Changes in Billing Imminent for Colorado Policyholders

The Colorado Division of Insurance (DOI), responding to a recent state Supreme Court ruling, is expected to issue an emergency regulation requiring insurance companies to change the way that they bill for uninsured and underinsured motorist (UM/UIM) insurance.

About 90 percent of people who have auto insurance in the state will be affected, according to the Rocky Mountain Insurance Information Association, an organization sponsored by insurance companies.

Colorado insurance companies have been billing uninsured and underinsured motorist coverage on a per-vehicle basis since 1979. The 1979 statute was recently reinterpreted in DeHerrera v. Sentry Insurance. The court determined that insurance companies cannot bill uninsured motorist insurance on a per-vehicle basis. Instead, insurers must bill per household. Colorado will be the only state in the nation to bill uninsured motorist coverage in this manner.

Insurance Commissioner Doug Dean disagreed with the court’s ruling.

“We think the Colorado Supreme Court was way out of bounds and completely wrong in their ruling,” Dean said. “However, the Supreme Court ruled that way so we have to enforce their ruling.”

Carole Walker, executive director of the Rocky Mountain Insurance Information Association, said that the ruling would cause problems on a couple of different levels.

“I think that first off, most insurance companies don’t price and sell [the coverage] this way,” she said. “There’s some confusion. Certainly companies are going to be in compliance and they’re looking for guidance from the Division of Insurance, but at the same time for most of them it’s a dramatic departure from the way that they sell insurance.”

The DOI will provide billing guidance to insurance companies through the emergency regulation, which will go into effect July 1. According to a preliminary draft of the emergency regulation, UM/UIM coverage issued to a named insured will extend to the named insured, resident relatives and permissive drivers. If a policyholder decides to reject the optional coverage, he or she must reject it in writing. If the insured fails to return a UM/UIM rejection form, the insurance company may add the coverage for them or refuse to issue the policy.

The DOI’s draft also states that all rate filings for the coverage must contain justification for the rates. Insurers are allowed to inquire about the number of persons in the household, number of vehicles in the household and driving habits such as loaning vehicles to friends.

The commissioner believes UM/UIM rates will go up, possibly as much as 30 percent, according to an estimate conducted by the DOI’s actuarial department. “Our actuaries looked at this and think it could go up as much as 30 percent because the Supreme Court decision not only said that uninsured and underinsured motorist coverage follows the person and not the vehicle, but they also greatly expanded what types of injuries can be paid for by UM/UIM coverage,” Dean said.

He said that vehicles that do not require insurance will be included in the household’s UM/UIM coverage. “People driving a motor scooter or someone out four-wheeling on an ATV that’s injured by someone else, even though those vehicles are not insured and are not required to have insurance, will be covered under their auto insurance policy if they also have a car that’s owned by someone in their household,” he said.

Walker, however, believes that rates will stay roughly the same.

“In theory, what you’re really looking at isn’t a price difference, it’s a different way to price it, a different way to sell it,” she said. “Insurance companies are going to rate the risk, they’re going to have to charge for premium what they think they’ll have to pay out in claims. So whether that’s three vehicles at $25 a piece or one more expensive policy at $75 a piece, in theory it’s going to be the same.”

Rates may also be affected in the long term if a recent class-action lawsuit filed in response to the DeHerrera case is upheld. According to the Denver Post, a lawsuit filed against 40 insurance companies claims that the industry owes policyholders for incorrectly billing UM/UIM coverage over the last 25 years.

The plaintiffs, Larry Briggs and Jim Maxwell, claim that insurance companies double-billed them for uninsured motorist coverage by charging per vehicle instead of per household. The plaintiffs want rebates since 1979, when the original law went into effect.

State Farm and other large insurance companies are named defendants in the suit.

“It certainly could negatively impact the bottom line of the insurers and some of the smaller insurers could be forced to go out of business if that lawsuit were to prevail,” Dean commented.

“We are filing statements with the insurance companies letting them know that the rates that they were charging during that time were not inadequate nor were they excessive,” he continued. “They were appropriate rates. I don’t think it’s fair for the consumers to come back and ask the insurance companies to rebate them because they weren’t overcharging them. The insurance companies were charging them based on the policies of the DOI. The insurers were charging as we were telling them to and that is by vehicle.”

Walker was mystified by the claims in the lawsuit. “This class-action basically says that companies should have somehow turned back the clock and gone back in time, that we should have known that we should price this differently even though every other state interprets it on a per-vehicle basis,” she said. “I think it’s pretty crazy.”