Supplemental Notice to WSR 03-03-132.

     Preproposal statement of inquiry was filed as WSR 02-15-173.

     Title of Rule: WAC 284-30-390 Automobile claims, repairs, and total loss settlements.

     Purpose: Automobile total loss settlement is the single largest source of consumer inquiries and complaints received by the property and casualty section of the consumer advocacy division. The commissioner has reviewed WAC 284-30-390 and this proposed regulation clarifies, simplifies, and makes this chapter more effective.

     Other Identifying Information: Insurance Commissioner Matter No. R 2002-06.

     Statutory Authority for Adoption: RCW 48.02.060, 48.30.010.

     Statute Being Implemented: RCW 48.02.060, 48.30.010.

     Summary: WAC 284-30-390 is amended, clarified and presented in more consumer-friendly language. The subject is the single largest source of consumer complaints received by the property and casualty section of the consumer advocacy division.

     Reasons Supporting Proposal: Automobile total loss settlement is the single largest source of consumer inquiries and complaints received by the property and casualty section of the consumer advocacy division. Considerable time is spent by the Office of the Insurance Commissioner (OIC) and industry in administering the regulation. A clearer, more understandable regulation will be better understood by consumers and easier to implement.

     Name of Agency Personnel Responsible for Drafting: Jon Hedegard, P.O. Box 40255, Olympia, WA 98504-0255, (360) 725-7039; Implementation and Enforcement: Scott Jarvis, P.O. Box 40255, Olympia, WA 98504-0255, (360) 725-7262.

     Name of Proponent: Mike Kreidler, Insurance Commissioner, governmental.

     Rule is not necessitated by federal law, federal or state court decision.

     Explanation of Rule, its Purpose, and Anticipated Effects: Automobile total loss settlement is the single largest source of consumer inquiries and complaints received by the property and casualty section of the consumer advocacy division. The current WAC 284-30-390 is entitled "Standards for prompt, fair and equitable settlements applicable to automobile insurance" and addresses claims handling processes, valuation, repair, and total losses. Considerable agency staff time is spent working with consumer complaints through the existing regulation. Even more time is spent by the insurers themselves responding to the complaints whether received by the OIC or directly from their insureds. One goal of this rule making is to make these processes more understandable to consumers. Consumers should have a greater awareness of their rights and clearer expectations of what may occur in the claims process. Another goal is to create more certainty in the standards for compliance for the industry representatives who administer the claims process. Another goal is a reduction in the time and cost spent by the OIC and insurer staff in responding to consumer complaints due to the increased clarity and specific changes to the rules.

     A previous CR-102 was filed in this rule-making process on January 22, 2003, and a previous public hearing held on February 26, 2003. The commissioner received many comments and suggestions. The commissioner decided that all parties would be best served by the ability to comment on a revised draft that incorporated many of the suggestions proposed by interested parties.

     Proposal Changes the Following Existing Rules: WAC 284-30-390 would be amended and new WAC 284-30-3901 through 284-30-3916 would be created.

     A small business economic impact statement has been prepared under chapter 19.85 RCW.

     On July 24, 2002, the insurance commissioner filed a CR-101 announcing his intention to review WAC 284-30-390 and determine if the current regulation could be clarified, simplified, and made more effective. The current WAC section is entitled "Standards for prompt, fair and equitable settlements applicable to automobile insurance" and addresses claims handling processes, valuation, repair, and total losses. One goal of this rule making is to make these processes more understandable to insureds. Insureds should have a greater awareness of their rights and clearer expectations of what may occur in the claims process. Another goal is to create more certainty in the standards for compliance for the industry representatives who administer the claims process. Another goal is a reduction in the time and cost spent by OIC and insurer staff in responding to consumer complaints; the goal is to be achieved by the increased clarity and specific text changes to the rules.

