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Ohio Insurance Law Winter Winter Protection

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                                     Ohio Insurance Law
                                        Regulatory, Legislative & Judicial Developments

                                                                                                          Winter 2010       Vol. XIV No. 1

                                       Legislative Developments
Bricker & Eckler LLP
   100 South Third Street              n Ohio Legislature Approves Budget                      Substitute House Bill 318 became effective
 Columbus, Ohio 43215-4291               Fix Legislation                                       immediately and is available at:
                                       On December 22 Ohio Governor Ted Strickland             http://www.legislature.state.oh.us/bills.
     Phone 614 . 227 . 2300
      Fax 614 . 227 . 2390             signed	a	$851	million	budget	repair	bill,	a	legisla-    cfm?ID=128_HB_318
       info@bricker.com                tive measure necessary to replace the video lottery
                                       terminal (VLT) revenue counted on to generate           Miranda C. Motter: 614.227.4810
                                       $933	 million	 that	 was	 included	 in	 Ohio’s	 2010-
COLUMBUS CLEVELAND                     2011 biennial budget bill.
                                                                                               n Agent Licensing Legislation
  CINCINNATI-DAYTON                                                                            The Ohio House has approved legislation
                                       In July, Governor Strickland signed into law
                                                                                               that would amend Ohio’s Insurance Producer
                                       Amended	Substitute	House	Bill	1	(H.B.	1),	a	$50.5	
                                                                                               Licensing Act. House Bill 300 (H.B. 300),
                                       billion budget spending measure, which included
                                                                                               which is sponsored by Representatives Dyer
                                       language authorizing VLTs at Ohio’s seven horse
                                                                                               (D-Akron) and Hottinger (R-Newark), is in-
                                       racetracks. However, in September, the Ohio Su-
                                                                                               tended to bring uniformity to Ohio’s insurance
                                       preme Court ruled that the VLT provisions would
                                                                                               licensing laws and licensing standards.
                                       not go into effect immediately, but rather they were
                                       subject to a statewide voter referendum because         Key features of the bill include:
                                       they did not fall within any of the exceptions to the    •	 Mandatory	federal	background	checks	for	
                                       right of referendum under the Ohio Constitution.            licensure.
 In this issue                         (State ex rel. LetOhioVote.org v. Brunner, Slip          •	 Licensure	 renewal	 on	 a	 biennial	 basis.	 	
                                       Opinion No. 2009-Ohio-4900).                                (Under current Ohio law, an agent’s li-
 1    Legislative Developments
                                       As a result of this decision and the delay in imple-        cense is perpetual.)
 2    Regulatory Developments          menting the VLT provisions, Ohio legislators             •	 Completion	 of	 24	 hours	 of	 continuing	
 3    Judicial Developments            were	faced	with	a	budget	shortfall	of	nearly	$851	          education, including three hours of ethics
                                       million. Key components of the budget repair                education, for all major lines of authority.
 4    General Interest                 bill include:                                               (Agents, under current Ohio law, are re-
                                                                                                   quired to complete 20 hours of continuing
                                        •	 A	two-year	delay	of	the	4.2	percent	cut	in	per-         education with no requirement for ethics
                                           sonal income tax rates set to go into effect for        education.)
                                           the 2009 tax year;
                                                                                                •	 Biennial	license	renewal	fees	of	$25	for	all	
                                        •	 A	three-project	pilot	program	for	universities	         agents except individual resident agents
                                           to employ streamlined construction methods;             who have met their continuing education
                                        •	 A	one-year	reprieve	for	local	schools	from	an	          requirements, surety bail bond agents and
     Bricker & Eckler LLP’s
     Ohio Insurance Law is                 all-day kindergarten mandate;                           surplus line brokers.
     available to clients and           •	 Transfers	of	excess	Ohio	Department	of	Edu-         The Ohio Department of Insurance is actively
     friends of the firm, and
                                           cation funding for parochial schools; and           advocating H.B. 300. The industry has been
     highlights regulatory, leg-
     islative and judicial de-          •	 Corrective	 language	 for	 Mental	 Health	 and	     supportive of the Department’s effort to
     velopments in the State               State	Employment	Relations	Board	budgets.		         bring uniformity to state’s producer licens-
     of Ohio of interest to the
     insurance industry. It is not
                                       Ohio’s premium tax structure for insurance com-         ing laws.
     to be construed as legal          panies remains unchanged under the provisions
                                                                                               In December, the bill was referred to the
     advice or opinion.                implemented under this bill.
                                                                                               Ohio Senate Insurance, Commerce and Labor

