AN ACT relating to credit personal property insurance.

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AN ACT relating to credit personal property insurance. 1
Be it enacted by the General Assembly of the Commonwealth of Kentucky: 2
SECTION 1. A NEW SECTION OF SUBTITLE 19 OF KRS CHAPTER 304 3
IS CREATED TO READ AS FOLLOWS: 4
As used in Sections 1 to 8 of this Act: 5
(1) "Collateral" means any personal property, including but not limited to a motor 6
vehicle, pledged as security or in which a purchase money security interest is 7
retained, for the satisfaction of a debt; 8
(2) "Credit personal property insurance" means a policy, endorsement, rider, binder, 9
certificate, or other instrument or evidence of insurance that: 10
(a) Is offered in connection with a credit transaction; 11
(b) Covers perils to the personal property purchased through, or used as 12
collateral for, a credit transaction; and 13
(c) Concerns a creditor's interest in the purchased personal property or pledged 14
collateral, in whole or in part; 15
(3) "Credit transaction": 16
(a) Means any transaction in which the: 17
1. Repayment of money loaned, or a credit commitment, is made; or 18
2. Payment of goods, services, property, rights, or privileges sold or 19
leased, is to be made at a future date or dates; and 20
(b) Includes a retail installment transaction; 21
(4) "Creditor" means: 22
(a) A lender of money; 23
(b) A vendor or lessor of goods, services, property, rights, or privileges for 24
which payment is arranged through a credit transaction; 25
(c) Any successor to the right, title, or interest of a lender, vendor, or lessor; 26
(d) Any director, officer, or employee of any person referenced under 27
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paragraph (a), (b), or (c) of this subsection; 1
(e) Any affiliate, association, or subsidiary of any person referenced under 2
paragraph (a), (b), or (c) of this subsection; or 3
(f) Any person associated in any way with a person referenced under 4
paragraph (a), (b), or (c) of this subsection; 5
(5) "Debtor" means: 6
(a) Any or all borrowers of money; or 7
(b) A purchaser or lessee of goods, services, property, rights, or privi leges for 8
which payment is arranged through a credit transaction; and 9
(6) "Finance charge": 10
(a) Means any charge payable, directly or indirectly, as an incident to, or a 11
condition of, the extension of credit, including but not limited to: 12
1. Interest; 13
2. Time price differentials; 14
3. Amounts payable under a discount system of additional charges; 15
4. Service, transaction, or carrying charges; 16
5. Loan fees; 17
6. Points or similar charges; 18
7. Appraisal fees; or 19
8. Charges incurred for investigating the credit wort hiness of the 20
consumer; and 21
(b) Does not include charges as a result of: 22
1. Default; 23
2. Taxes; 24
3. License fees; 25
4. Delinquency charges; or 26
5. Filing fees. 27
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SECTION 2. A NEW SECTION OF SUBTITLE 19 OF KRS CHAPTER 304 1
IS CREATED TO READ AS FOLLOWS: 2
(1) Except as provided in subsection (2) of this section, all credit personal property 3
insurance written in connection with credit transactions for personal, family, or 4
household purposes shall be subject to Sections 1 to 8 of this Act. 5
(2) The following shall not be subject to Sections 1 to 8 of this Act: 6
(a) Transactions involving extensions of credit primarily for business or 7
commercial purposes; 8
(b) Insurance that is not classified and filed as credit insurance; 9
(c) Insurance written in connection with a credit transaction that is secured by 10
a real estate mortgage or deed of trust; 11
(d) Title insurance; 12
(e) Non-filing insurance; 13
(f) Insurance purchased by a creditor after: 14
1. Repossession; or 15
2. A similar event where the creditor gains possession of the property; 16
(g) Insurance for which no identifiable charge is made to, or collected from, 17
the debtor; 18
(h) A debt cancellation agreement as defined in KRS 190.100; 19
(i) Blanket vendor single interest (VSI); or 20
(j) Vehicle financial protection products. 21
SECTION 3. A NEW SECTION OF SUBTITLE 19 OF KRS CHAPTER 304 22
IS CREATED TO READ AS FOLLOWS: 23
(1) As used in this section, "gross debt" means the sum of the remaining payments 24
owed to a creditor by a debtor. 25
(2) For credit personal property insurance sold in conjunction with a closed -end 26
credit transaction, an insurer shall not issue the insurance: 27
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(a) In an amount that exceeds the gross debt of the un derlying credit 1
transaction; or 2
(b) With a term that exceeds the scheduled term of the underlying credit 3
transaction. 4
(3) Credit personal property insurance shall cover a substantial risk of loss of, or 5
