TO:

2018 National Association of Insurance Commissioners

ULLETIN

O: All Property and Casualty Insurers Writing Personal Lines Insurance Products in [State]

UBJECT: Arbitration Clauses and Choice of Law/Venue Provisions in Personal Lines Insurance

ction 1. Authority

his bulletin is adopted by [title of supervisory authority], pursuant to Section [insert applicable section] of the [insert state]

insurance code.

ction 2. Purpose of this Bulletin

he purpose of this bulletin is to provide guidance to insurers with regard to provisions within personal lines policies that

limit or impose unreasonable preconditions on consumers’ ability to adjudicate their disputes in court. Pre-dispute

mandatory arbitration clauses, choice of law provisions, and choice of venue provisions unfairly limit or impose

unreasonable preconditions on individual consumers’ ability to adjudicate their disputes in [state] courts under the

protection of [state] law. These provisions are prohibited in personal lines policies.

ction 3. Definitions

“Choice of Law Provision” means a contractual provision in which the parties specify the state whose law will govern

disputes arising under the insurance contract.

“C

hoice of Venue Provision” means a contractual provision in which the parties establish the location where either party

may require the dispute to be tried or arbitrated.

“Commercial Lines Insurance” means insurance that is not “personal lines insurance”.

“P

ersonal Lines Insurance” means homeowners; tenants; private passenger non-fleet automobiles; mobile manufactured

homes; and other property and casualty insurance for personal, family or household needs. [Property and casualty state-

specific definition].

“Pre-Dispute Mandatory Arbitration Clause” means a provision in an insurance policy, rider, endorsement, or any other part

of the contract requiring that future disputes involving the insurance policy or claims thereunder must be resolved through

arbitration by allowing one party to the dispute to so require when the dispute arises.

ction 4. Pre-dispute Mandatory Arbitration Clauses

he Insurance Code was enacted to regulate the business of insurance and for the protection of the insurance-buying

public.

Under [Forms Review Statute, e.g. Oregon Revised Statutes 742.005] the [insurance commissioner] shall

disapprove any form if, in the [insurance commissioner’s] judgment, its use would be prejudicial to the interests of the

insurer’s policyholders or if the [insurance commissioner] finds it contains provisions which are unjust, unfair or

inequitable. It is also unlawful to engage in this state in any trade practice that, although not expressly defined and

prohibited in the Insurance Code, is found by the [commissioner] to be an unfair or deceptive act or practice in the

transaction of insurance that is injurious to the insurance-buying public.

“P

re-dispute mandatory arbitration clauses” in “personal lines insurance” policies preclude policyholders from exercising

their rights to a trial by judge or jury.

Because these policies are contracts of adhesion, inclusion of a “pre-dispute

mandatory arbitration clause” forces the consumer to waive a fundamental constitutional right without a meaningful

See [Cite to section of insurance code discussing purpose and effect of federal law. e.g., ORS 731.008, ORS 731.012].

See [Cite to relevant portion of Unfair Trade Practices Act. e.g., ORS 746.240’.

See e.g., [Cite to relevant state court decision. e.g., Molodyh v. Truck Ins. Exchange, 714 P. 2d 992, 997 (1987).]

2018 National Association of Insurance Commissioners

opportunity to ba

rgain for other benefits or consideration. “Arbitration provisions” also typically require confidentiality.

This may unacceptably interfere with the [insurance department’s] ability to regulate insurance claims handling by

discouraging policyholders from seeking assistance with the [insurance department].

he Legislature has determined that arbitration provisions are appropriate in certain specifically defined situations.

With

the exception of those provisions that are specifically authorized or required by state insurance statutes, the [insurance

commissioner] finds the inclusion of “pre-dispute mandatory arbitration clauses” in “personal lines insurance” policies to

be unfair and injurious to the insurance buying public. “Pre-dispute mandatory arbitration clauses” in “personal lines

insurance” products are prohibited.

The [insurance commissioner] recognizes that the use of arbitration and other alternative dispute resolution methods may be

of value in certain instances. For example, arbitration may be faster and less costly than court proceedings. Parties may still

avail themselves of these benefits by electing to arbitrate after the dispute arises.

ction 5. Choice of Venue and Choice of Law Provisions

Longstanding state and federal policy dictate that insurance transacted in this state shall be governed and interpreted under

[jurisdiction] law. While businesses with operations across multiple states may find benefit in negotiating to have their

“commercial lines insurance” contracts governed under the laws of another jurisdiction, consumers of “personal lines

insurance” policies placed in [jurisdiction] expect to be afforded the protections and benefits under the [jurisdiction]

Insurance Code. “Choice of law provisions” in “personal lines insurance” policies that import foreign law upend consumer

expectations cause confusion among the insurance buying public and may result in consumer harm. Similarly, “choice of

venue provisions” that require the insured to travel out of state pose an unfair barrier to adjudicate their claims.

he [insurance commissioner] finds the inclusion of “choice of law provisions” in “personal lines insurance” policies that

import foreign law, or “choice of venue provisions” that require adjudication out-of-state, to be unfair and injurious to the

insurance buying public. Including such provisions in a “personal lines insurance” policy constitutes an unfair trade practice

in violation of [Citation to state UTPA law. e.g., ORS 746.240]. “Choice of law provisions” that import foreign law may

not be included in “personal lines insurance” policies and will be disapproved. “Choice of venue provisions” that require

adjudication out-of-state may not be included in “personal lines insurance” policies and will be disapproved.

Such as state laws authorizing or requiring that disputed valuations of auto property damage claims or disputes over

UM/UIM damages be resolved through arbitration.