     The CR-102 was filed on January 22, 2003, and a hearing was held on February 26, 2003, in Olympia, Washington. Based on the comments after the filing of the rule, the commissioner decided to make numerous changes. A great many of the changes were technical or editing in nature. Though a new CR-102 was not required, the commissioner decided that a new CR-102 and hearing would reduce any possible confusion about the regulation and allow for the fullest possible participation by interested parties.

     Is the Rule Required by Federal Law or Federal Regulation? This rule is not required by federal law or regulation.

     Industry Affected by the Proposed Rule: The proposed rules would impact 100% of property and casualty insurers who offer insurance on vehicles. The SIC Code is #6331 - Fire, Marine, and Casualty Insurance.

     Parts of the Proposed Rule That May Impose a Cost to Business: The agency staff reviewed procedures adopted by other states and discussed drafts with industry. Since a goal of the rule making is to make the process easier to understand for insureds, the rules are written in an easy to read question and answer format.

     Below is an overview of each proposed WAC section.

     Proposed WAC 284-30-390 eliminates existing provisions and serves as a scope section.

     Proposed WAC 284-30-3901 provides definitions for the following WAC sections.

     Proposed WAC 284-30-3902 poses and responds to the question of what must occur when a vehicle is repairable.

     Proposed WAC 284-30-3903 asks and answers if an insured can get their vehicle repaired at a shop of their choice.

     Proposed WAC 284-30-3904 asks and answers if the insurer will try to collect the insured's deductible.

     Proposed WAC 284-30-3905 asks and answers if insured will be fully reimbursed if the insurer collects the insured's deductible.

     Proposed WAC 284-30-3906 asks and answers if the insurer can refuse to settle damages and force an insured to use their collision coverage.

     Proposed WAC 284-30-3907 asks and answers how an insurer may settle a total loss claim.

     Proposed WAC 284-30-3908 asks and answers if there are factors that may reduce the insured's settlement.

     Proposed WAC 284-30-3909 asks and answers if the insured can keep their total loss vehicle.

     Proposed WAC 284-30-39010 asks and answers if the insurer can move the vehicle prior to settlement.

     Proposed WAC 284-30-39011 asks and answers what information must be in the insurer's total loss valuation report.

     Proposed WAC 284-30-39012 asks and answers what happens if the insured accepts the insurer's settlement offer but can't find a reasonably close, comparable vehicle.

     Proposed WAC 284-30-39013 asks and answers what the insurer must do prior to denying storage or towing costs.

     Proposed WAC 284-30-39014 asks and answers questions about the insured's right to a rental vehicle when dealing with someone else's insurer.

     Proposed WAC 284-30-39015 asks and answers what happens if the other insurer offers a flat rental amount.

     Proposed WAC 284-30-39016 addresses the situation when a vehicle is a total loss and the outstanding balance on the lease or loan exceeds actual cash vehicle.

     Compliance Costs for the Industries Affected by the Proposed Rules: Conversations with industry indicate that they have few, if any, cost concerns with the proposed rule, with the exception of the reopening option. The commissioner recognizes the concerns regarding the reopening option but does not agree that this will incur significant costs. The insurers may be reading greater duties and costs into the rule than exist. The rule requires the insurer to reopen the file when an insured agrees to a settlement amount but can't find a comparable replacement car for that amount within thirty-five days. If the insured can only find a more expensive comparable vehicle they can ask that their claim file be reopened. The insurer can locate a comparable vehicle for the settlement amount, pay the difference between the settlement amount and a comparable vehicle, or settle the loss via the appraisal part of the policy. The provision does not apply if the insurer informs the insured of a specific vehicle and the insured does not buy it. It does not apply if the insured buys a more expensive vehicle before notifying the insurer.