 Ohio Insurance Law Winter 2010
        Page 2          Committee. Senate action is expected early                S.B. 157 is available at:
                        this year.
                        H.B. 300 is available at:                                 SB_157
                        http://www.legislature.state.oh.us/bills.cfm?ID=128_      Miranda C. Motter: 614.227.4810

                        Miranda C. Motter: 614.227.4810
                                                                                  n Ohio Legislature Announces 2010
                                                                                    Session Schedule
                        n Civil Suit Actions                                      The Ohio General Assembly has announced the
                        A bill codifying the cy pres doctrine in Ohio has been                                                            	
                                                                                  legislative	session	schedule	for	the	first	half	of	2010.	
                        introduced by Ohio Senators Tim Grendell and Bill         The schedule includes a number of session days in
                        Seitz. Senate Bill 157 would require undistributed        January,	February,	March,	April	and	May.		Two	tenta-
                        class action proceeds to be donated to a charity. The     tive session days have been scheduled for June.
                        bill is currently pending in the Ohio Senate Insurance,   The legislative schedule is available at:
                        Commerce and Labor Committee.
                        The	insurance	industry	has	been	unified	in	its	opposi-
                        tion to this measure. Further Senate action on this       Miranda C. Motter: 614.227.4810
                        bill is uncertain.

                        Regulatory Developments
                        n Prompt Pay                                              To	 review	 the	 specific	requirements	 imposed	under	
                                                                                  Bulletin 2009-12, go to: http://www.insurance.ohio.
                        The Ohio Department of Insurance will not include
                        long term care (LTC) in its 2010 prompt pay data
                        call. Under Ohio law, health insuring corporations        Faith M. Williams: 614.227.2374
                        (or	HMOs)	and	health	insurers	are	required	to	pro-
                        vide claims information to the Department. In 2009,       n STOLI Rules
                        health insurers received a letter from the Department     The Ohio Department of Insurance has drafted rules
                        indicating that it would begin requiring this informa-    implementing Ohio’s anti-STOLI law (Amended
                        tion beginning in 2010. However, in January the           Substitute House Bill 404), which became effective
                        Department will send companies a follow up letter         in 2008. The rules affect the licensing of settlement
                        specifying that the prompt pay data call will not         companies and brokers and the continuing education
                        include LTC claims information in 2010.                   requirements for settlement brokers. One rule will
                        At the suggestion of LTC insurers, the Department         focus on implementing the new requirement that ap-
                        is considering whether to adopt the NAIC’s LTC            plications for life insurance sold in Ohio must include
                        Model,	which	addresses	prompt	pay	issues	specifi-         questions intended to detect and prevent STOLI.
                        cally for LTC insurers.                                   Compliance by insurers will be required 12 months
                                                                                  after the rule takes effect.
                        Faith M. William: 614.227.2374
                                                                                  The draft rules were recently circulated to the industry
                        n	ODI  Issues Security Breach                             for comment.
                           Bulletin                                               For more information about Amended Substitute
                        Under an Ohio Department of Insurance (ODI)               House Bill 404 and other STOLI developments, please
                        bulletin that became effective November 2, 2009,          visit: http://www.bricker.com/legalservices/industry/
                        insurance companies and agents are required to notify     insurance/stoli/
                        ODI in the event of a “loss of control” of policyholder
                                                                                  Faith M. Williams: 614.227.2374
                        information.		Bulletin	2009-12	requires	such	notifica-
                        tion within 15 calendar days of discovery of the loss
                                                                                  n Inducement Bulletin
                        of control and the reporting requirement applies to
                        situations involving the loss of personal information     The Ohio Department of Insurance issued a bulletin
                        of more than 250 Ohio residents.                          providing guidance to both insurers and agents who
                                                                                  wish to give promotional and advertising gifts to

