House Bill 729*-First Edition

GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 2007

H 1

HOUSE BILL 729*

Short Title: Penalties for Insurance Rate Evasion Fraud.-AB		(Public)
Sponsors:	Representatives Goforth, Holliman (Primary Sponsors); Alexander and Current.
Referred to:	Insurance.

March 15, 2007

A BILL TO BE ENTITLED

AN ACT TO ADDRESS NONFLEET PRIVATE PASSENGER MOTOR VEHICLE INSURANCE RATE EVASION FRAUD.

The General Assembly of North Carolina enacts:

SECTION 1. Article 36 of Chapter 58 of the General Statutes is amended by adding a new section to read:

"§ 58‑36‑120. Rate evasion fraud; obligations of insurers and agents; Rate Evasion Prevention Programs.

(a) As used in this section:

(1) "Applicant" means one or more persons applying for the issuance of an auto insurance policy.

(2) "Auto insurance" means nonfleet private passenger motor vehicle insurance.

(3) "Eligible applicant" means a person who is any of the following:

a. A resident of this State who owns a motor vehicle registered and principally garaged in this State.

b. A resident of this State who has a valid North Carolina drivers license or who is required to file proof of financial responsibility under Article 9A or 13 of Chapter 20 of the General Statutes in order to register the resident's motor vehicle or obtain a drivers license in this State.

c. A nonresident of this State who owns a motor vehicle registered and principally garaged in this State.

d. The State and its agencies and cities and counties in this State and their agencies.

No person is an "eligible applicant" if timely payment of premium is not tendered or if there is a valid unsatisfied judgment of record against that person for recovery of amounts due for motor vehicle insurance premiums and that person has not been discharged from paying the judgment or if that person does not furnish the information necessary to effect insurance.

(4) "Insurer" means a member of the Bureau that is licensed to write and is writing nonfleet private passenger motor vehicle insurance in this State.

(b) Any person who, with the intent to deceive an insurer, either (i) presents or causes to be presented a written or oral statement in support of an application for auto insurance knowing that the application contains false or misleading information that states the applicant is an eligible applicant and the applicant is in fact not an eligible applicant, or (ii) assists, abets, solicits, or conspires with another person to prepare or make any written or oral statement that is intended to be presented to an insurer in connection with or in support of an application for auto insurance, knowing that the statement contains false or misleading information that states the applicant is an eligible applicant and the applicant is in fact not an eligible applicant, is guilty of a Class H felony. Each claim shall be considered a separate count. Upon conviction, if the court imposes probation, the court may order the defendant to pay restitution as a condition of probation. In determining the amount of restitution pursuant to G.S. 15A‑1343(d), the reasonable costs and attorneys' fees incurred by the victim in the investigation of, and efforts to recover damages arising from, the claim may be considered part of the damage caused by the defendant arising out of the offense.

(c) In order to prevent persons who are not eligible applicants from purchasing auto insurance in this State, an agent shall require every applicant for insurance to sign a statement that includes the applicant's attestations of eligible applicant status for all named insureds to be insured on the policy for which application is made and states all of the following:

(1) All of the information provided by the applicant is true and correct.

(2) The applicant is an eligible applicant.

(3) The applicant understands that providing incorrect or fraudulent information as to the applicant's address can result in criminal prosecution and the denial of coverage for any loss not occurring in North Carolina under the policy for which application is made, if the applicant falsely claims eligible applicant status for the applicant or any named insured, or if the applicant fails to notify the insurer at policy renewal if any named insured ceases to be an eligible applicant.

(4) The applicant will inform the insurer before the next policy renewal if any insured ceases to be an eligible applicant.

(d) The agent shall also verify that the information provided by an applicant for auto insurance as to the applicant's address and the location where the vehicle is garaged is correct. The agent shall satisfy the requirements of this section by obtaining reliable proof of North Carolina residency from the applicant in the form of any of the following:

(1) A pay stub with the payee's address.

(2) A utility bill showing the address of the applicant‑payor.

(3) A contract for an apartment, house, modular unit, or manufactured home with a North Carolina address signed by the applicant.

(4) A receipt for personal property taxes paid.

(5) A receipt for real property taxes paid to a North Carolina locality.

(6) A current auto insurance policy issued to the applicant showing the applicant's address.

(7) A monthly or quarterly financial statement from a North Carolina regulated financial institution.

(8) A valid unexpired North Carolina drivers license.

(9) A matricula consular or substantially similar document issued by the Mexican Consulate for North Carolina.

(10) A document similar to that described in subdivision (9) of this section, issued by the consulate or embassy of another country that would be accepted by the North Carolina Division of Motor Vehicles as set forth in G.S. 20‑7(b4)(9).

(e) The agent shall retain copies of the items obtained under subsection (d) of this section in accordance with G.S. 58‑2‑185 and the record retention administrative rules adopted by the Commissioner.

(f) All insurers, as a prerequisite to the further engaging in this State in the writing of auto insurance or any component thereof, shall implement a program designated as a Rate Evasion Prevention Program designed to prevent fraudulent procurement of insurance in this State by persons who would not otherwise qualify as eligible applicants. A Rate Evasion Prevention Program shall require (i) the insurer to audit its business written for auto insurance at least annually to determine whether its insureds have stated misrepresentations in their applications regarding their addresses and the locations where their vehicles are garaged and (ii) the insurer's agents to validate the residency of insureds at the point of sale and upon notification of a claim."

SECTION 2. G.S. 58‑2‑163 reads as rewritten:

"§ 58‑2‑163. Report to Commissioner.

Whenever any insurance company, or employee or representative of such company, or any other person licensed or registered under Articles 1 through 67 of this Chapter knows or has reasonable cause to believe that any other person has violated G.S. 58‑2‑161, 58‑2‑162, 58‑2‑180, 58‑8‑1, or 58‑24‑180(e), or 58‑36‑120, or whenever any insurance company, or employee or representative of such company, or any other person licensed or registered under Articles 1 through 67 of this Chapter knows or has reasonable cause to believe that any entity licensed by the Commissioner is financially impaired, it is the duty of such person, upon acquiring such knowledge, to notify the Commissioner and provide the Commissioner with a complete statement of all of the relevant facts and circumstances. Such report is a privileged communication, and when made without actual malice does not subject the person making the same to any liability whatsoever. The Commissioner may suspend, revoke, or refuse to renew the license of any licensee who willfully fails to comply with this section."

SECTION 3. This act becomes effective January 1, 2008, and applies to offenses committed, and applications for nonfleet private passenger motor vehicle insurance made, on or after that date.