     This provision gets at the limited instances where an insured settles for an amount based on information provided by the insurer and then finds that it is not adequate to replace their vehicle. This can happen where specific, local vehicles are not used to value the loss. If the settlement amount is based on specific, comparable vehicles identified by the insurer that are available for purchase, there should be no need to reopen a file. All the insurer needs to do is pass along the specific information about one or more of those vehicles that can be purchased for the settlement amount. It is only if they are not actually comparable, not actually local, or not actually available for the settlement amount that the claim may ever have to be reopened. In any of those cases, there may be a problem in the valuation that the insured was not and could not have been aware of by relying on the information provided by the insurer. Several carriers noted that the insured may not want to buy a comparable car but may want to trade up. The provision will presumably never be an issue then. The arguments regarding this issue are discussed in greater detail in the "Mitigation" sections (both on steps taken and those considered and not taken). The commissioner does not believe that this issue will result in any significant costs if the valuation processes are undertaken in the manner that industry insists they are and will continue to be.

     The contiguous zip codes or searching by radius was a concern of insurers. They contract these searches out to vendors. The OIC staff has had several conversations with the vendors and the commissioner has been assured that the vendors have the current ability to do these searches in either fashion by distance or by zip code. The searches should not incur any more expense than the current procedures.

     The list of vehicles used in a valuation in WAC 284-30-3911 was the subject of several comments. The previous proposal indicated at least two cars had to be used and this caused concern. Vendors indicated that there should be the minimum number of vehicles necessary for statistical validity. An actual number was not provided but their comments and testimony indicated that thirty vehicles was the lowest acceptable practice in current use. The commissioner included a minimum of thirty vehicles for valuation. While the vendors wanted to use a minimum number of vehicles to establish value, they did not want to provide all of the information they actually used to the insured. Several commentators indicated that they would prefer to limit the list of the number of vehicles and information provided to the insured. It was stated that a vendor may use hundreds of comparable vehicles in a valuation and to inform the insured of all of the actual cars used in their valuation would be onerous. It was suggested that perhaps five or ten vehicles would be enough to provide to the insured. In response to a question regarding providing the most heavily weighted or most comparable car, testimony was provided that this was not the manner that the information was developed or could be provided. Since the testimony was that the most heavily relied upon information could not be segregated out, presumably some random sampling would be given to the insured. As noted by the vendors, those vehicles might not be the most accurate representations of value. The commissioner is not satisfied that a small fraction of a list of vehicles that are used to establish value is in any way satisfactory. In fact, this has been one of the problems that have driven many consumer complaints. When provided a list of five or ten cars used to establish value, the insureds have had difficulty finding the cars or determine that the prices are wrong or the contact information is incorrect or the cars are not comparable. Often the abbreviated list used to establish value does not work in any mathematically ascertainable fashion. The reason for that, at least in part, is that there is a much bigger list out being used by the vendor or the insurer. This concept that the information provided to them is a portion of all that is used is not comforting to the insured when it does not seem representative in any statistically valid manner. A goal of this rule making is to provide information to the insured about how the processes work. A list of only five to ten cars which may be 1-2% or less of all vehicles used in the valuation hardly seems to provide adequate information to the insured or adequate documentation that the valuation was done correctly. Since the vendors requested the ability to use a minimum of thirty vehicles to establish value, they should provide a list of at least thirty comparable vehicles. The commissioner believes that this strikes an appropriate balance and welcomes comments from all parties on the issue.

     Reporting, Record-Keeping, and Other Compliance Requirements of the Proposed Rule: There are no new reporting requirements as a result of this rule. There is a potential record-keeping issue related to proposed WAC 284-30-3912 though. The proposed rule section addresses the situation where an insured accepts the settlement amount offered by an insurer and can't find a comparable vehicle for the settlement amount. Under this scenario, the insurer may have to reopen a file according to the proposed rule. The option must be exercised by the insurer within thirty-five days. As noted earlier, this scenario is limited to when the insurer does not give the insured details of specific, comparable vehicles that are available for the settlement amount. If the insurer provides that insured with detailed information on where they can get the specific vehicle and that vehicle is comparable, the insurer has no further duty. As noted above and in the Mitigation section, if an insurer uses a statistical method they will have to provide a list of at least thirty comparable vehicles to the insured. This is a reduction from all vehicles used in the valuation but should provide the insured with valuable information without requiring the reporting of all vehicles used in the valuation; a total which can be hundreds or even thousands of vehicles.