damage to, the collateral pledged or secured in the credit transaction. 6
(4) An insurer shall not: 7
(a) Require the bundling of other credit insurance coverages with the purchas e 8
of credit personal property insurance; or 9
(b) Use gross debt in determining credit personal property insurance premiums. 10
(5) A debtor shall have the choice to purchase credit personal property insurance 11
separate from other credit insurance coverage. 12
SECTION 4. A NEW SECTION OF SUBTITLE 19 OF KRS CHAPTER 304 13
IS CREATED TO READ AS FOLLOWS: 14
When credit personal property insurance is written pursuant to Sections 1 to 8 of this 15
Act, the creditor shall deliver, or cause to be delivered, a policy, certificate, 16
memorandum, or other disclosure which discloses the coverage and costs to the debtor 17
within thirty (30) days after the date of the loan. 18
SECTION 5. A NEW SECTION OF SUBTITLE 19 OF KRS C HAPTER 304 19
IS CREATED TO READ AS FOLLOWS: 20
With respect to credit personal property insurance delivered or issued for delivery in 21
this state, all of the following shall be filed with the commissioner: 22
(1) All policies, certificates, plans, and contracts, including endorsements and riders; 23
(2) Group and individual applications for insurance; 24
(3) Enrollment forms; and 25
(4) Schedules of premiums rates. 26
SECTION 6. A NEW SECTION OF SUBTITLE 19 OF KRS CHAPTER 304 27
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IS CREATED TO READ AS FOLLOWS: 1
(1) Upon cancellation of credit personal property insurance for any reason prior to 2
the scheduled maturity date of the indebtedness, the insurer shall promptly 3
refund or credit the debtor any unearned premium in accordance with subsection 4
(2) of this section, except an insurer shall not be required to refund or credit an 5
amount of less than five dollars ($5). 6
(2) (a) Except as provided in paragraph (b) of this subsection, the method of 7
calculating unearned premium due under subsection (1) of this section 8
shall be the method in the credit personal property insurance policy, 9
certificate, plan, or contract as filed with the commissioner before or after 10
the effective date of this Act. 11
(b) If a method for calculating unearned premium due under subs ection (1) of 12
this section is not set forth in the credit personal property insurance policy, 13
certificate, plan, or contract, the method shall be the method set forth in the 14
underlying credit transaction for the refund of finance charges. 15
SECTION 7. A NEW SECTION OF SUBTITLE 19 OF KRS CHAPTER 304 16
IS CREATED TO READ AS FOLLOWS: 17
(1) (a) Any claim under a credit personal property insurance policy, certificate, 18
plan, or contract shall be promptly reported to the insurer or it s designated 19
claim representative. 20
(b) An insurer shall maintain adequate claims files for claims reported under 21
paragraph (a) of this subsection. 22
(2) A claim under credit personal property insurance shall be paid by draft drawn 23
upon the insurer, by electr onic funds transfer, or by check of the insurer to the 24
order of: 25
(a) Except as provided in paragraph (b) of this subsection, the claimant to 26
whom payment of the claim is due pursuant to the policy provisions; or 27
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(b) Upon direction of the claimant, to a person other than the claimant. 1
(3) (a) A firm, corporation, or other person, other than the insurer or its designated 2
claim representative, shall not be authorized to settle or adjust claims under 3
credit personal property insurance. 4
(b) 1. Except as provided in subparagraph 2. of this paragraph, a creditor 5
shall not be designated as a claim representative for the insurer in 6
adjusting claims. 7
2. When the amount of a claim is determined, a group policyholder may, 8
by arrangement with the insurer and subject to audit and review by the 9
insurer, draw drafts or checks or make electronic transfers, in 10
payment of claims due to the group policyholder. 11
(4) All claims for credit personal property insurance shall be subject to Subtitle 12 of 12
this chapter to the extent applicable and not in conflict with Sections 1 to 8 of this 13
Act. 14
SECTION 8. A NEW SECTION OF SUBTITLE 19 OF KRS CHAPTER 304 15
IS CREATED TO READ AS FOLLOWS: 16
(1) Unless a remedy is otherwise specifically provided, any person aggrieved by a 17
final decision of the commissioner issued pursuant to Sections 1 to 8 of this Act 18
may, within twenty (20) days of service of th e notice of the decision, request an 19
administrative hearing which shall be conducted in accordance with KRS 20
Chapter 13B. 21
(2) An insurer that violates any provision of Sections 1 to 8 of this Act shall be 22
subject to the penalty provisions of Subtitle 99 of this chapter. 23
