Webinar: "SB 1567 - Named Driver Policies" - August 21, 2013
***Registration is closed. See below for log-in instructions.
This webinar will focus on the emergence of named driver policies in the personal auto insurance market. It will address what they are, how and why they developed. It will address SB 1567 that was recently passed by the Texas Legislature and the duties and obligations it places upon insurers and insurance agents. Finally, it will address the consequences of failure to comply with the duties imposed under SB 1567.
R. Brent Cooper
Continuing Education Credit:
TDI CE: Provider #32551
This course has been approved by the Texas Department of Insurance in the amount of 1.0 general credit hour. Cooper & Scully, P.C. is a Texas Department of Insurance registered provider.
This course has been approved for Minimum Continuing Legal Education credit by the State Bar of Texas Committee on MCLE in the amount of 1.0 general credit hour.
Effective 1/1/14 Restrictive “Named Driver” Policies Poses Significant Risks to Insurance Agents
I am a defense attorney who specializes in defending insurance companies and insurance agents on automobile claims. In recent months, I have been actively engaged in presenting educational Webinars regarding newly enacted law SB1567 that becomes effective 1/1/2014 in Texas. In this process, I was recently asked to provide my thoughts on SB 1567’s impact, both directly and indirectly, to agents selling the “Named Driver” policies regulated by the new law.
The overall message is simple: Agents who chose to continue to sell these policies once the law takes effect face significant additional liability risk due to the requirements of this law. I have outlined some of the key risks in more detail below.
First, it should be pointed out that there was significant support in the legislature to eliminate Named Driver policies altogether. A separate bill was introduced to make such policies illegal. It passed in one chamber, but fell short in the other. I would not be surprised to see the bill to eliminate Named Driver Policies reintroduced at the next session. Many legislators are uncomfortable with Named Driver policies, and SB 1568 represents a compromise that allows the policies to be sold only in conjunction with onerous compliance requirements. These stiff compliance requirements send direct notice to Agents and Companies alike that Named Driver policies are not considered to be in the best public interest and agents and companies who continue to sell them do so at their own risk.
Second, SB1578 stipulates that the insurer and the agent must comply with significant new requirements on all new and renewal policies sold on or after 1/1/2014.
• Agents must provide certain written warning disclosures both orally and in writing.
• These warning disclosures much be made before accepting a premium or fee
• Proof that the disclosures were made must be retained in every case
To satisfy these requirements, Agents will have to utilize the notification compliance regime established by whichever carrier they are using to sell the policy, regardless of how complicated, cumbersome, or ultimately non-compliant that regime may be. Establishing proof of both the oral and written warnings will no doubt lead to much litigation and agents, being integral to the compliance process, will become the target of such litigation.
Another risk to agents brought about by the new law is the lack of clarity around the requirement that the warning disclosures be made “whenever accepting a premium or fee.” This lack of clarity leads to several questions which should be of concern to an agent, for example:
• Does this mean each time a premium payment is made (even installments payments) the disclosures must be made and documented?
• Does an agent have to establish written and oral proof for each and every “monthly policy” renewal?
• Does an agent have to establish written and oral proof for each and every “reinstatement” and “rewrite”?
• When do the disclosure requirements end for any one customer? Must they continue for the entire lifecycle of each and every customer however long that is?
Yet another exposure the agent faces relates to the choice of coverage the agent offers the customer. Other policies are currently available on the market for the same approximate premium. Was the customer offered only a restrictive Named Driver policy? Or could and did the agent offer a broad form “full household” policy as well? An agent could have potential liability for not offering this option, particularly when broader policies are commonly available at same approximate prices.
Perhaps most troubling of all, there is no specific provision in the bill regarding what happens if there is a violation of the statute. What are consequences of an agent becoming involved in compliance litigation? In addition to the agent’s cost of defending, will the agent be liable for the claim itself? Maybe. Will agents be able to rely on their E&O policies to protect them in these situations? Maybe not, given typical exclusions relating to Illegal Acts, Intentional Acts, etc.
Moreover, this “grey area” will no doubt lead to claims against agents by insureds under Ch 541 of the Texas Insurance Code that there have been misrepresentations in connection with the policy. Should the insureds be successful in their claims under Ch 541, it would subject the agent to the disciplinary authority of the Texas Department of Insurance and place their license at jeopardy.
These are just some of the thoughts and concerns that I would have regarding selling restrictive Named Driver coverage under the new legislation. If I were representing an agent, it would be difficult for me to advise him or her to market this product under the current regulatory constraints, particularly knowing Broad Form products readily exist.
R. Brent Cooper