Pennsylvania Insurance Violations, Penalties Announced

The Pennsylvania Insurance Department today released enforcement actions taken in April 1998 against agents and companies licensed to conduct insurance business in the Commonwealth. Enforcement actions are taken after an investigation reveals violations of Pennsylvania statutes or regulations. Enforcement actions are concluded with the issuance of a consent order, a settlement agreement or an order and adjudication. If a formal charge is filed against the individual or company alleged to be in violation of the law, a hearing before the Insurance Commissioner is held.

Enforcement Actions
McAlear Associates Inc., Grand Rapids, MI, was fined $2,000 and placed under five years of license supervision for selling surplus-lines policies to Pennsylvania consumers without possessing, or being eligible to possess, a surplus-lines license.

Legion Insurance Company, Philadelphia County, Philadelphia, was fined $10,000 for utilizing unapproved medical malpractice insurance forms during 1996 and 1997.

Thomas A. Piechowicz, Wendell, Westmoreland County, was fined $1,000 and placed under five years of license supervision for failure to indicate replacement on an insurance policy application and failure to provide the required replacement form notice.

Nationwide Insurance Companies, Columbus, OH, was investigated on three issues. Those areas in which the department found violations, and which are covered by four Consent Orders, are:

• Nationwide's employment of an underwriting requirement imposing a minimum three years of licensed driving experience;
• discrimination by Nationwide on the basis of applicants' marital status; and
• misrating of automobile insurance policies by Nationwide.

Deputy Commissioner of Consumer Services and Enforcement Helfried G. LeBlanc ordered, and Nationwide--while denying any liability or that it violated any law--agreed to abide by the following terms:

• Nationwide must comply with Act 78 by not considering an applicant's minimum period of driving experience or marital status in connection with an underwriting decision;
• Nationwide must comply with the Unfair Insurance Practices Act (UIPA) by not considering an applicant's minimum period of driving experience or marital status in connection with an underwriting decision;
• Nationwide must comply with the Casualty and Surety Rate Regulatory Act by making use of only those rates on file with and approved by the department.
• Nationwide, within 30 days of execution of the consent orders, must document to the department its revision of and distribution to its agents of its automobile-underwriting guidelines by removing any driving experience requirement, and its reinforcement to its agents of its policy that marital status is not to be considered in underwriting.
• Nationwide, within 180 days of execution of the consent orders, must demonstrate compliance with the Casualty and Surety Rate Regulatory Act and that all automobile policies have been correctly rated.

For each of the consent orders, Nationwide shall pay a civil penalty of $80,000; the resultant total civil penalty is $320,000. Also for each, Nationwide shall reimburse the Commonwealth for reasonable expenses incurred in connection with the department's review in the amount of $32,500; the resultant total reimbursement is $130,000.

Settlement Agreements/Orders/Adjudications
Louis Apsokardu, Mohnton, Berks County, pled guilty to six misdemeanor charges and as a result, had his licenses suspended for two years, was placed under license supervision during his suspension period, and was placed under five-year future license supervision.

Market Conduct
Prudential Insurance Company of America, Newark, NJ, announced its intent to exit the group credit insurance business. At that time, the company found that its group credit staff did not monitor and follow up on monthly "exception reports," which were developed to identify potential discrepancies between the insurance premiums and refunds calculated by lenders and reported to Prudential. Many instances went uncorrected where errors were made in the calculation amounts, some of which resulted in premium overcharges and refund shortages. The company reported the findings to the department and contracted with outside counsel and a consulting firm to reconcile and audit all accounts and remediate exceptions reflecting potential overcharges or refund shortages.

The audit and reconciliation process still is being conducted with an anticipated completion date of August 1, 1998. At that time, the company will file a written report with the department of the final audits which will include the number and amount of overcharges discovered. The company was charged with violations of:

• the Unfair Insurance Practices Act, No. 205, Section 5(a)(7);
• for overcharging certain insureds of the same class and hazard;
• Section 8 of the Model Act for the Regulation of Credit Life Insurance and Credit Accident and Health Insurance for overcharging insureds in excess of filed premium rates and failing to provide appropriate refunds upon termination of policies; and
• Title 31, PA Code, Section 73.37(d) for failure to perform required annual audits of lender accounts.

The company was fined $25,000 in settlement of all violations, in addition to making restitution where noted.

The Commonwealth also undertook several market conduct exams of life insurers, looking at domestic violence issues. It called for each of the companies to eliminate any reference to domestic violence/abuse from any underwriting guidelines or procedures utilized, and to notify its Pennsylvania agents that, in accord with Act 24 of 1996, domestic violence/abuse may not be considered or used in any fashion to evaluate, whether to write or determine a rate, for any potential risk.