GENERAL ASSEMBLY OF NORTH CAROLINA
HOUSE BILL 729*
Committee Substitute Favorable 5/17/07
Short Title: Penalties for Insurance Rate Evasion Fraud.-AB
March 15, 2007
A BILL TO BE ENTITLED
AN ACT TO ADDRESS NONFLEET PRIVATE PASSENGER MOTOR VEHICLE INSURANCE RATE EVASION FRAUD AND TO AUTHORIZE THE JOINT LEGISLATIVE TRANSPORTATION OVERSIGHT COMMITTEE TO STUDY THE ISSUES RELATED TO AUTOMOBILE INSURANCE RATE EVASION.
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; prevention programs.
(a) The following definitions apply in this section:
(1) Applicant. - One or more persons applying for the issuance of an auto insurance policy.
(2) Auto insurance. - Nonfleet private passenger motor vehicle insurance.
(3) Eligible applicant. - 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 a 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.
(4) Insurer. - A member of the Bureau that is licensed to write and is writing auto insurance in this State.
(b) A person is not an eligible applicant, as defined in subdivision (a)(3) of this section, if the person has not tendered timely payment of premium; 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.
(c) It shall be a Class H felony for any person, who with the intent to deceive an insurer, to do any of the following:
(1) Present or cause 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 when the applicant is not an eligible applicant.
(2) Assist, abet, solicit, or conspire 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, if the person knows that the statement contains false or misleading information that states the applicant is an eligible applicant when the applicant is not an eligible applicant.
(d) 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 all of the following attestations:
(1) The applicant and all named insureds to be insured on the policy for which application is made are eligible applicants.
(2) All of the information provided by the applicant is true and correct.
(3) The applicant understands that providing fraudulent information as to the applicant's or any named insured's status as an eligible applicant may result in criminal prosecution and the denial of coverage under the policy for which application is made for any bodily injury or property damage suffered by the applicant.
(e) The statement required under subsection (d) of this section may be made:
(1) Orally if application for an auto insurance policy is made by way of telephone and the applicant's answers are recorded in writing by the agent; or
(2) Electronically if application for an auto insurance policy is made by way of the Internet.
(f) The insurer and its agent shall also take reasonable steps to verify that the information provided by an applicant regarding the applicant's address and the place the motor vehicle is garaged is correct. The agent shall retain copies of any items obtained under this section as required under the record retention rules adopted by the Commissioner.
(g) Every insurer shall audit its auto insurance business at least annually for misrepresentations by applicants regarding their addresses and the places their motor vehicles are garaged. A copy of the audit shall be provided to the Commissioner upon request.
(h) If an applicant provides fraudulent information as to the applicant's or any named insured's status as an eligible applicant and that fraudulent information makes the applicant or any named insured appear to be an eligible applicant when that person is in fact not an eligible applicant, the insurer may do any or all of the following:
(1) Refuse to issue a policy.
(2) Cancel or refuse to renew a policy that has been issued.
(3) Deny coverage for any bodily injury or property damage suffered by the applicant. This subdivision does not apply to innocent third parties."
SECTION 2. G.S. 58-2-163 reads as rewritten:
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,
58-24-180(e), 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. The Joint Legislative Transportation Oversight Committee may study the issues related to automobile insurance rate evasion (S.B. 795 - Jenkins/H.B. 729 - Holliman) and report its findings, together with any recommended legislation, to the 2008 Session of the 2007 General Assembly upon its convening.
SECTION 4. Sections 1 and 2 of this act become effective January 1, 2008, and apply to applications for nonfleet private passenger motor vehicle insurance made on and after that date. This remainder of this act is effective when it becomes law.