     Professional Services That May Be Needed to Comply with the Requirements of the Proposed Rule:

     Cost of equipment: There is no anticipated additional cost of equipment.

     Cost of supplies: There is no anticipated additional cost of supplies.

     Cost of labor and increased administration: There may be some additional costs of increased labor and administration. The commissioner has attempted to mitigate or eliminate as many of those costs as possible (see the section addressing Mitigation techniques that were incorporated into the rule). There is possible additional administration in the "right of recourse" but the insurer can preclude that option if it provides specific, timely information to the insured. The rules are written in an easy-to-read style and include provisions that are intended to offset labor and/or administration costs. Currently, this is the single largest source of complaints for the property/casualty section of the Consumer Advocacy Division. Rules that are easier to understand and implement should lead to lessened consumer confusion, fewer complaints, and less time resolving complaints or inquiries. Hopefully, carriers can reduce their time and costs spent interacting with their insureds and with the OIC regarding total losses and other vehicle claims.

     Mitigation Measures That Could Be Used to Reduce the Economic Impact of the Rule on Small Businesses and Still Meet the Objectives: As noted earlier, the commissioner and staff have been discussing these issues with industry and interested parties for many months. Proposed concepts and language has been exposed for comments and suggestions in an attempt to mitigate costs. The commissioner filed a previous CR-102 and held a hearing. The comments received led to many changes for clarity and to increase the participation of interested parties, the commissioner decided to file another CR-102 and hold a new hearing on text that addresses many of the concerns raised and incorporates many suggestions made by interested parties. The commissioner will continue to be receptive to suggestions that will allow the regulation to be administered more efficiently while meeting the objectives of the rule making.

     Mitigation Techniques or Clarifying Suggestions That Have Been Incorporated into the Proposed Rule: The commissioner and his staff have had numerous discussions with industry and interested parties as the proposal was developed. The proposal has been through several drafts and numerous changes to clarify and mitigate potential costs have been made. The commissioner would like to thank the industry and interested parties for providing timely and useful comments and suggestions throughout this process. Clearer, more efficient regulation benefits the insured, industry, and the regulator. There have been many concepts and many changes. Some examples of mitigatory or clarifying changes that have been made since the original draft rule was discussed include:

     Proposed WAC 284-30-3901(1) "Actual cash value" - it was requested that the word "retail" be removed or changed from the definition. It was believed that the word confused the issue of who was selling and at what price. "Retail" was eliminated and "available to you" was added. It was noted that "applicable taxes, license fees, and other fees incidental to transfer of evidence of ownership" was not a part of the actual cash value but, rather something that may be added to the actual cash value. This language was removed from the definition of actual cash value and it was noted that these must be added to the actual cash value in proposed WAC 284-30-3907 and 284-30-3908.

     Proposed WAC 284-30-3901(1) "Comparable vehicle" - additional language was added to further clarify how deductions or additions for options, mileage, or condition can be determined and measured. A long-standing consumer complaint has been that national averages are used as the basis for deductions that disadvantage Washington residents.

     Proposed WAC 284-30-3901(6) "Verified" - it was requested that the language should be added to allow a phone call by subcontractor to establish comparability. This was done. After the first CR-102 was filed, the definition continued to be viewed as problematic. It was suggested that this was unnecessary and possibly burdensome. The definition was removed.

     Proposed WAC 284-30-3902(1) was modified. It was noted that insurers may not make their own estimate and will not estimate repair damages in obvious total loss situations. Language was changed to require insurers to provide an estimate when they use the estimate as the basis for payment. Subsection (5) was modified to reflect that this is a contractual right of the insurer and applies to first party claims. It was also noted that the language regarding "causing the vehicle to be repaired" raised issues concerning the insurer's role. It was asked if this burden on the insurance company was applicable only if the company specifically designates the shop where the vehicle is to be repaired. That is the purpose of the language which was clarified.