Ohio Insurance Law Winter 2010
        Page 3          potential insureds in exchange for the opportunity to         n Mandatory use of SERFF for
                        market insurance products. Ohio generally prohibits             Product Filing Submissions
                        the giving of something of value as an inducement
                                                                                      Under Bulletin 2009-11, all insurers doing business in
                        to	purchase	insurance.		Specifically,	Ohio	Revised	
                                                                                      Ohio must electronically submit rate, rule and form
                        Code Section 3911.20 prohibits life insurers and their
                                                                                      filings	for	all	lines	of	insurance	using	the	System	for	
                        agents from giving any rebate of premium payable on
                                                                                      Electronic	Rate	and	Form	Filings	(SERFF).		Compli-
                        the policy or any valuable consideration or induce-
                                                                                      ance was required by December 31, 2009. The Ohio
                        ment as an inducement to purchase insurance. Ohio
                                                                                      Department	of	Insurance	Office	of	Product	Regulation	
                        Revised Code Section 3933.01 imposes an identical
                                                                                      and Actuarial Services will no longer accept paper
                        restriction on all other non-life insurers.
                        Bulletin 2009-13 establishes a safe harbor for
                                                                                      Entities	not	able	to	file	submissions	via	SERFF	by	the	
                        companies and agents: promotional and advertising
                                                                                      December 31, 2009, have been given the opportunity
                        items	worth	a	fair	market	value	of	$50	or	less	are	not	
                                                                                      to	file	notices	of	hardship	with	the	Department.		For	
                        considered valuable consideration and, as a result,
                                                                                      further information about this bulletin’s requirements,
                        are not impermissible.
                                                                                      go to:
                        This bulletin is available at:
                        http://www.insurance.ohio.gov/Legal/Bulletins/                BulletinIndex.aspx
                                                                                      Miranda C. Motter: 614.227.4810
                        Miranda C. Motter: 614.227.4810

                        Judicial Developments
                        n Ohio Supreme Court Holds:                                   intentional	 infliction	 of	 emotional	 distress,	 alleging	
                          $250,000 Noneconomic Damages                                that the arrests and detention adversely impacted their
                          Cap Constitutional                                          jobs and their mental and physical health. In their trial
                                                                                      against	the	City,	the	jury	awarded	$400,000	in	com-
                        On October 1, 2009, the Ohio Supreme Court upheld
                                                                                      pensatory	damages	and	$600,000	in	punitive	damages	
                        the constitutionality of R.C. 2744.05(C)(1), which
                                                                                      to each of them. The trial court vacated the punitive
                        limits	noneconomic	damages	to	$250,000	per	plain-
                                                                                      damage award as impermissible against the City, but
                        tiff in cases against political subdivisions. Oliver v.
                                                                                      it refused to apply the noneconomic damage cap set
                        Cleveland Indians Baseball Company, Slip Opinion
                                                                                      forth in R.C. 2744.05(C)(1) to reduce compensatory
                        No. 2009-Ohio-5030. The Court held that this statu-
                                                                                      damages	to	$250,000	for	each	plaintiff.		
                        tory cap on noneconomic damages does not violate
                                                                                 The	 Eighth	 District	 Court	 of	Appeals	 affirmed	 the	
                        the right to trial by jury or the right to equal protection
                        under the law.                                           trial court’s decision and held that R.C. 2744.05(C)
                                                                                 (1) is unconstitutional because it violates a plaintiff’s
                        Chief	Justice	Moyer	authored	the	majority	opinion.	    	
                                                                                 right	to	a	jury	trial	and	the	Equal	Protection	Clause	of	
                        Justices Lundberg Stratton, O’Connor, Lanzinger
                                                                                 the United States Constitution. Krieger v. Cleveland
                        and Cupp concurred in the majority opinion. Jus-
                                                                                 Indians Baseball Co., 176 Ohio App.3d 410, 2008-
                        tice Pfeifer submitted a dissenting opinion. Justice
                                                                                 Ohio-2183,	892	N.E.2d	461,	¶	69.
                        O’Donnell also dissented for the reasons stated in his
                        dissenting opinion in Arbino v. Johnson & Johnson. The Ohio Supreme Court reversed the judgment of
                                                                                 the Court of Appeals and held that R.C. 2744.05(C)(1)
                                                                                 does not violate the constitutional right to a jury trial or
                        Donald Krieger and Clifton Oliver (Appellees) were the constitutional guarantees of equal protection.
                        arrested at a Cleveland Indians game on suspicion of
                                                                                 In so holding, the Court relied heavily on its decision
                        their involvement with an explosion at the stadium.
                                                                                 in Arbino v. Johnson & Johnson, 116 Ohio St.3d 468,
                        While in custody, they were subjected to extremely
                                                                                 2007-Ohio-6948,	880	N.E.2d	420,	in	which	it	reviewed	
                        poor	conditions	and	harsh	treatment.		Eventually,	the	
                                                                                 R.C. 2315.18, a different statute limiting noneconomic
                        charges against them were dismissed by the Cuyahoga
                                                                                 damages. Although R.C. 2744.05(C)(1) differed from
                        County prosecuting attorney.
                                                                                 the statute at issue in Arbino in that R.C. 2744.05(C)
                        Appellees sued the City of Cleveland (City) for mali- (1) applies to damage awards against political subdivi-
                        cious prosecution, false arrest and imprisonment, and sions, as opposed to private litigants, the purpose and

