Submit comments by October 17, 2001 to:
Fax: (609) 292-0896
The agency proposal follows:
The Department of Banking and Insurance ("Department") proposes to readopt N.J.A.C. 11:12, which is scheduled to expire on March 26, 2002 pursuant to N.J.S.A. 52:14B-5.1c.
N.J.A.C. 11:12 regulates the insurers authorized to transact the business of legal insurance. N.J.A.C. 11:12-1.1, which is being recodified in this proposal as N.J.A.C. 11:12-1.2, requires insurers to meet certain conditions before writing legal insurance and to provide certain documentation to the Commissioner of Banking and Insurance ("Commissioner"). The conditions include providing evidence of authority to transact the business of insurance in New Jersey, the submission of a copy of the policy and certificate forms to be used by the insurer and the submission of the rating system upon which legal insurance rates will be based. It is proposed to be amended to set forth the $250.00 fee required to be submitted with the request for authority to write legal insurance.
N.J.A.C. 11:12-1.2, which is being recodified in this proposal as N.J.A.C. 11:12-1.3, requires an insurer transacting legal insurance to submit experience reports to the Commissioner. It is proposed to be amended to specify that the experience reports must be filed annually and not later than March 1st.
N.J.A.C. 11:12-1.4 requires an insurer who obtains a certificate of insurance under N.J.S.A. 17:46C-4 to submit an annual report to the Commissioner. It is proposed to be amended to specify that the report must be filed by March 1st and that a report fee of $20.00 is required.
A new definitions section is proposed at N.J.A.C. 11:12-1.1, providing the definitions to "Commissioner," "insurer" and legal insurance," set forth in N.J.S.A. 17:46C-3.
The Department has reviewed these rules and determined them to be necessary, reasonable and proper for the purpose of fulfilling the Commissioner's duty to regulate the insurers authorized to transact the business of legal insurance in the State of New Jersey pursuant to N.J.S.A. 17:1-15(e) and 17:46C-5.
The rules proposed for readoption with amendments apply to all entities who transact or who seek to transact legal insurance in New Jersey. They will continue to implement N.J.S.A. 17:46C-1 et seq. by requiring those offering legal insurance to be authorized to do so and to file the necessary documents and reports with the Commissioner. The rules provide the general public and those who purchase legal insurance a basic level of protection when obtaining legal insurance. Thus, the rules proposed for readoption with amendments will continue to have a beneficial social impact on the general public and consumers of legal insurance.
The rules proposed for readoption with amendments are not expected to have a significant negative economic impact on those who transact or seek to transact legal insurance in New Jersey. The requirements established in these rules are mandated by N.J.S.A. 17:46C-1 et seq., and are reasonable and anticipated commercial requirements. Moreover, the filing of reports and documents with the Commissioner as required by the rules proposed for readoption will continue to provide protection to the consumer and will permit the Department to carry out its regulatory functions that protect against potential negative economic consequences. Current staff of the insurer should be able to achieve compliance with the rules. The fee to file the notice of intent to write legal insurance is $250.00 and is set by N.J.S.A. 17:46C-4a(3). The fee to file the annual report is $20.00 and is set by N.J.S.A. 17:33-1.
Federal Standards Statement
A Federal standards analysis is not required because the rules proposed for readoption with amendments are not subject to any Federal requirements or standards.
The Department does not anticipate that any jobs will be generated or lost as a result of the rules proposed for readoption with amendments. Insurers will be able to use existing staff to meet the regulatory requirements.
The Department invites commenters to submit any data or studies concerning the jobs impact of the proposed readoption with amendments together with their written comments on other aspects of this proposal.
Agriculture Industry Impact
The Department does not expect any agriculture industry impact from the rules proposed for readoption with amendments.
Regulatory Flexibility Analysis
It is not expected that any "small businesses" as defined in the Regulatory Flexibility Act, N.J.S.A. 52:14B-16 et seq., would offer legal insurance. However, if a small businesses did offer legal insurance, the rules proposed for readoption with amendments will not change the current reporting, recordkeeping and other compliance requirements on these entities. IF a small business did offer legal insurance, it may need to use the services of attorneys and accountants. The cost of these services will vary based on the services and the professional.
