AZ Circular Letter 1990-07A: "Moving" Auto Insurance Policyholders to New Companies

STATE OF ARIZONA

DEPARTMENT OF INSURANCE

JANE DEE HULL

2910 NORTH 44th STREET, SUITE 210

CHARLES R. COHEN

Governor

PHOENIX, ARIZONA 85018-7256

Director of Insurance

602/912-8456 (phone) 602/912-8452 (fax)

Former Director Susan Gallinger issued the following Circular Letter on October 25, 1990:

CIRCULAR LETTER NO. 90-7A

TO:

ALL PROPERTY AND CASUALTY INSURERS; INSURANCE TRADE

ASSOCIATIONS, AGENTS’ ASSOCIATIONS AND OTHER INTERESTED

PARTIES

FROM:

SUSAN GALLINGER, DIRECTOR OF INSURANCE

DATE:

OCTOBER 25, 1990

RE:

“MOVING”

AUTO

INSURANCE

POLICYHOLDERS

TO

NEW

COMPANIES

Recently, the Department of Insurance has received information indicating

that some insurers are encouraging their agents to engage in conduct that may violate

Arizona law. Since the Insurance Department assumes that such insurers would not

knowingly

engage

in

such

conduct,

the

following

summary

of

Arizona’s

noncancellation/nonrenewal, the Unfair Claims Settlement Practices Act and the Unfair

Practices and Frauds Act is provided.

A.R.S. § 20-1631(B) prohibits insurers from cancelling or nonrenewing

personal auto insurance policies* which have been in effect for more than 60 days

except for a very limited number of reasons specified in the statute. As noted above,

some insurers have encouraged their agents to “move” auto insurance policyholders to

other insurers because the (original) insurer wishes to stop underwriting auto insurance

and/or to withdraw from the auto insurance market in Arizona. In some cases, the

insurer has told the agent that his/her commissions will be reduced below the current

level on any auto policy not “moved” to a new insurer. In other cases insurers have

offered to pay agents to “move” auto policyholder to new insurers

nsurers because the (original) insurer wishes to stop underwriting auto insurance

and/or to withdraw from the auto insurance market in Arizona. In some cases, the

insurer has told the agent that his/her commissions will be reduced below the current

level on any auto policy not “moved” to a new insurer. In other cases insurers have

offered to pay agents to “move” auto policyholder to new insurers.

If the agent in the above referenced circumstances has not explained to

the insured that 1) the insured may be cancelled for any (or no) reason by the “new”

insurer for a period of 60 days AND 2) the policyholder is being asked to “move” to a

______________________________________________________________________

* All references to auto insurance in this Circular mean personal lines auto insurance

only.

Circular Letter 90-7A

October 25, 1990

Page 2

new company because of the agent’s commission or other compensation, the agent

(and thus the insurer as principal of the agent) will have omitted to the state material

facts. Such omissions are prohibited by the provisions of A.R.S. §§ 20-443(1) and 20-

443(5) which proscribe misrepresentation of “the terms of any policy issued or to be

issued or the benefits or advantages promised” and any “misrepresentation to any

policyholder for the purpose of inducing or tending to induce such policyholder to …

surrender … or convert any insurance policy”. In addition, the Unfair Claims Settlement

Practices Act (A.R.S. § 20-461) specifically prohibits such conduct.

The above described conduct is also addressed by the Unfair Practices

and Frauds Act (A.R.S. §§ 20-441 et seq.). A.R.S. § 20-442 prohibits any person from

engaging in any unfair method of competition or unfair or deceptive act or practice in the

business of insurance. By enacting the Unfair Practices and Frauds Act, Arizona has

assumed the authority which existed under the Federal Trade Commission Act (FTCA)

to prohibit unfair or deceptive acts or practices by insurers. A.R.S

t (A.R.S. §§ 20-441 et seq.). A.R.S. § 20-442 prohibits any person from

engaging in any unfair method of competition or unfair or deceptive act or practice in the

business of insurance. By enacting the Unfair Practices and Frauds Act, Arizona has

assumed the authority which existed under the Federal Trade Commission Act (FTCA)

to prohibit unfair or deceptive acts or practices by insurers. A.R.S. § 20-442 was

adopted from Section 5 of the FTCA and is intended to protect consumers from unfair

practices by establishing a standard of fairness. An insurer’s inducing its agents to

have insureds purchase new auto insurance policies when such purchases may not be

in the insured’s best interest constitutes an unfair and deceptive practice under A.R.S. §

20-442.

The Insurance Department will vigorously enforce the above referenced

statutes in order to protect consumers from any and all unfair practices and other

violations. Questions about Arizona’s noncancellation/nonrenewal law, the Unfair

Claims Practices Act or Unfair Practices and Frauds Act, and/or whether its nonrenewal

activities constitute violations should be addressed to Assistant Director, Mary

Butterfield, 2910 N. 44th Street, Suite 210, Phoenix, Arizona 85018.