1. Purpose

The purpose of this rule is to establish standards for issuance of certificates of authority, approval of policy forms and adequacy of reserves under contracts of group legal services insurance.

2. Authority

This rule is promulgated pursuant to the authority vested in the Superintendent of Insurance under Title 24-A M.R.S.A. Sections 212, 2882, 2887 and 2888.

3. Applicability and scope

This rule shall apply to all legal service insurance policies as defined in Title 24-A M.R.S.A. Section 2883 and insurers authorized to issue such policies.

4. Certificate of authority

An application for a certificate of authority to transact the business of legal services insurance must satisfy the following requirements:

A. If the applicant is not authorized to transact health insurance business in this State, information must be provided on forms prescribed by the Superintendent to adequately demonstrate that the applicant is qualified to be so authorized; and

B. The applicant must demonstrate the willingness and ability to assure that the promised benefits can be provided. In making this determination the superintendent shall consider so far as applicable:

(1) The adequacy of surplus funds;

(2) Any agreement with lawyers or paralegal personnel for the provision of legal services;

(3) The financial soundness of the applicant's arrangements for legal services; and

(4) Any additional information considered relevant.

5. Policy forms

In addition to the requirements of Title 24-A M.R.S.A. Chapter 27, all legal services insurance policies and certificates must meet the following requirements:

A. Policies and certificates must indicate prominently the name of the insurer and full address of its principal place of business.

B. Policies must contain a detailed list and description of the legal services provided or the legal matters for which expenses are to be reimbursed and the amount of reimbursement. Covered services may include handling of the following matters:

(1) Prenuptial Agreement, Annulment, Separation, Divorce;

(2) Adoption, Guardianship, Conservatorship;

(3) Preventive Legal Service, Document Review, Letter-writing;

(4) Employment Contract;

(5) Purchase & Sale Contract, Real Estate Transactions;

(6) Defense of Civil Suit, Defense of Debt Collection;

(7) Eviction (if tenant);

(8) Wills, Estate Settlements;

(9) Name Changes; and

(10) Other services may be included upon demonstration by the insurer satisfactory to the Superintendent that the services covered are a proper subject of insurance.

C. Policies must contain the following conditions:

(1) With respect to services other than basic legal advice rendered by telephone or mail as described in Title 24-A M.R.S.A. § 2883, the certificateholder may exercise freedom in the selection of an attorney, provided that the latter is properly admitted to the bar of the applicable jurisdiction.

(2) Coverage is to be provided for costs incurred during the policy term. Coverage of services ongoing at the time coverage

terminates is to be provided for an additional 90 days.

(3) The certificate holder shall not be indemnified for a greater sum than that of costs actually incurred.

(4) All periods of insurance shall begin and end of 12:01 a.m. standard time at the place of issuance.

(5) Cancellation may be initiated by either the insurer or the policyholder by providing 30-days written notice to the other for reasons other than non-payment of premium. Any return premium shall be on a pro-rata basis.

(6) If the insurer initiates cancellation for non-payment of premium, a grace period of not less than 10 days shall be provided. Policies may contain the following exclusions:

D. Policies may contain the following exclusions:

(1) Services received prior to becoming insured;

(2) Defense costs already honored under a general, automobile or employer's liability contract, or any professional liability contract; where both policies apply, the group legal services contract shall be deemed excess;

(3) Services for which no charge would have been made, but for the existence of insurance;

(4) Defense of suits filed in conjunction with professional liability or activities related to business pursuits or profit-making outside ventures, fiduciary responsibility of the insured, or his or her serving as a director or officer of either a for-profit or not-for-profit organization;

(5) Reimbursements prohibited by 29 U.S.C. § 186(C) (8) (1978 Amendments to Taft-Hartley Act); and

(6) Other exclusions approved by the Superintendent.

E. Certificates issued under group policies may summarize the terms of the master contract but must contain a full and clear statement of the benefits, exclusions and limitations.

6. Provider contracts

Any contracts between the insurer and participating attorneys or other providers of legal services must be filed with the superintendent for the purpose of enabling the superintendent to review whether the insurer has made adequate arrangements for the provision of any promised legal services. Such contracts may not become effective until 30 days after filing.

7. Reserves

A. Construction

This section shall be liberally construed to ensure that the insurer shall establish and maintain reserves which place a sound value on its liabilities and which make a good and sufficient provision for all unpaid obligations and contingencies.

B. Definitions

(1) Claim Reserve -- The reserve that recognizes the liability for unpaid benefits under the contract on claims which have been reported to the insurer.

(2) Incurred but not Reported Reserve -- The reserve to recognize liability for claims not yet reported or recorded by the insurer, for reopened claims, and for future development on known claims.

C. Standards

(1) In addition to any other statutory requirements the legal services insurance policy reserves shall not be less than the aggregate claim reserve plus incurred but not reported (IBNR) reserves for all outstanding policies and contracts.

a. Claim reserve. The claim reserve for each insured shall be the insurer's estimate of the unpaid liability, and shall be based on the insurer's experience or assumptions designed to place a sound value on the liability outstanding.

b. Incurred but not Reported Reserve. The IBNR reserve for each insured shall not be less than the reserve calculated by the following formula:

IBNR reserve = W X IBNR based on actual experience X A + (1-W) X expected IBNR X A where W is weighting factor varying from zero to 1.0 giving appropriate credibility to actual experience, and A is an adjustment factor, if any, to reflect changes in claim costs due to changing utilization, exposure, inflation, benefit changes, or any other appropriate adjustments.

(2) Interest. The maximum interest rate which may be used to value reserves shall be 4 percent.

(3) Aggregate reserves for group legal services insurance may be calculated, at the option of the insurer, according to any standards which produce greater aggregate reserves than those calculated according to the minimum standard provided in this regulation.

8. Effective date

This rule shall take effect February 2, 1987.

History. -- Effective. 2-2-87.

History. -- Statutory Authority.--24 M.R.S.A. §§ 212, 2882, 2887, and 2888.

EFFECTIVE DATE (ELECTRONIC CONVERSION): January 14, 1997