Ohio Insurance Law Winter 2010
        Page 4          effect of both statutes were the same—to limit com-           sions in Menefee v. Queen City Metro (1990), 49
                        pensatory damage awards for noneconomic harm.                 Ohio St.3d 27, 29, it was not arbitrary or unrea-
                        Additionally, the general noneconomic damage stat-            sonable for the General Assembly to allow some
                        ute in Arbino (R.C. 2315.18) contains an exception            recovery in tort actions.
                        to the caps for persons who suffer “catastrophic in-          Justice Pfeiffer’s Dissent
                        juries,” which is not included in R.C. 2744.05(C)(1).
                                                                                      In	his	dissenting	opinion,	Justice	Pfeiffer	reaffirmed	
                        The Court found this difference “to be no obstacle
                                                                                      his dissent in Arbino in which he noted the impor-
                        to the application of the reasoning of Arbino to this
                                                                                      tance of the right to a trial by jury. He opined that
                        case.” Oliver,	at	¶6.		As	in	Arbino, the Court held
                                                                                      the statutes at issue in Arbino and Oliver enable
                        that while a jury determines the amount of damages
                                                                                      courts to “enter judgments in disregard of the jury’s
                        as a matter of fact, the actual award may be reduced
                                                                                      verdict.” He suggested that a cap on damages is not
                        as a matter of law. Oliver,	at	¶7.			Thus,	the	Court	
                                                                                      analogous to remittitur because remittitur cannot be
                        held that the limit on noneconomic damages in R.C.
                                                                                      granted without the consent of the prevailing party.
                        2744.05(C)(1) does not unconstitutionally restrict the
                                                                                      As such, Justice Pfeiffer submits that statutory caps
                        right to a jury trial under Section 5, Article I of the
                                                                                      unconstitutionally invade the province of the jury
                        Ohio Constitution or the Seventh Amendment to the
                                                                                      by replacing damages awards determined by a jury
                        United States Constitution.
                                                                                      with a predetermined cap imposed by the General
                        The Court applied a similar analogy to Arbino in              Assembly.
                        holding that R.C. 2744.05 does not violate equal
                                                                                      Moreover,	as	to	the	equal	protection	issue,	Justice	
                        protection rights. No fundamental right or protected
                                                                                      Pfeiffer distinguished Arbino, noting that in Ar-
                        class was at issue in Oliver, and R.C. 2744.05(C)(1)
                                                                                      bino,	the	Court	was	supplied	with	findings	of	fact	
                        was facially neutral. Therefore, the Court reviewed
                                                                                      from the General Assembly, whereas in Oliver,
                        the statute to determine whether it had a rational ba-
                                                                                      the	 General	Assembly	 did	 not	 issue	 findings	 of	
                        sis. Oliver,	at	¶9.		The	Court	concluded	that	a	limit	
                                                                                      facts. Justice Pfeiffer, then, submits that applying
                        on the noneconomic damages for which a political
                                                                                      the equal protection analysis in the Arbino case to
                        subdivision may be liable is rationally related to the
                                                                                      Oliver is unreasonable given the lack of legislative
                        purpose	of	preserving	the	financial	integrity	of	politi-
                                                                                      findings	of	fact.
                        cal subdivisions. The Court noted that because it had
                        already held that the General Assembly could have             Anne Marie Sferra Vorys: 614.227.2394
                        prohibited all tort actions against political subdivi-

                        n Ohio Legislators to Serve in 2010                        looking Plan” focuses on enhancing the business
                          NCOIL Leadership                                         climate for Ohio’s insurance industry and developing
                                                                                   innovative ways to retain and create insurance industry
                        Ohio Senate Insurance, Commerce and Labor
                                                                                   jobs for Ohioans. The development of this Plan was
                        Vice-Chair Keith Faber (R-Celina) will serve as the
                        2010 chair of the National Conference of Insurance         a collaborative effort involving industry experts from
                        Legislators/National Association of Insurance              across the state, which included the Ohio Department
                        Commissioners Dialogue Committee. Ohio House               of Insurance, the Ohio Department of Development and
                        Insurance Chair Dan Dodd (D-Licking Township)              the Ohio Board of Regents, and the private sector. The
                        will serve as one of the vice-chairs of the National       following	five	goals	serve	as	the	Plan’s	foundation.			
                        Conference of Insurance Legislators Budget/Audit             (1) Share the Ohio Story:	Market	Ohio’s	strengths	
                        Committee.                                                       to domestic and foreign insurance compa-
                        n ODOD’s Office of Insurance and
                          Financial Development Unveils a                            (2) Strengthen our Strengths:	 Enhance	 the	 at-
                          Strategic Plan for the Insurance                               tractiveness of Ohio’s insurance business
                          Industry                                                       climate.
                        On December 15 the Ohio Department of De-                    (3) Cultivte Top Talent: Attract and retain insurance
                        velopment’s Office of Insurance and Financial                    industry talent while promoting employment
                        Development unveiled a Strategic Plan for the state’s            opportunities in the industry.
                        insurance industry. This “optimistic and forward-

