Montana Administrative Register Notice 6-227 No. 17   09/02/2016    
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In the matter of the adoption of New Rules I through III pertaining to Group Disability Income Opt Out 








TO: All Concerned Persons


1. On October 4, 2016, at 10:00 a.m., the Commissioner of Securities and Insurance, Montana State Auditor (CSI), will hold a public hearing in the 2nd floor conference room, at the Office of the Commissioner of Securities and Insurance, Montana State Auditor, 840 Helena Ave., Helena, Montana, to consider the proposed adoption of the above-stated rules.


2. The CSI will make reasonable accommodations for persons with disabilities who wish to participate in this rulemaking process or need an alternative accessible format of this notice. If you require an accommodation, contact the CSI no later than 5:00 p.m., September 27, 2016, to advise us of the nature of the accommodation that you need. Please contact Darla Sautter, CSI, 840 Helena Avenue, Helena, Montana, 59601; telephone (406) 444-2726; TDD (406) 444-3246; fax (406) 444-3499; or e-mail dsautter@mt.gov.


3. The rules as proposed to be adopted provide as follows:


          NEW RULE I  DEFINITIONS (1) "Commission" means the interstate insurance product regulation commission established under 33-39-101, MCA.

          (2) "Opt out" means action taken to decline to adopt or participate in a promulgated uniform standard adopted by the commission under 33-39-101, MCA.

          (3) "Uniform standard" means a standard adopted by the commission for a product line under 33-39-101, MCA.


AUTH: 33-39-101, 33-39-103, MCA

IMP: 33-39-101, 33-39-103, MCA


          NEW RULE II PURPOSE (1) The purpose of these rules is to formally opt out of certain uniform standards pursuant to the procedure in 33-39-103, MCA.


          AUTH: 33-39-101, 33-39-103, MCA

          IMP: 33-39-101, 33-39-103, MCA


          NEW RULE III GROUP DISABILITY INCOME UNIFORM STANDARDS OPT OUT (1) The insurance commissioner finds and concludes, based upon the preponderance of the evidence and given the conditions in Montana, that the group disability income standards do not provide reasonable protections to the citizens of Montana, and in fact would materially lower the level of protection for and materially diminish the rights of Montana policyholders, with regard to the following:

          (a) the subrogation and claim off-set rights of the insurer; and

          (b) the enforcement of the law of the policyholder's or group contract holder's resident state, as opposed to the state of the certificate holder.

          (2) The insurance commissioner has balanced, has considered, and finds that the conditions in Montana and needs of the citizens of Montana outweigh the following factors:

          (a) the intent of the legislature to participate in, and the benefits of, an interstate agreement to establish national uniform consumer protections for group disability income uniform standards; and

          (b) the presumption that group disability income standards adopted by the commission provide reasonable protection to consumers of the group disability income product.

          (3) The state of Montana opts out of the group disability income uniform standards.


          AUTH: 33-39-101, 33-39-103, MCA

          IMP: 33-39-101, 33-39-103, MCA


          4. STATEMENT OF REASONABLE NECESSITY: The Commissioner of Securities and Insurance, Montana State Auditor, Monica J. Lindeen, (commissioner) is the statewide elected official responsible for administering the Montana Insurance Code and regulating the business of insurance.


Senate Bill 28 was passed during the 2013 legislative session in order to allow Montana to join with other states and establish the Interstate Insurance Product Regulation Compact (compact). The compact provides for the development and implementation of uniform standards with respect to the state-by-state approval of insurance products. The Interstate Insurance Product Regulation Commission (commission) established under the compact promulgates, on a rolling basis, new uniform standards for varied insurance product lines.


A state participating in the compact automatically adopts new uniform standards as they are promulgated unless the state specifically declines to adopt them (i.e., "opts out") by legislation or regulation. A state may opt out if a uniform standard does not provide reasonable protections to insurance consumers of that state. These rules are proposed to opt out of the group disability income uniform standards. New Rule I provides definitions, while New Rule II formally opts out of the uniform standards according to the procedure required under the compact.


These rules are reasonably necessary because the group disability income uniform standards do not reasonably protect Montana insurance consumers in multiple respects. First, the uniform standards permit insurers to engage in subrogation and benefit off-setting practices in contravention of Montana's longstanding "made whole" doctrine. This doctrine requires that subrogation claims not be enforced until an injured insured has been fully compensated, or "made whole." See 33-22-1602(4), 33-30-1102(4), MCA; Oberson v. Federated Mutual Insurance Company, 2005 MT 329, ¶ 10, 330 Mont. 1, 126 P.3d 459. Second, the uniform standards allow for application of the law of the state of the group policyholder or contract holder, instead of the state of residence of the certificate holder. Both these aspects of the uniform standards place the individual policyholder at a significant disadvantage, including during claim disputes or litigation. Additionally, the subrogation provisions could effectively deprive consumers of funds to which they are currently entitled under Montana statute, case law, and public policy. These consumer protection deficiencies necessitate that Montana opt out of the group disability income uniform standards.


          5. Concerned persons may submit their data, views, or arguments concerning the proposed actions either orally or in writing at the hearing. Written data, views, or arguments may also be submitted to Nick Mazanec, Attorney, Office of the Commissioner of Securities and Insurance, Montana State Auditor, 840 Helena Ave., Helena, Montana, 59601; telephone (406) 444-2040; fax (406) 444-5223; or e-mail nmazanec@mt.gov, and must be received no later than 5:00 p.m., October 12, 2016.


          6. Nick Mazanec, Attorney, has been designated to preside over and conduct this hearing.


          7. The CSI maintains a list of concerned persons who wish to receive notices of rulemaking actions proposed by this agency. Persons who wish to have their name added to the list shall make a written request that includes the name and mailing address of the person to receive notices and specifies for which program the person wishes to receive notices. Notices will be sent by e-mail unless a mailing preference is noted in the request. Such written request may be mailed or delivered to Darla Sautter using the contact information in 2 above, or may be made by completing a request form at any rules hearing held by the CSI.


          8. An electronic copy of this proposal notice is available through the Secretary of State's web site at http://sos.mt.gov/ARM/Register. The Secretary of State strives to make the electronic copy of the notice conform to the official version of the notice, as printed in the Montana Administrative Register, but advises all concerned persons that in the event of a discrepancy between the official printed text of the notice and the electronic version of the notice, only the official printed text will be considered. In addition, although the Secretary of State works to keep its web site accessible at all times, concerned persons should be aware that the web site may be unavailable during some periods, due to system maintenance or technical problems.


          9. Pursuant to 2-4-302, MCA, bill sponsor Senator Fred Thomas was contacted by U.S. Parcel Post on August 18, 2016.


          10. The proposed rules do not significantly and directly impact small businesses; therefore, the requirements of 2-4-111, MCA, do not apply.


          /s/ Michael A. Kakuk                    /s/ Jesse Laslovich           

Michael A. Kakuk                        Jesse Laslovich

          Rule Reviewer                             Chief Legal Counsel


          Certified to the Secretary of State August 22, 2016.

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