DEPARTMENT OF BANKING AND INSURANCE
DIVISION OF INSURANCE
Senior Citizen Insureds to Designate Third Parties to Receive Certain Notices
Adopted New Rules: N.J.A.C. 11:2-19
Proposed: January 22, 2002 at 34 N.J.R. 366(a)
Adopted: June 10, 2002 by Holly C. Bakke, Commissioner, Department of Banking and Insurance
Filed: June 10, 2002 as R. 2002 d.210, with a substantive change not requiring additional public notice and comment (see N.J.A.C. 1:30-6.3)
Authority: N.J.S.A. 17:1-8.1, 17:1-15e and 17:29C-1.1 and 1.2
Effective Date: July 1, 2002
Expiration Date: November 30, 2005
Summary of Public Comments and Agency Responses:
The Department of Banking and Insurance ("Department") timely received four comments from the following:
COMMENT: One commenter, while generally supporting the proposal, suggested that the rule allow senior citizens to submit the third party request by mail, fax or through an agent, with the notification not taking effect until the company acknowledges the receipt of the information. The commenter believed that this would benefit senior citizens who are unable to go to a post office to send their designation by certified mail.
RESPONSE: Upon review, the Department has determined not to change this provision. The requirement that notification of the designation of the third party to the insurer be by certified mail, return receipt requested, is expressly required under N.J.S.A. 17:29C-1.2.
COMMENT: One commenter expressed concern with the application of the rule to "lapses." The commenter initially questioned whether the rule could apply to lapses since this is not referenced in the statute. The commenter further stated that even assuming that the statute could be construed to apply to lapses, the commenter expressed concern with the definition of "lapse" in the rule.
First, the commenter stated that use of the phrase "including, but not limited to" in connection with termination of insurance is too open-ended. The commenter stated that the issue to be addressed in the statute is cancellations initiated or demanded by the insurer, not those initiated or demanded by the policyowner, such as term conversion, exchanges of insured, and other acts which have as a consequence termination of coverage. The commenter stated that this is of concern to insurers because correspondence undertaken in relation to actions taken by the policyowner in the exercise of policy rights is often handled by staff that is separate from those handling overdue premiums, and they might not use the same compliance systems.
The commenter also expressed concern with defining "lapse" to include "the expiration of policy term." The commenter stated that the expiration of a non-cancelable life insurance policy term is neither a cancellation nor a lapse. The commenter stated that, for example, a 10-year term life insurance policy expires at the end of 10 years exactly per the policy provisions. At the conclusion of the 10 years, the policy is not cancelled, that is, no action taken by the policyowner ends the coverage, nor does the policy lapse. There is no amount of money the policyowner can pay that could renew the policy or keep it in force. The commenter believed that it would be incorrect to characterize this event as a lapse or cancellation.
RESPONSE: Upon review of the commenterís concerns, the Department has determined not to change this provision. The intent of the legislation is to ensure that senior citizen insureds not lose policy benefits through failure to take action or pay premiums, through the ability to designate a third party to receive important notices. In the case of life insurance, there are myriad possible actions that may occur through failure to pay premiums, for example, reduction in cash value, as well as forfeiture. The Department recognizes that notices of certain actions are not statutorily required. An exception to this would be N.J.S.A. 17B:25-8, which requires advance notice for termination due to excessive debt. However, the Department believes that to the extent an insurer already sends notice upon the occurrence of other events, a senior citizen insured should be able to designate a third party to receive duplicate notice of those events. The Department believes that this is consistent with, and indeed furthers the intent of, the legislation, for the reasons set forth above.