     Proposed WAC 284-30-3903 - an insurer noted that insured choice may incur liability beyond the insured's estimate. Language to that effect was added.

     Proposed WAC 284-30-3904(1) - an insurer noted that they do not always pursue subrogation and do not always have an interest. The subsection was modified to account for when the insurer is pursuing subrogation.

     Proposed WAC 284-30-3905 - an insurer stated that their recovery provision was more generous than contemplated by the proposed WAC. The language was modified to account for this possibility.

     Proposed WAC 284-30-3907 (2)(a) - it was requested that the contiguous zip code language might be difficult to administer or may be too confusing. Several insurers search that way today, others expand out in mileage increments. The language was changed to have an increasing circle of twenty-five mile increments. It was requested that the word "retail" be removed. It was believed that the word confused the issue of who was selling and at what price. "Retail" was eliminated and "available to you" was added. After the first CR-102 was filed, it was suggested that the language would be more clear if it read "actual cash value." The change was made. After the first CR-102 was filed, it was suggested that language be clarified and the limit of two vehicles be removed. This change was made.

     Proposed WAC 284-30-3907 (2)(b) - it was asked if the comparable vehicles should be replaced by licensed dealers. The change was made. After the first CR-102 was filed, it was noted that average cash value would be easier to implement and make more sense grammatically than the requirement and sentence structure that was proposed. This change was made.

     Proposed WAC 284-30-3907 (2)(d) - after the first CR-102 was filed, it was suggested that the existing structure did not account as well as possible for statistical databases. A new subsection was created to better address those issues. It was suggested that a minimum of thirty vehicles be used. This standard is being proposed. As noted in new subsection (2)(f), insurers remain responsible for the valuations.

     Proposed WAC 284-30-3907 (2)(e) - after the first CR-102 was filed, it was suggested that many insureds may want to resolve their claims more quickly or in a different fashion than proposed WAC 284-30-3907 allowed. It was asked if a provision could be included where the insured agreed to a different method or valuation. For example, if an insurer offered the amount in Kelley's Blue Book and the insured feels that offer is fair and satisfactory, can the insurer and insured agree on the amount without further valuation processes. A provision was created to allow for this possibility. This should help reduce costs where the insurer and insured agree on an amount and want to resolve the matter as quickly as possible. The insurer must document and justify the valuation of the figure in their claim file.

     Proposed WAC 284-30-3907(3) - it was noted that not all companies may include an appraisal clause; language was modified to reflect that possibility.

     Proposed WAC 284-30-3907(4) - after the first CR-102 was filed, it was suggested that applicable taxes should be addressed here rather than in the definition section. This change was made.

     Proposed WAC 284-30-3908 - an insurer asked if there should be additions or reductions for conditions given the definition of "comparable vehicle." The language in subsection (3) was modified to do so. It was requested that the number of days be reduced from thirty-five to thirty and that the insurer be protected from changes in the salvage condition. The timeline was reduced to thirty days. A sentence was added to eliminate the option if the condition of the salvage is changed.

     Proposed WAC 284-30-3911 (3)(d) - the original proposal included "asking price." This was changed at the request of industry to "selling price" prior to the first CR-102. After the first CR-102 was filed, it was requested that this be changed back. It was noted that it could be quite difficult to ascertain the price that a vehicle was actually sold for since a private seller may not want to disclose that information to third parties.

     Proposed WAC 284-30-3911 (3)(e) - after the first CR-102 was filed, it was requested that this be changed from "sold price, if verified" to "sold price if the sold price is available and verified." This is intended to remove the need to provide information when it is difficult or impossible to ascertain.