Ohio Insurance Law Winter 2010
        Page 5

                               (4) Invest in Our Regional Assets: Invigorate                insurance	 industry.	 	 OhioMeansInsuranceJobs.com	
                                   our regions as centers for insurance company             allows job seekers to search for insurance job op-
                                   expansion.                                               portunities, while at the same time giving employers
                                                                                            the opportunity to look for Ohio-based talent, post job
                               (5) Focus on our Customers: Operate govern-
                                                                                            opportunities, and integrate employment and intern-
                                   ment at the speed of business.
                                                                                            ship events into a single point of contact. This new
                            In	addition	to	the	specific	goals,	the	Plan	also	outlines	      website builds on the Department of Development’s
                            the strategies, initiatives and performance targets to          OhioMeansJobs.com	website,	which	is	a	comprehen-
                            be utilized in implementing the plan. Initiatives in            sive listing of job opportunities available in a variety
                            the Plan include:                                               of industries across Ohio.
                             •	 Positioning	Ohio	as	an	attractive	location	for	in-          The	Ohio	Department	of	Development’s	Office	of	In-
                                surance call, data, and services centers;                   surance and Financial Development is the state’s lead
                             •	 uaranteeing	that	insurance	companies	have	reli-             unit for the development and implementation of strate-
                                able access to a highly skilled and competitive             gies, initiatives and programs designed to retain and
                                workforce;                                                  create	insurance	and	financial	services	jobs	in	Ohio.	 	
                             •	 Building	a	“comprehensive,	demand-based	Ohio	               This	office	cultivates	cooperative	relationships	among	
                                Insurance	Education	Curriculum”;	and	                       businesses, educators and the state to collaborate on
                             •	 Providing	a	single	point	of	contact	for	insurance	          tactics and to encourage the growth of the insurance
                                related business and workforce development is-              industry in Ohio.
                                sues, site selection and link to appropriate state          More	details	about	this	Office	and	the	state’s	economic	
                                resources.                                                  development efforts in this area can be found at:
                            In conjunction with the implementation of this Stra-
                            tegic	 Plan,	 the	 Office	 of	 Insurance	 and	 Financial	
                            Development also has created a powerful new job
                            seeker	 tool	 –	 specifically	 targeted	 for	 those	 in	 the	   Miranda C. Motter: 614.227.4810

      Insurance, Banks & Financial Services Group

       Faith M. Williams          Natalie Trishman Furniss        Kevin M. Kinross            Terrence O’Donnell         Elisabeth A. Squeglia
       Chair                      614 . 227 . 8918                614 . 227 . 8824            614 . 227 . 2345           614 . 227 . 2396
       614 . 227 . 2374           nfurniss@bricker.com            kkinross@bricker.com        todonnell@bricker.com      esqueglia@bricker.com
                                  Stephen C. Gray                 Quintin F. Lindsmith        James G. Petrie            Kurtis A. Tunnell
       Jeffery E. Smith           614 . 227 . 2329                614 . 227 . 8802            614 . 227 . 2373           614 . 227 . 8837
       Vice-Chair                 sgray@bricker.com               qlindsmih@bricker.com       jpetrie@bricker.com        ktunnell@bricker.com
       614 . 227 . 2352
                                  Robert H. Katz                  Jeffrey P McSherry
                                                                           .                  Nelson M. Reid             Maggie F. Weber
                                  614 . 227 . 2397                513 . 870 . 6686            614 . 227 . 8812           614 . 227 . 2382
       Mark Chilson               rkatz@bricker.com               jmcsherry@bricker.com       nreid@bricker.com          mweber@bricker.com
       614 . 227 . 8826
                                  Donald R. Keller                Miranda C. Motter           Anne Marie Sferra
                                  614 . 227 . 2341                614 . 227 . 4810            614 . 227 . 2394
                                  dkeller@bricker.com             mmotter@bricker.com         asferra@bricker.com

Ohio Insurance Law Winter 2010

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