COMMENT: One commenter stated that the rules should not apply to "Medicare + Choice" plans as defined at N.J.A.C 11:4-23.3. The commenter stated that N.J.S.A. 17:29C-1.1 and 1.2 apply to all insurance carriers and health maintenance organizations, and to all direct pay (individual) products. The commenter stated that the law does not apply to Medicare + Choice organizations and products. The commenter stated that for products to which the statute applies, it applies only to residents of this State who are 62 years of age or older and remit premium directly to the carrier. The commenter believed that to include Medicare + Choice program enrollees exceeds the scope of the statute and its intent. The commenter believed that it would add confusion to an area that is arguably preempted by Federal rules applicable to the Medicare + Choice program and enrollees. The commenter further stated that the statute limits the definition of a policy of personal lines insurance to a policy for which the premiums are "paid directly to the insurer by the senior citizen insured." The commenter stated that if the rules applied to Medicare + Choice policies, it would create inconsistent requirements within the same program, that is, some Medicare + Choice products are offered on a zero premium basis, while some have a premium. Since the statute provides no clarification as to how these situations should be addressed, the commenter believed that the statute could not have been intended to include Medicare + Choice programs. The commenter thus suggested that Medicare + Choice plans be deleted from the rules.
RESPONSE: Upon review, the Department has determined not to change this provision. As the commenter noted, there may be Medicare + Choice policies wherein the insured pays premium. To the extent an insured does not pay premium, the ability to designate a third party to receive notice would be moot since the insured is not required to take action. However, to the extent an insured is required to pay premium, and an insurer sends prior notice of cancellation due to nonpayment of premium, the Department believes that it is consistent with the intent of the legislation for the insurer to send duplicate notice to a third party if the senior citizen insured designates a third party to receive such notices. The Department does not believe that this affects or impacts the administration of the Medicare + Choice program under Federal law. The Department reiterates that the rules do not require notice to be sent if notice is otherwise not required to be sent pursuant to law, or the insurer does not currently send such notices to its insureds as a matter of practice. Rather, if the insurer sends notice of these important events, the senior citizen insured should be able to designate a third party to receive a copy of that notice.
COMMENT: One commenter stated that as the rules apply to life insurance, the reference in N.J.A.C. 11:2-19.3 to "senior citizen insured" is not appropriate in that this section should reference owners of policies insuring senior citizens since it is the policyowner, not the insured, who receives notices and has all rights under an insurance policy contract.
RESPONSE: The Department agrees that additional clarification is required with respect to life insurance for the reasons expressed by the commenter. This is consistent with the intent of the statute which is to assist owners of contracts who are senior citizens who may not realize the importance of the notice of cancellation, as set forth above. Accordingly, the notice of cancellation, nonrenewal, lapse, and conditional renewal with respect to life insurance should be forwarded to the third party only in those instances where a senior citizen has ownership rights. Accordingly, the definition of "senior citizen insured" has been revised upon adoption to provide that, in the case of life insurance, "senior citizen insured" is the owner of the policy or certificate, if other than the insured.
COMMENT: One commenter objected to the requirement that the insurer utilize separate envelopes with a notation of "Important Insurance Policy Information: Open Immediately" to mail notices to third parties. The commenter stated that this would add additional expense and undue hardship for companies. The commenter stated that if the notation requirement remains, insurers should be provided the option of printing the notation either on the envelope or directly on the notice in such a way that the notation shows through a window envelope along with addressee information.
RESPONSE: Upon review, the Department has determined not to change this provision. This language tracks N.J.S.A. 17:29C-1.2 verbatim, which requires that "when a third party is so designated all such notices and copies shall be mailed in an envelope clearly marked on its face with the following: Important Insurance Policy Information: Open Immediately." The Department believes, however, that printing the notice in such a way that it shows through a window on the envelope satisfies this requirement.
Federal Standards Statement
A Federal standards analysis is not required because the adopted new rules are not subject to any Federal requirements or standards.
Full text of the adoption follows (addition to proposal indicated in boldface with asterisks *thus*):
The following words and terms, as used in this subchapter, shall have the following meanings, unless the context clearly indicates otherwise:
. . .
"Senior citizen insured" means any named insured, or certificate holder, *or, with respect to life insurance, the owner of the policy or certificate, if other than the insured,* pursuant to a policy of personal lines insurance who is an individual and is at least 62 years of age.