     Proposed WAC 284-30-3911 (3)(f) - an insurer stated that they currently note the city but do not provide distances and stated that they or their vendor would have to expend considerable extra labor and incur costs. While it is our understanding that the vendors have the mileage already in their database (based on reports from the vendors that note the mileage), we have changed the wording to simply require the location. An insurer stated that they weren't clear about the meaning of provision preventing the exclusion of a vehicle based on a mathematical formula. The sentence was deleted. It was noted that there was a requirement for two lists and it was asked if those could be combined. The lists were combined and redundancies eliminated. It was noted that if a vehicle has been sold, the insurance company will not know "the location of the comparable vehicle." This was clarified to the location of the comparable vehicle "at the time of the valuation."

     Proposed WAC 284-30-3911 (3)(g) - prior to the original CR-102 filing, it was asked if the list of "all" vehicles could be changed to a representative sampling. The commissioner believes that it is important that an insured has the right to all information used to determine value. Additionally, how "representative" a sample was would surely lead to disputes. This was noted as in the mitigatory changes not made section in the previous SBEIS. It was also requested that the language be changed to better account for statistical methods and the sample be expanded beyond two vehicles.

     As the discussions around this provision continued after the filing of the first CR-102, vendors explained that the list of vehicles could be quite large and noted that many insureds may find this overwhelming or not helpful. The vendors also indicated that they did not or would not be able to weight the vehicles and simply supply a list of the most comparable. They reiterated that they wanted to provide a list of five or ten cars that would be representative. Unfortunately, they did not provide or suggest a method to ensure that the cars on the list would actually be representative. The implication was that merely by being a part of the group, this subset would be representative. This concept seems to contradict the minimum number of cars requirement that they say establishes the statistical validity of their methods to determine value in the first place.

     The commissioner also decided that since the minimum for statistical validity is going to be set at thirty, which should be the minimum provided to the insured. While this is larger than the five or ten proposed by vendors, it is significantly less than the possible hundreds that may be used to determine value. Additionally, the provision of the larger list would seem to significantly lessen the potential for "reopening" a file because an insured cannot find a comparable vehicle for the price established by the insurer. Not only would the insured have a better understanding of the settlement amount but they also would already have a larger list of comparable vehicles.

     Proposed WAC 284-30-3912 - an insurer asked for additional clarity regarding the mechanics of the process and how a reopened claim was resolved. Additional language was added and the section was clarified regarding the reopening of claims and the options for insurers for resolution. After the first CR-102 was filed, the commissioner was asked to clarify proposed subsection (2)(c) and modified the language regarding appraisals.

     Proposed WAC 284-30-3913 - it was requested that letters to insureds or claimants should be required in addition to documenting the claim file. The language was changed from "reasonable notice" to "written or electronic mail notice." It was also suggested that the answer implied that coverage might be broader than in the contract. A reference to possible contract language was added. It was asked if a phone call could be sufficient if documented. The language was changed to allow an appropriately documented phone call. After the first CR-102 was filed and receiving comments on the proposed text, subsection (2) was amended to put a cap on the time of five days.

     Proposed WAC 284-30-3914 - an insurer noted that they did not see a provision for cash-outs, which can be of benefit to insureds. Language was changed to address this concern.

     Proposed WAC 284-30-3915 - asks what happens if the other insurer offers a flat rental amount. It was stated that it was not clear if this was applicable to first and/or third party claimants. The question was changed to indicate the applicability to third party claimants.

     Proposed WAC 284-30-3916 - after the first CR-102 was filed, the OIC received comments that this area was the subject of consumer confusion. The new section was proposed by the commentator and added. The new section addresses the situation when a vehicle is a total loss and the outstanding balance on the lease or loan exceeds actual cash vehicle.