Section 9. KRS 304.19-010 is amended to read as follows: 24
All life insurance and all health insurance in connection with loans or other credit 25
transactions shall be subject to the provisions of KRS 304.19 -020 to 304.19 -140[this 26
subtitle], except health insurance in connection with a loan or other credit transaction of 27
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more than five (5) years' duration or life insurance in connection with a loan or other 1
credit transaction of more than ten (10) years' duratio n; nor shall insurance be subject to 2
KRS 304.19 -020 to 304.19 -140[the provisions of this subtitle] , where the issuance of 3
such insurance is an isolated transacti on on the part of the insurer not related to an 4
agreement or a plan for insuring debtors of the creditor. 5
Section 10. KRS 304.19-020 is amended to read as follows: 6
For the purpose of KRS 304.19-020 to 304.19-140[this subtitle]: 7
(1) "Credit life insurance" means insurance on the life of a debtor pursuant to or in 8
connection with a specific loan or other credit transaction; 9
(2) "Credit health insurance" means insurance on a debtor to provide indemnity for 10
payments becoming due on a specific loan or other credit transaction while the 11
debtor is disabled as defined in the policy; 12
(3) "Creditor" means the lender of money or vendor or lessor of goods, services, or 13
property, rights or privileges, for which payment is arranged thr ough a credit 14
transaction, or any successor to the right, title or interest of any such lender, vendor, 15
or lessor, and an affiliate, associate or subsidiary of any of them, or any director, 16
officer or employee of any of them, or any other person in any way associated with 17
any of them; 18
(4) "Debtor" means a borrower of money or a purchaser or lessee of goods, services, 19
property, rights or privileges for which payment is arranged through a credit 20
transaction; 21
(5) "Indebtedness" means the total amount payable b y a debtor to a creditor in 22
connection with a loan or other credit transaction; 23
(6) "Joint credit life or credit health" shall mean insurance on the life of the debtor and 24
the spouse of the debtor, partners, or any other legal cosigner. 25
Section 11. KRS 304.19-080 is amended to read as follows: 26
(1) All such policies, certificates of insurance, notices of proposed insurance, 27
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applications for insurance, indorsements and riders delivered or issued for delivery 1
in this state and the schedule of premium rates pertaining thereto shall be filed with 2
the commissioner. 3
(2) All life insurance and all health insurance in connection with loans or other credit 4
transactions shall be subject to KRS 304.19 -020 to 304.19 -140[the provisions of 5
this subtitle] , except health insurance in connection with a loan or other credit 6
transaction of more than five (5) years' duration or life insurance in connection with 7
a loan or other credit transaction of more than ten (10) years' duration; nor shall 8
insurance be subject to KRS 304.19-020 to 304.19 -140[provisions of this subtitle] 9
where the issuance of such insurance is an isolated transaction on the part of the 10
insurer not relating to an agreement or a plan for insuring debtors of the creditor; 11
nor sh all insurance issued for an amount in excess of forty thousand dollars 12
($40,000) be subject to KRS 304.19-020 to 304.19-140[this subtitle]. 13
(3) (a) Credit life insurance. The premium rates set forth hereunder, or actuarially 14
equivalent, shall not exceed: 15
1. For decreasing term credit life insurance, a single premium of sixty 16
cents ($0.60) per annum per one hundred dollars ($100) of scheduled 17
indebtedness, or sixty -five cents ($0.65) per annum per one hundred 18
dollars ($100) of scheduled indebtedness if disme mberment benefits are 19
included in the policy; 20
2. Single premium rates for indebtedness repayable in monthly 21
installments other than twelve (12) in number shall not exceed one -22
twelfth (1/12) of the above premium rate multiplied by the number of 23
full months in the scheduled period; 24
3. A premium payable monthly at the rate of ninety -two cents ($0.92) per 25
one thousand dollars ($1,000) of outstanding unpaid insured 26
indebtedness or one dollar ($1) per one thousand dollars ($1,000) of 27
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outstanding unpaid insured in debtedness if dismemberment benefits are 1
included in the policy, will be deemed the actuarial equivalent of the 2
foregoing rates; and 3
4. For level term credit life insurance, a single premium of one dollar and 4
twenty cents ($1.20) per annum per one hundred dollars ($100) of 5
indebtedness or one dollar and thirty cents ($1.30) per one hundred 6
