Self-Insured Automobiles

August 15, 2002

Memorandum 2002-8A

TO:

All Licensed Motor Vehicle Insurers in Hawaii

FR:

Wayne Metcalf, Insurance Commissioner

RE:

Self-Insured Automobiles

It has recently come to the Commissioner’s attention that a number of insurers may be

allowing some of their insureds to self-insure for a portion of their liability and personal injury

protection risks without the insured first demonstrating compliance with Hawaii Revised Statutes

(“HRS”) § 431:10C-105.

These situations are occurring when insurers are issuing large deductible policies with

contractual agreements that allow the insured to adjust and pay all claims falling within the

deductible portion of coverage. Some of the policies include provisions which claim that if the

insured becomes insolvent, the insurer is only responsible for those losses over the amount of stated

deductible.

These types of policies are essentially “excess policies” and do not satisfy the mandated

requirements of HRS § 431:10C-301 or the insurer’s responsibility under HRS § 431:10C-119. An

excess policy is only allowed on automobile coverage if there is an underlying policy or self-insured

program which meets all the provisions mandated by the applicable Hawaii statutes and rules.

Commercial Auto forms in compliance with mandatory coverages must be filed with the State of

Hawaii Insurance Division, pursuant to HRS § 431:10C-201, et seq.

Specifically, these policies must be written in a manner that insurers, rather than insureds,

will be responsible for first dollar coverages. Insurers may then obtain reimbursement from their

insured for all payments made on their behalf up to the amount of the deductible.

The Commissioner has also become aware of certain claims adjustment practices by some

commercial insurers. Specifically, these companies, although providing first dollar coverage, have

delegated claims adjustment authority to their insureds for those claims not exceeding the insureds

deductible

t from their

insured for all payments made on their behalf up to the amount of the deductible.

The Commissioner has also become aware of certain claims adjustment practices by some

commercial insurers. Specifically, these companies, although providing first dollar coverage, have

delegated claims adjustment authority to their insureds for those claims not exceeding the insureds

deductible. Insurers engaging in such activities will be held responsible for any violations committed

by their insureds. Consequently, it is recommended that these delegations of authority be thoroughly

reviewed by your legal counsel before implementation.

Memorandum 2002-8A

August 15, 2002

Page 2

If your company has issued any policies in Hawaii that fail to comply with the requirements

for first dollar coverage, they must be rewritten and/or amended immediately. An officer of the

company must sign and date the Attachment to Commissioner’s Memorandum 2002-8A

(“Attachment”) and return a copy to the State of Hawaii Insurance Division within fifteen (15)

working days of the date of this memorandum or no later than September 9, 2002.

If you determine your company has in-force policies including the aforementioned prohibited

practices, you must so indicate on the Attachment within fifteen (15) working days of the date of this

memorandum or no later than September 9, 2002. Companies that are not presently writing

commercial auto policies should indicate this by checking the appropriate on the attachment. You

may fax your response to (808) 587-6714, Attention: Cecelia Chock, Chief Investigator. If you have

any questions, please contact Chief Investigator Cecelia Chock at (808) 586-2790.

ays of the date of this

memorandum or no later than September 9, 2002. Companies that are not presently writing

commercial auto policies should indicate this by checking the appropriate on the attachment. You

may fax your response to (808) 587-6714, Attention: Cecelia Chock, Chief Investigator. If you have

any questions, please contact Chief Investigator Cecelia Chock at (808) 586-2790.

Memorandum 2002-8A

August 15, 2002

Page 3

ATTACHMENT TO COMMISSIONER’S MEMORANDUM 2002-8I

Name of Insurer(s):

____________________________________________________________________

____________________________________________________________________

(Check as applicable)

( ) 1.

Does not write commercial auto insurance

( ) 2.

Does write commercial auto insurance and has no in-force policies including

the aforementioned prohibited practices.

( ) 3.

Does write commercial auto insurance and has in-force policies that include the

aforementioned prohibited practices. Please provide the following information in

section (a) through (f) for each affected policyholder. (Attach extra sheets of this

page as necessary.)

(a)

Insured:__________________________________________________________

(b)

Policy No.:________________________________________________________

(c)

Policy Limits: _____________________________________________________

(d)

Amount of Deductible or Self-Insured Retention Level: ____________________

(e)

Original issue date: _________________________________________________

ssary.)

(a)

Insured:__________________________________________________________

(b)

Policy No.:________________________________________________________

(c)

Policy Limits: _____________________________________________________

(d)

Amount of Deductible or Self-Insured Retention Level: ____________________

(e)

Original issue date: _________________________________________________

(f)

Policy amendment date to achieve compliance with “first-dollar” coverage:

_________________________________________________________________

Officer’s Name ___________________________________

Title: _________________________

(Print)

Officer’s Signature ________________________________

Date: _________________________

(Signature)

PLEASE RESPOND TO:

Attn: Cecelia Chock, Chief Investigator

STATE OF HAWAII INSURANCE DIVISION

P. O. Box 3614

Honolulu, HI 96811-3614

FAX (808) 587-6714

ON OR BEFORE SEPTEMBER 9, 2002