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Property Casualty Insurers Association of America v. McGreevy

Superior Court of Rhode Island

September 10, 2014

PROPERTY CASUALTY INSURERS ASSOCIATION OF AMERICA, Plaintiff,
v.
PAUL MCGREEVY, in his official capacity as Director of the Department of Business Regulation for the State of Rhode Island and in his official capacity as Insurance Commissioner for the State of Rhode Island; and PETER F. KILMARTIN, in his official capacity as Attorney General for the State of Rhode Island, Defendants.

Providence County Superior Court.

For Plaintiff: Mark W. Freel, Esq. Jon M. Anderson, Esq. Mackenzie Mango, Esq.

For Defendant: Elizabeth Kelleher Dwyer, Esq. Jenna R. Algee, Esq.

DECISION

SILVERSTEIN, J.

Property Casualty Insurers Association of America (Plaintiff)[1] brings this suit against Paul McGreevy, in his official capacity as Director of the Department of Business Regulation for the State of Rhode Island and in his official capacity as Insurance Commissioner for the State of Rhode Island (Defendant), and Peter F. Kilmartin, in his official capacity as Attorney General for the State of Rhode Island (Attorney General), seeking a determination that § 8A(4)(a) of Insurance Regulation 73 (the Regulation) unlawfully extends the definition of "fair market value." Plaintiff asserts that the Regulation as promulgated by Defendant violates both the Administrative Procedures Act (APA) and the Contracts Clause of the United States and Rhode Island Constitutions. Currently before the Court is Plaintiff's Motion for Temporary and Permanent Injunctive Relief pursuant to Super. R. Civ. P. 65 (Motion). Defendant opposes Plaintiff's Motion.

I Facts and Travel

Plaintiff is a trade association representing 328 insurers licensed in Rhode Island to write property and/or casualty insurance, including motor vehicle insurance.[2] Plaintiff's members write 50.7% of property and/or casualty insurance issued in Rhode Island. Among the standard insurance contracts issued by Plaintiff's members are the standardized forms developed by the Insurance Services Office, Inc. (ISO) and approved by the state insurance commissioner. On total loss claims, Plaintiff is required to indemnify policyholders and other third-party claimants by paying an amount equal to the "[a]ctual cash value of the stolen or damaged property" at the time of loss. See Auto Policy, Pl.'s Ex. B, at 11. The ISO standard policies do not define the term "actual cash value."

On July 17, 2013, G.L. 1956 § 27-9.1-4(a)(25) became effective, establishing it as an unfair claims practice to designate "a motor vehicle a total loss if the cost to rebuild or reconstruct the motor vehicle to its pre-accident condition is less than seventy-five percent (75%) of the 'fair market value' of the motor vehicle immediately preceding the time it was damaged[.]" Furthermore, § 27-9.1-4(a)(25)(i) provides that "[f]or the purposes of this subdivision, 'fair market value' means the retail value of a motor vehicle as set forth in a current edition of a nationally recognized compilation of retail values commonly used by the automotive industry to establish values of motor vehicles[.]" (emphasis added).

On January 28, 2014, Defendant issued a "Concise Explanatory Statement" that accompanied the most recent amendment of the Regulation. In the statement, Defendant stated that the Regulation was amended:

"to address the recent enactment of R.I. Gen. Laws 27-9.1-4(25) regarding total loss vehicles; to bring the remaining portions of the regulation into conformance with the [National Association of Insurance Commissioners] model . . ., to address issues that have arisen since the last amendment of this regulation and to incorporate the substance of bulletins previously issued by the Department into the regulation." Pl.'s Ex. C.

Section 8(A)(1) of the Regulation states that:

"[p]ursuant to R.I. Gen. Laws § 27-9.1-4(25) an insurer may not designate a vehicle a total loss if the cost to rebuild or reconstruct the motor vehicle to pre accident condition is less than 75% of the fair market value of the motor vehicle immediately preceding the time it was damaged unless the requirements of subsection (3) below are met." Pl.'s Ex. D.

Section 8(A)(2) of the Regulation mirrors the language of § 27-9.1-4(a)(25)(i), which provides that "fair market value" determinations are to be determined by consulting a nationally recognized compilation of automotive retail values. Furthermore, § 8(A)(4)(a) of the Regulation directs that "[a] cash settlement shall be based upon the fair market value of the motor vehicle less any deductible provided in the policy." Additionally, § 8(A)(4)(b) of the Regulation states that in calculating the cash settlement amount, "[d]eduction shall not be made for reconditioning or dealer preparation." However, the Regulation does allow insurers to adjust for "betterment or depreciation, " so long as any deviation can be supported with "documentation in the claim file by giving particulars of the automobile condition that warrant said deviation. Any deductions . . . must be measurable, discernible, itemized and specified as to dollar amount and shall be appropriate in amount." Regulation § 8(A)(4)(b).

In order to qualify as a "nationally recognized compilation, " a valuation service applicant had to apply to Defendant within ten days of the effective date of the Regulation. Defendant was then to "review the filings and determine whether it will hold a hearing on those entities that have made such application[, ]" and then "publish a bulletin identifying those entities that qualify[.]" Regulation ยง 8(A)(2)(b)-(c). On March 24, 2014, Defendant published "Insurance Bulletin 2014-2" which approved the National Automobile Dealers Association ...


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