     Mitigation Techniques or Clarifying Changes That Were Considered for Incorporation into the Proposed Rule but Were Rejected: This rule making has involved numerous detailed discussions with interested parties. The dialogue continues to be very productive and has lead to many changes. The commissioner did not accept and adopt all of the suggestions intended to clarify language or mitigate potential costs. In many instances, there were several contradictory suggestions or several options to address an issue. Some suggestions were not included because they did not further the goals of the rule making. Several suggestions or questions were made regarding provisions that are requirements of the current WAC section and the commissioner feels those provisions are important to retain. All for the suggestions were reviewed but the following are some examples of mitigatory or clarifying changes that were not made in the proposed draft include:

     Proposed WAC 284-30-3901(2) "Comparable vehicle" - it was suggested that the requirement that a car be the same year or newer was too restrictive, older cars may be better matches, some cars may be difficult to value, and some manufacturer use different models with the same style and that may have a similar value. While there may be some situations where a car is similar to a car that is three or more years older or a different make by the same manufacturer, this could be the basis for much confusion and some abuse. An insured may not agree that their Ford Taurus should be compared to a Mercury Sable and this could lead to additional complaints and suits. The insurers do have other evaluation options if they believe that fairer, more consistent results can be achieved.

     Proposed WAC 284-30-3902(5) - it was suggested that there are problems in requiring the vehicle to be "restored to its condition prior to the loss." This wording, "restored to its condition prior to the loss" is part of existing WAC 284-30-390(6). This portion of the current WAC has not been the subject of complaints or problems.

     Proposed WAC 284-30-3906 - an insurer asked how it was determined that "liability and damages are reasonably clear?" They suggested that language should be changed to when both parties agree liability is reasonably clear. The proposed language exists in the existing WAC 284-30-390(2) and it has not been suggested to be a problem in the past to administer by insurers or the subject of consumer complaints. No change.

     Proposed WAC 284-30-3907 (2)(b) - it was suggested that dealer quotes only be allowed if the other methods are exhausted. The option is written as it now exists in WAC 284-30-390 (1)(b)(ii), this option has not been the source of consumer complaints so no change is made at this time. The requirement to verify that a vehicle is comparable was questioned. It was stated that requiring phone or other contact would be too time-consuming and expensive and preclude the use of private ads. This is a current requirement of WAC 284-30-390 (1)(b)(i). Despite this requirement, insurers have, on some occasions, used vehicles in comparisons to establish value that are not similar in condition, mileage, or other features. The commissioner does not want to remove this valuable consumer protection and questions how the use of limited information can establish value. It was asked if vendors could track by zip codes because insurers would have to track that if the function could not be outsourced to their current vendors. The OIC had conversations with the three major vendors and it is our understanding they already track by zip code so no change is necessary.

     Proposed WAC 284-30-3908 - it was stated by an insurer that they only deduct certain limited items and suggested that only unusual deductions should be explained. This provision has not substantively changed from existing WAC 284-30-390(8) and the commissioner chooses not to make changes at this point.

     Proposed WAC 284-30-3911 - as noted in the section addressing "mitigatory changes that were made," vendors indicated that they wanted to provide a list of five or ten vehicles. The change was made from all vehicles to a minimum of thirty. The details for that change are noted in the prior section.

     Proposed WAC 284-30-3912 - this section raised numerous questions. Changes have been made but not all of the changes are in response to the questions. An insurer asked if they went through the appraisal process, could the policyholder come back and challenge that result, then go through the entire process again. The answer is no. The section applies to a "settlement based on the insurer's valuation." A settlement based on the use of the appraisal clause in the policy would not apply. An insurer was concerned about getting the vehicle identification numbers (VIN) for all cars. The VIN number is needed only when the settlement was based on a specific comparable vehicle. It was stated that allowing dealer quotes and the insurer to choose the settlement procedure would also streamline this process. This section does not preclude the use of dealer quotes, advertisements, etc. and does not preclude the insurer from negotiating a deal with a dealer for a comparable vehicle. An insurer was concerned about the possibility of a claimant paying more than the settlement for a replacement vehicle and asking the carrier for the difference, using a higher priced but allegedly comparable vehicle as evidence. The section states that it does not apply if the insured purchased a vehicle at a higher price without giving the insurer notice prior to the purchase of the vehicle. It was suggested that the time-frame be reduced from thirty-five days to fifteen or twenty days. The commissioner chose not to make that change at this time. An insurer noted that the insurer has no control over what the insured does after receipt of the money and that many people do not buy the same type of vehicle but utilize the money to upgrade. A few comments were received that asked to delete this provision. Some comments said something to the effect that once the claim is negotiated and settled, the value of property does not change based on the ability or inability to replace the property. The insurer should not have to shop around for and purchase a replacement vehicle for the insured or to hold a claim open until the insured finds a replacement vehicle.

