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F I S C A L I M P A C T R E P O R T

SPONSOR Stell

DATE TYPED 2/21/05

HB 588/aHBIC

SHORT TITLE Unfair Settlement Practices Claim Requirement

SB

ANALYST Wilson

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

See Narrative

SOURCES OF INFORMATION

LFC Files

Responses Received From

Administrative Office of the Courts (AOC)

Corrections Department (CD)

Public Regulation Commission (PRC)

SUMMARY

Synopsis of HBIC Amendment

The House Business and Industry amendment to HB 588 clarifies that an insurer or its agents or

authorized third party representative may use designated replacement products of designated

manufacturers if these products are necessary for proper repair. They also may offer an explana-

tion of the extent of an insurer's obligation under the insurance policy to its policyholder or to a

third party claimant.

In addition the amendment requires an insurer or its agents or authorized third party representa-

tive to disclose to the insured or claimant either, prior to being referred to a third party represen-

tative or at first contact with the third party representative in connection with a glass claim aris-

ing under a motor vehicle insurance policy, that the third party representative is not the insurer

and is acting on behalf of the insured. They must also disclose an ownership interest in any re-

placement or repair facility.

.Synopsis of Original Bill

House Bill 588 amends Chapter 59A, Article 16 NMSA 1978 to prevent insurance companies

House Bill 588/aHBIC -- Page 2

from requiring the insured or claimant to use designated facilities, services, or products when

there is a claim.

The insurer, its agents, or its contractors cannot, as part of settling or paying a claim:

• Require the insured or claimant to use designated replacement, repair facilities, services,

or products of designated manufacturers;

• Use coercion or intimidation to make a claimant use a designated replacement or repair

facility or designated products;

• Fail to disclose when there is a referral to a third party in a glass claim that the third party

is not the insurer and is acting on the behalf of the insurer;

• Fail to disclose that the insured or claimant is under no obligation to use the replacement

or repair facility or products recommended by the insurer; or

• Fail to disclose that the insurer or its third party representative has financial interest in the

repair facility, if the insurer has such an interest.

The bill does not require the insurer to pay more than prevailing charges for motor vehicle repair

services or products. The superintendent of insurance shall investigate any written complaints

from an individual or repair facility related to this section. The insurance company is account-

able for any violation of this Act by its third party representative.

Significant Issues

The PRC provided the following:

•

In order to keep claim costs down, insurance companies routinely use “after market

parts” and often contract with particular repair facilities. As long as the resulting repairs

are done well and the parts used are of like kind and quality to the original parts, policy-

holders ultimately benefit from the reduction in premiums resulting from keeping repair

costs down.

•

The current industry practice is that if the insurance company picks the repair shop then

the insurance company guarantees the quality of the work. If the claimant is given the

right to pick, and does pick, the repair shop, then the insurance company should not be

expected to guarantee the quality of the work.

FISCAL IMPLICATIONS

The AOC states that there will be a minimal administrative cost for statewide update, distribu-

tion, and documentation of statutory changes. This change has the potential to increase the

workload of courts, thus requiring additional resources to handle the increase.

ADMINISTRATIVE IMPLICATIONS

Most, if not all, automobile insurance policies allow insurance companies to use “like kind and

House Bill 588/aHBIC -- Page 3

quality” replacement parts. If this bill is interpreted to allow the claimant to demand that the

original car manufacturer’s parts be used, then virtually all automobile insurance carriers writing

in New Mexico would have to file revised policy forms with the Insurance Division for its re-

view and approval.

DW/sb:lg