PRINTER'S NO. 4081
No. 2842 Session of 1986
INTRODUCED BY DeVERTER, GODSHALL, VROON, FLICK, BOWSER, JOHNSON,
FARGO, MERRY, BLACK, FOX AND DAVIES, OCTOBER 6, 1986
REFERRED TO COMMITTEE ON INSURANCE, OCTOBER 6, 1986
AN ACT
1 Amending the act of June 11, 1947 (P.L.538, No.246), entitled
2 "An act relating to the regulation of rates for insurance
3 which may be written by stock or mutual casualty insurance
4 companies, associations or exchanges, including fidelity,
5 surety and guaranty bonds and all other forms of motor
6 vehicle insurance, and title insurance; to rating and
7 advisory organizations; conferring on the Insurance
8 Commissioner the power and duty of supervising and regulating
9 persons, associations, companies and corporations, and of
10 enforcing the provisions of this act; prescribing and
11 regulating the practice and procedure before the
12 commissioner, and procedure for review by the courts; giving
13 the Court of Common Pleas of Dauphin County exclusive
14 jurisdiction over certain proceedings; prescribing penalties
15 and providing for enforcement thereof, and repealing
16 inconsistent acts," providing a flexible rating system for
17 certain risks.
18 The General Assembly hereby finds and declares that this
19 Commonwealth is in the midst of an insurance crisis that affects
20 all aspects of the public and private sectors. Nonprofit
21 organizations, volunteer groups, businesses, governmental
22 entities, housing and transit authorities, professionals and
23 others have experienced sudden and inexplicable cancellations
24 and nonrenewals of their liability insurance policies or, in
25 other cases, skyrocketing premiums or reduction in coverage,
1 with little, if any, notice of these changes. Midterm
2 cancellations and lack of notice of nonrenewals have disastrous
3 effects on a multitude of groups and individuals and, indeed,
4 threaten to undermine the delivery of essential and necessary
5 services to Commonwealth residents. The General Assembly further
6 finds and declares that, by the enactment of the following
7 provisions, it is the intent of the General Assembly to fulfill
8 its constitutional obligation to provide for the health, safety
9 and welfare of the people of this Commonwealth. It is imperative
10 that this Commonwealth provide stability, security and certainty
11 for liability insurance policyholders by preventing unwarranted
12 midterm cancellations and affording policyholders minimum notice
13 of nonrenewal of policies, reductions in coverage and premium
14 increases.
15 The General Assembly of the Commonwealth of Pennsylvania
16 hereby enacts as follows:
17 Section 1. The act of June 11, 1947 (P.L.538, No.246), known
18 as The Casualty and Surety Rate Regulatory Act, is amended by
19 adding a section to read:
20 Section 4.1. Flexible Rating System, with Prior Approval of
21 Rate Changes Beyond Flexibility Bands, for Certain Commercial,
22 Professional Liability and Public Entity Risks.--
23 (a) Notwithstanding any other provision of this act, with
24 respect to rates for commercial risk, professional liability and
25 public entity risk policies, the commissioner shall, if he
26 determines that prevailing market conditions and other pertinent
27 factors warrant such action in regard to particular lines,
28 classifications, territories or coverages, establish flexibility
29 bands by setting maximum increases above and maximum decreases
30 below the insurer's rates that have been in effect during the
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1 immediately preceding twelve (12) month period, so that no rates
2 greater than such maximum increases or less than such maximum
3 decreases shall be made effective until approved by the
4 commissioner.
5 (b) Flexibility bands established by the commissioner
6 pursuant to this section shall be set forth on a list to be
7 issued and amended by the commissioner. The flexibility bands
8 may vary by line of insurance, classification, territory or
9 coverage if the commissioner determines that such variation is
10 appropriate. The flexibility bands may be adjusted in the event
11 that the commissioner determines such adjustment is necessary.
