Our firm's Summer 2012 Insurance Business & Regulatory newsletter discussed a recent increase in market conduct examination activity by the Missouri Department of Insurance, Financial Institutions and Professional Registration (DIFP). The prior article also chronicled the procedural rules applicable to market conduct examinations in Missouri, and noted some common themes our firm has seen developing with the increase in the DIFP's market conduct examination activity. Since the time of the previous article, we have witnessed additional developments with respect to resolving market conduct examinations with the DIFP. The DIFP is placing a greater emphasis on seeking to impose the maximum penalty per violation authorized by statute when finalizing and settling market conduct examination reports with insurers. Consequently, recent monetary penalties assessed by the DIFP in connection with market examinations have been on an upward trajectory. For example, the DIFP has recently entered into the following settlement agreements with insurers as a result of market conduct examinations:
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$207,350 penalty and $14,000 in restitution regarding an insurer's handling of workers' compensation insurance;
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$142,250 penalty and $250,000 in restitution regarding an insurer's handling of workers' compensation insurance;
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$500,000 penalty regarding a health insurer's handling of health claims such as claims for childhood immunizations, mammograms, pap smears, and colon cancer screenings;
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$400,000 settlement with a seller of motor vehicle extended service contracts;
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$700,000 penalty after an extensive market conduct examination of a health insurer's business practices;
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$257,000 penalty after a market conduct examination focused on an insurer's annuity sales; and
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$100,000 penalty regarding an insurer's improper sales practices, commissions paid to unlicensed persons and use of unlicensed TPAs.
Since the beginning of 2009, when Director John M. Huff was appointed Director of the DIFP, Market Conduct enforcement actions by the DIFP have resulted in more than $20 million in penalties from insurance companies.
We believe any policy by the DIFP to adopt or follow a practice of imposing the maximum forfeiture amount potentially constitutes a rulemaking activity, necessitating the DIFP follow the rulemaking procedures under the Missouri Administrative Procedure Act. We believe the DIFP should consider the factors outlined in Section 374.046.2, RSMo. to determine the seriousness of any alleged violations and whether any mitigating factors exist supporting a monetary penalty amount that is less than the maximum forfeiture permitted by law. Additionally, an examination of prior published examination reports may reflect that an examined insurer is not being treated consistently with other insurers that have recently completed the market conduct examination process with the DIFP. Raising legal and equitable arguments like these should help the examined insurer meet its goals to minimize reputational and financial damage to the company, as well as other potential exposures such as regulatory actions by other states and civil litigation.
