More Than 30 New Laws Highlight Record Year for Fraud-Related Legislation

By Denise Johnson | November 19, 2018

The introduction of new bills slows down during years when legislators tend to be more concerned with reelection. That’s why 2018 was such a surprise, according to Matthew Smith, director of Government Affairs and general counsel for the Coalition Against Insurance Fraud.

On the state level, there was 116 new pieces of fraud-related legislation introduced, resulting in 33 new laws, he said.

“There may still be a slight chance of a couple more slipping in before the ball drops in Times Square on New Years’ Eve,” Smith added.

Patient brokering laws were passed in Arizona, Illinois, Utah and West Virginia.

Workers’ compensation reform continued to be a hot button issue this year with legislation passed in Arkansas, California and Illinois.

Alabama passed a roofing contractor licensing law.

“When you look at the potential for hurricanes, tornadoes, that face those types of states, we are very much supporting those types of laws that protect against the storm chaser-type of frauds,” Smith said.

Iowa passed a new law allowing insurers the ability to pursue restitution from fraudsters.

Smith said CAIF continues to partner with Honda North America to protect American consumers on fraudulent airbags.

“That’s a fraud that we don’t read about or hear about too often, but the state of Rhode Island and its Speaker Pro Temp, Brian Patrick Kennedy, shepherded a law through there that passed and was signed by the governor,” said Smith.

When an airbag is replaced after an accident with a knock off there is considerable danger to the vehicle’s driver and passengers.

“The tragedy of that fraud is the consumer doesn’t know they’ve been defrauded until the next accident when, literally, their life is at risk as they hit or fly through the windshield because their airbag did not properly deploy,” Smith said.

Laws Governing Cyber, Data Privacy

Two of the most significant laws, he said, came out of South Carolina and California.

This year, South Carolina became the first state in the nation to adopt the National Association of Insurance Commissioners (NAIC) cyber security law. Smith expects many other states will either follow suit or create similar legislation for the protection of consumers rights of privacy and data usage.

“The model bill is very comprehensive,” Smith said. “For example, it requires every insurance company to designate a person or a vendor responsible for their cyber security programs. It also requires written policies and procedures to be in place on the use of data, and when there are data breaches.”

He offered an example to highlight the impact to insurers.

“If a claims person so much as loses a laptop or…a smart device that has non-public personal data of an insured or a claimant, that is now unaccounted for because that device has been lost or stolen, it is mandatory to report that to the state DOI, and they have the right to investigate it and, under certain circumstances if there are blatant violations, fine or take licensing action over data breaches and the loss of personal information,” he said.

A law regulating California residents’ privacy was speedily passed into law this year.

“The California Privacy Law applies to insurers and all other businesses in the state and has very severe restrictions on the use of private data,” Smith explained. “We’re looking at it from the standpoint of what impact it might or might not have on an insurer’s ability to even report fraud. We think we’re all right there, but we’re partnering with others to look to make certain that it does not infringe on the ability to report insurance fraud under the Privacy Act.”

Several amendments to the law are expected before it becomes effective on January 1, 2020.

Michigan Fraud Authority

The fraud community was taken by surprise when, in September, then outgoing Governor Rick Snyder issued an executive order creating a state insurance fraud authority.

Smith said it’s something that had been in the works for years, but continually stalled.

“We at the Coalition have tried for years to work with the Legislature in Michigan, because the state desperately, in our opinion, needed an auto fraud authority, especially when you have that type of a personal injury protection (PIP) system and the frauds, abuses, and scams occurring in Michigan,” he said. “Unfortunately, the bills always failed, not because the legislators were not in favor of a fraud unit, but because it was always joined at the hip with PIP reforms and there could never be a consensus on that.”

The scope of the fraud authority is much broader than just auto insurance, Smith said.

“Without…a law on the books, future governors could decide to do away with it, and there’s also no funding for it.” he said. “It doesn’t have a funding structure or mechanism underneath it because it was created by Executive Order. So, one of our priorities – we’d love to have it yet this year or in 2019 – is to work with the Legislature to take what the governor created by Executive Order, a free-standing insurance fraud authority, but created now with an actual Legislative structure and with a funding mechanism to make certain that it’s permanent.”

Ohio Law Declines to Follow ALI Restatement of the Law, Liability Insurance

Because the American Law Institute’s revised Restatement on Liability Insurance creates new theories of recovery and new areas of law that states may not have, there is concern it will be relied on as if it is the law.

“The problem with this is, although the American Law Institute publications, the Restatements, are not laws in and of themselves, they are probably the most cited authority on issues like liability insurance by judges in issuing decisions and by attorneys in submitting briefs to courts addressing those issues. So, there’s grave concern that the ALI Restatement, as they adopted it now, changes dramatically the world of insurance law,” said Smith.

A new Ohio law, passed in July, says state courts don’t have to follow the new version. It remains to be seen if other states will follow suit.

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