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American Legislative Exchange Council Adopts NAMIC Model Legislation

INDIANAPOLIS (June 11, 2004)--The Board of Directors of the American Legislative Exchange Council (ALEC) has adopted model legislation prepared by the National Association of Mutual Insurance Companies (NAMIC). Previously, ALEC's Civil Justice Task Force unanimously adopted the model legislation May 1, 2004.

The Fair Notice and Market Stability Act will allow insurers, and other regulated companies to rely on each state's laws without denying access to the courts. While it seems academic that people should be able to rely on the law, the recent flood of multi-state class actions has left this bedrock assumption in jeopardy.

"Passage by ALEC sends a strong message to the states," said Sen. Scott Pruitt, Public Sector Chairman of ALEC's Civil Justice Task Force. "Insurers must be able to rely on regulation and law to accurately assess risk. Unfortunately, there has been a growing trend in state courts to take on the role of insurance regulator, creating a system in which public policy is determined by court ruling and jury verdicts, not by statute and regulatory agencies. This model legislation is an integral step toward stabilizing a market that has spun out of control, affecting everything from access to a health care to the cost of homeowners insurance."

NAMIC argued for adoption of the "Fair Notice and Market Stability Act" in its public policy paper, The Damaging Effect of Regulation of Insurance by the Courts. The paper, containing the full text of the act, can be read at NAMIC's website, NAMIC Online.

NAMIC's Legal and Regulatory Affairs Director, Peter Bisbecos, authored the paper and the model legislation that argues:

• When courts act like regulators laws are changed without notice to affected parties, an opportunity to comment, an explanation of what the court's decision means, or a reasonable time to comply.
• Further, courts may only consider the facts in the case before them, in handing down decisions they may not take into account the impact their decisions will have on non-parties to the lawsuit, nor may they consider the broader public policy implications created by their decisions.
• Increasingly, insurance companies have been found liable for legal conduct. Frequently, this occurs when a court hands down a judgment in a multi-state class action lawsuit. When this occurs, one state's laws are applied to the entire class, despite the fact that the conduct in question may have been clearly legal, or even required, in some states. When an insurer is found liable for legal conduct by an out of state court, the law becomes unreliable, harming insurance markets. The ultimate loser is the consumer.

The solution: the "Fair Notice and Market Stability Model Act," would:

• Eliminate uncertainty by requiring regulators to immediately issue new regulations when a regulation is stricken down by a court, or to the extent possible, to issue an emergency regulation when a statute is stricken down and the legislature is not in session.
• Provide insurers with defenses when their conduct was compliant with a statute, regulation, finding, order, or emergency regulation, or when the law is unclear due to a judgment.
• Prohibit the use of a judgment in a different state if the laws conflict or the facts differ materially.

"When a legislature passes a law, and when regulations are written, there is almost always public discussion, and a period of time before the law or regulations become effective," Bisbecos said. "Courts cannot fairly judge individual disputes if they are required to offer an opportunity for public debate. However, we can replicate the time period generally afforded after a law is passed so that people have time to comply, and we can protect legal conduct - these are the primary objectives of the 'Fair Notice and Market Stability Act.'"

The American Legislative Exchange Council (ALEC) is the nation's largest bipartisan, individual membership organization of state legislators with more than 2,400 legislator members from all 50 states.

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For further information contact:
Robert Detlefsen at rdetlefsen@namic.org
or (317) 875-5250