dollars ($100) of indebtedness if dismemberment benefits are included 7
in the policy. 8
(b) 1. The standards set forth above are applicable to a plan of death benefits 9
with or without requirements for evidence of insurability which contain 10
no exclusions except for suicide; other exclusions must receive the 11
approval of the commissioner. 12
2. Coverage shall be offered to all debtors regardless of age; or to all 13
debtors not older than the applicable age limit which shall be not less 14
than sixty-five (65) at the inception of the indebtedness or sixty -six (66) 15
at the scheduled maturity date of the transaction, provided that each 16
company's right to underwrite risks on an individual basis shall not be 17
restricted by this subparagraph. Appropriate adjustments may be made 18
with the approval of the commissioner if premium rates are determined 19
according to the age of the insured debtor or by age brackets. 20
3. Rates for use with forms which are more restrictive in any material 21
respect shall reflect such variations in lower rates. Similarly, forms 22
providing more extensive benefits than set forth above may carry 23
appropriately higher charges. 24
4. The standards set forth above shall be applicable to contracts which may 25
contain a provision excluding or denying a claim for death, resulting 26
from pre -existing illness, disease or physical condition for which the 27
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debtor r eceived medical advice, consultation or treatment during the 1
twelve (12) month period immediately preceding the effective date of 2
the debtor's coverage and which would ordinarily be expected to affect 3
materially the debtor's health during the period of cov erage; provided, 4
however, that after such coverage has been in force for six (6) months 5
(twelve (12) months for contracts of more than three (3) years), this pre -6
existing exclusion clause shall not operate to deny coverage for any 7
death thereafter. The con tract shall contain no other provision which 8
excludes or restricts liability in the event of death caused in a certain 9
specified manner, except provisions excluding or restricting coverage in 10
the event of intentionally self -inflicted injuries, foreign trav el or 11
residence, flight in nonscheduled aircraft, war or military service. 12
(4) (a) Credit health insurance. The following premium rates, or actuarially 13
equivalent rates, shall be charged for the coverages set forth hereunder: 14
Single Premium Per $100 of Initial Indebtedness 15
--------------------------------------------------------------------------------------------------------- 16
Nonretroactive Basis Retroactive Basis 17
Number of Monthly 14-Day 30-Day 14-Day 30-Day 18
Installments Wait Wait Wait Wait 19
--------------------------------------------------------------------------------------------------------- 20
1-6 months $ 1.51 $ .69 $2.02 $ .92 21
7-12 months 2.02 .91 2.69 1.22 22
13-19 months 2.50 1.56 3.33 2.08 23
20-24 months 2.93 1.84 3.91 2.45 24
25-30 months 3.28 2.34 4.37 3.12 25
31-36 months 3.85 2.77 5.14 3.70 26
37-48 months 4.77 3.67 6.36 4.89 27
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49-60 months 5.68 4.58 7.58 6.11 1
-------------------------------------------------------------------------------------------------------- 2
(b) 1. The standards set forth above shall be applicable to contracts which may 3
contain a provision excluding or denying a claim for disability, resulting 4
from pre -existing illness, disease or physical condition for which the 5
debtor received medical advice, consult ation or treatment during the 6
twelve (12) month period immediately preceding the effective date of 7
the debtor's coverage and which would ordinarily be expected to affect 8
materially the debtor's health during the period of coverage; provided, 9
however, that after such coverage has been in force for six (6) months 10
(twelve (12) months for contracts of more than three (3) years), this pre -11
existing exclusion clause shall not operate to deny coverage for any 12
disability commencing thereafter. The contract shall con tain no other 13
provision which excludes or restricts liability in the event of disability 14
caused in a certain specified manner, except provisions excluding or 15
restricting coverage in the event of pregnancy, intentionally self -16
inflicted injuries, foreign tra vel or residence, flight in nonscheduled 17
aircraft, war or military service. 18
2. Coverage shall be offered to all debtors regardless of age, or to all 19
debtors not older than the applicable age limit which shall be not less 20
than sixty-five (65) at the inception of the indebtedness or sixty -six (66) 21
at the scheduled maturity date of the transaction, provided that each 22