The rules proposed for readoption with amendments will continue to require insurers to meet conditions before writing legal insurance and require them to maintain records concerning their business. The insurers must also file annual reports and experience reports with the Commissioner. Existing staff at an insurer would be able to meet the compliance requirements. Costs are discussed in the Economic Impact above.
The Department believes that these requirements are mandated pursuant to N.J.S.A. 17:46C-1 et seq. Moreover, the Department believes that these requirements are not unduly burdensome. The purpose of N.J.S.A. 17:46C-1 et seq. and these rules is to protect all consumers who seek to purchase legal insurance. This purpose does not vary based upon business size. Accordingly, no differentiation based on business size is required.
Full text of the rules proposed for readoption may be found in the New Jersey Administrative Code at N.J.A.C. 11:12.
Full text of the proposed amendments follows (additions indicated in boldface thus; deletions indicated in brackets [thus]):
SUBCHAPTER 1. INSURERS AUTHORIZED TO TRANSACT THE BUSINESS OF LEGAL INSURANCE
The following words and terms, when used in this subchapter, shall have the following meanings, unless the context clearly indicates otherwise.
"Commissioner" means the New Jersey Commissioner of Banking and Insurance.
"Insurer" means any person who obtains a certificate of authority in accordance with the provisions of N.J.S.A. 17:46C-4 and any person authorized to transact the business of insurance under Subtitle 3 of Title 17 or Subtitle 3 of Title 17B of the New Jersey Statutes.
"Legal insurance" means the assumption of a contractual obligation to provide specified legal services or reimbursement for legal expenses in consideration of a specified payment for an interval of time, regardless of whether the payment is made by the beneficiaries individually or by a third person for them, in such a manner that the total cost incurred by assuming the obligation is to be spread directly or individually among a group of persons. Legal insurance shall not include the provision of or reimbursement for legal services incidental to other insurance coverages such as the duty to defend, nor shall the following be considered legal insurance:
1. Retainer contracts made with individual clients with the fees based on estimates of the nature and the amount of services that will be provided to the specific client, and similar contracts made with a group of clients involved in the same or closely related legal matters such as class actions.
2. Plans providing no benefits other than a limited amount of consultation and advice on simple matters either alone or in combination with referral services or the promise of fee discounts for other matters.
3. Plans providing limited benefits on simple legal matters on an informal basis not involving a legally binding promise, in the context of an employment or educational or similar relationship.
4. Legal services provided by unions or employee associations to their members in matters relating to employment or occupation.
5. Employee benefit plans regulated by the "Employee Retirement Income Security Act of 1974,"29 U.S.C. §§ 1001 et seq; or
6. Plans or legal services provided by a legal aid office or public defender office, a military legal assistance office, a lawyer referral service operated, sponsored or approved by a bar association representative of the general bar of the geographical area in which the association exists, or any other nonprofit organization that recommends, furnishes or pays for legal services to its members or beneficiaries in a manner incidental and reasonably related to a primary purpose of such organization to promote a public interest, including, without limitation, defense of human and civil rights, elimination of prejudice and discrimination as to race, religion, sex and national origin, lessening neighborhood tensions, preservation of scenic beauty, combating or preventing pollution preservation of natural resources, protection of consumer interest, promotion of cultural, historical or other educational activities, and prevention of cruelty to animals.
As used in this definition "contractual obligation" includes any arrangement in which those persons for whom services are to be provided under the arrangement have reasonable expectations of enforceable rights.
11:12-[1.1] 1.2 Authorization of insurers
(a) An insurer defined in N.J.S.A. 17:46C-3b may transact the business of insurance in New Jersey after satisfying the following conditions)[.]:
1. Notify the Commissioner of the intent to write legal insurance, [and] submit satisfactory evidence of authorization to transact the business of insurance and pay the required fee of $250.00. Such evidence shall include proof of the necessary corporate power to transact the business of legal insurance.
2. - 3. (No change.)
11:12-[1.2] 1.3 Experience reports
An insurer transacting legal insurance in New Jersey shall submit [periodic] experience reports on or before the first day of March which will be based on activities up through the prior December 31 on a form [and at a frequency] to be prescribed by the Commissioner.
11:12-1.4 Annual reports
An insurer who obtains a certificate of authority under N.J.S.A. 17:46C-4 shall submit an annual report on or before the first day of March on a form to be prescribed by the Commissioner and pay the required fee of $20.00.