12 (c) In establishing or adjusting flexibility bands, the
13 commissioner may consider any factor he deems pertinent,
14 including extent and nature of competition, level and range of
15 rates among insurers, investment and underwriting experience of
16 insurers, reinsurance availability and changing conditions in
17 the economic, judicial and social environment.
18 (d) An insurer may use a rate that is beyond an applicable
19 flexibility band, if such rate is filed with and approved by the
20 commissioner, or sixty (60) days have elapsed from the time such
21 filing is supported with information deemed sufficient by the
22 commissioner to determine whether the filing meets the
23 requirements of this section and such rate has not been
24 disapproved as excessive, inadequate, unfairly discriminatory,
25 or otherwise unreasonable. The commissioner may, upon a showing
26 of good cause, extend the sixty (60) day period an additional
27 thirty (30) days.
28 (e) The commissioner shall establish rules and regulations
29 with respect to notice, hearings, filing, documentation and
30 other requirements applicable to the flexible rating system
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1 created by this section.
2 (f) This section shall not apply to fidelity, surety, that
3 portion of inland marine which by general custom of the business
4 is not written according to manual rates or rating plans,
5 financial guaranty or residual value insurance.
6 (g) Within ninety (90) days of the effective date of this
7 section, all insurers writing commercial risk, professional
8 liability and public entity risk coverages affected by the
9 provisions of this section shall file with the commissioner
10 proposed rates for each such coverage, appropriately modified to
11 reflect the likely reductive cost effects reasonably
12 attributable to such provisions.
13 (h) The commissioner shall, within sixty (60) days following
14 receipt, approve the proposed rates if he determines that they
15 reasonably reflect the likely reductive cost effects
16 attributable to the provisions of this section.
17 (i) In the event that the proposed rates are disapproved,
18 the reasons for such action shall be stated and, within thirty
19 (30) days of such action, a hearing may be requested by the
20 affected insurer.
21 (j) As used in this section:
22 (1) The term "commercial risk policy" shall mean a contract
23 of insurance issued or issued for delivery in this Commonwealth,
24 on a risk located in this Commonwealth, arising from the conduct
25 of an association, business, corporation or other organization,
26 insuring any of the following contingencies, (i) loss of or
27 damage to real property not used for residential purposes, (ii)
28 loss of or damage to real property used for residential purposes
29 which consist of more than four (4) dwelling units, (iii) loss
30 of or damage to personal property, (iv) losses or liabilities
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1 arising out of the ownership, operation or use of a motor
2 vehicle predominantly used for business purposes, (v)
3 liabilities of persons acting as officers or directors, and (vi)
4 other liabilities, including product liability, for loss of,
5 damage to, or injury to persons or property.
6 (2) The term "flexibility band" shall mean the range between
7 maximum rate increase and decrease percentages created under
8 this section within which insurers may use actual rates upon
9 filing such rates with the commissioner.
10 (3) The term "product liability" shall mean liability of the
11 insured for damages for personal injury, death or property
12 damage, where liability is based upon negligence, implied
13 warranty or strict liability, arising out of a design,
14 inspection, testing or manufacturing defect, or any other defect
15 in a product, or is based upon any failure to warn, or to
16 properly instruct in the use of a product or for any liability
17 for any damage arising out of the handling or use of any product
18 manufactured, sold, handled or distributed by the insured or
19 work completed by or on behalf of the insured.
20 (4) The term "professional liability policy" shall mean a
21 contract of insurance covering liability arising out of the
22 practice of any profession for which a license is required by
23 the Commonwealth or out of the operation of a duly certified
24 hospital with respect to the treatment of patients.
25 (5) The term "public entity" shall mean (i) the Commonwealth
26 or any instrumentality of the Commonwealth, (ii) any political
27 subdivision or instrumentality of a political subdivision, (iii)
28 any municipal authority or authority of the Commonwealth, and
29 (iv) any other public corporation or other governmental
30 instrumentality.
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1 (6) The term "public entity risk policy" shall mean a
2 contract of insurance issued to a public entity.
3 Section 2. This act shall take effect in 60 days.
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