company's right to underwrite risks on an individual basis shall not be 23
restricted by this subparagraph. Appropriate adjustments may be made 24
with the approval of the commissioner if premium rates are determined 25
according to the age of the insured debtor or by age brackets. 26
3. Rates for use with forms which are more restrictive in any material 27
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respect shall reflect such variations in lower rates. Si milarly, forms 1
providing more extensive benefits than set forth above may carry 2
appropriately higher charges. 3
(5) Statistical reporting. Each insurer writing credit life or credit health insurance 4
within this state shall keep and maintain statistical data of its experience on these 5
kinds of insurance. The insurer shall, on or before May 1 of each year, file with the 6
commissioner its statistical experience data for the year ending December 31 7
immediately preceding. Such experience shall be reported on forms conforming to 8
those now or hereafter from time to time adopted by the National Association of 9
Insurance Commissioners. 10
(6) If a group policy has been delivered in this state before June 18, 1980, or has been 11
or is delivered in another state before or on or after June 18, 1980, the insurer shall 12
be required to file only the group certificate and notice of proposed insurance 13
delivered or issued for delivery in this state as specified in subsections (2) and (4) 14
of KRS 304.19-070, and such forms shall be approv ed by the commissioner if they 15
conform with the requirements specified in such subsections and if the schedules of 16
premium rates applicable to the insurance evidenced by such certificate or notice 17
are not in excess of the insurer's schedules of premium rat es filed with the 18
commissioner. The premium rate in effect on existing group policies may be 19
continued until the first policy anniversary date following June 18, 1980. After June 20
18, 1980, no borrower shall be added to an existing group policy at rates hig her 21
than those set forth in subsections (3) and (4) of this section. 22
(7) The foregoing rates and procedures are deemed to be legislative prerogatives and 23
shall not be subject to administrative or executive change or modification. 24
Section 12. KRS 304.19-090 is amended to read as follows: 25
(1) Any insurer may revise its schedules of premium rates from time to time, and shall 26
file such revised schedules with the commissioner. No insurer shall issue any credit 27
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life insurance or credit health insurance policy for which the premium rate exceeds 1
that determined by the schedules of such insurer as then on file with the 2
commissioner. 3
(2) Each individual policy or group certificate shall provide that in the event of 4
termination of the insurance prior to the scheduled maturity date of the 5
indebtedness, any refund of an amount paid by the debtor for insurance shall be 6
paid or credited promptly to the person entitled thereto. The commissioner shall 7
prescribe a minimum refund and no refund which would be less than such 8
minimum need be made. The formula to be u sed in computing such refund shall be 9
filed with and approved by the commissioner. Nothing contained in this section 10
shall require the debtor to surrender any policy or group certificate for cancellation 11
or termination solely because the indebtedness has b een paid in full prior to the 12
scheduled maturity date nor require the insurer to return any premiums. 13
(3) When a debtor purchases credit life insurance or credit health insurance and an 14
individual policy or group certificate of insurance is not issued, the creditor shall 15
immediately give written notice to such debtor and shall promptly make an 16
appropriate credit to the account. 17
(4) The amount charged to a debtor for any credit life insurance or credit health 18
insurance shall not exceed the premiums charged b y the insurer, as computed at the 19
time the charge to the debtor is determined. 20
(5) Nothing in KRS 304.19 -020 to 304.19 -140[this subtitle] shall be construed to 21
authorize any payments for insurance now prohibited under any statute, or rule 22
thereunder, governing credit transactions. 23
Section 13. KRS 304.19-130 is amended to read as follows: 24
Whenever the commissioner finds that there has been a violation of KRS 304.19-020 to 25
304.19-140[this subtitle] or any administrative reg ulations promulgated pursuant thereto, 26
the commissioner shall conduct a hearing in accordance with this chapter and KRS 27
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Chapter 13B. 1
Section 14. Sections 1 to 8 of this Act apply to contracts issued or renewed on 2
or after the effective date of this Act. 3