     The commissioner recognizes that insurers have concerns. However, a common complaint of the insureds is that the price the insurer has established of a "comparable" vehicle by using their complex valuation programs or via another mechanism does not actually fully compensate them since they can't actually buy a comparable vehicle for that price. The point of this section is not to give insureds the right to delay the process or push up settlements. The purpose is to ensure that when an insurer states that a vehicle is comparable and uses it to establish value, an actual vehicle exists that can be found and purchased for that amount. If the insured can only find comparable vehicles that cost more than the settlement amount, it is difficult to avoid the presumption that the amount was not adequate. In this last scenario, the insurer still has several options. The insurer can locate a vehicle that is available for the settlement amount; pay the difference between a comparable vehicle and the settlement amount or purchase a comparable vehicle for the insured; or use the appraisal section in the policy. This section does not apply when the insured is given written information about a specific vehicle that is available, including location and VIN at the time of settlement.

     The concern regarding the insured dawdling and not buying an available vehicle is not applicable. If an insured is not buying a comparable vehicle but "trading up," this section should not come into play. When an insurer is telling the insured that comparable vehicles are used to value their car and the insured finds that the vehicles are not comparable or not available for the settlement amount, there is a fundamental problem. This section addresses that scenario. There are eight states who have similar "Right of Recourse" provisions in effect; Illinois, California, Indiana, Rhode Island, Utah, Oregon, New York and Hawaii. Those states have not reported administrative difficulties or costs in implementing these sections and are satisfied that the provisions are working well. It is reported to the OIC that less than 0.5% of total loss claims end up using the "reopening process." That total is less than the industry anecdotally states it reopens without such a provision today.

     Steps the Commissioner Will Take to Reduce the Costs of the Rule on Small Businesses: The commissioner does not believe that there are any property and casualty insurers that operate in Washington that employ fewer than fifty employees. However, the commissioner is interested in reducing the costs for all business, especially smaller businesses. OIC staff has engaged in lengthy discussions about reducing the costs of the rules; the mitigatory techniques used to date are listed previously in this document. The commissioner welcomes any new suggestions that could lessen any economic impacts that are attributable to the rules.

     The Proportionality of the Cost of Compliance: The cost of compliance should be proportional for smaller businesses. The rules should not create any difference in terms of implementation, processes, or impacts. While claims processing procedures insurers choose to use may impact some of the costs of compliance, those compliance costs are not related in any way to the size of the insurer. The commissioner has received no information or comments that suggest that one size of carrier is any more or less likely to have issues with any provision of the proposed or existing rule. In general costs should be proportionate since the costs should parallel the amount of insureds. Smaller insurers should, in general, have fewer insureds and fewer claims. There should be fewer potential disputes. Similarly, any costs issues with the "right of recourse" should be proportional due to the proportionality of insureds and of claims. The fewer insureds should lead to fewer probable occurrences of claims and fewer possible times that an insured may need to exercise this right. The commissioner is hoping that the new rules will allow for quicker, less contentious settlement of automobile claims. There will hopefully be some cost savings due to the increased clarity and fewer disputes with insureds. Any offsets or saving should also be proportional. The commissioner welcomes any comments regarding the proportionality of compliance and is committed to a diligent review of any issues posed.

     Informing and Involving Affected Businesses: The CR-101 was filed on July 24, 2002. The proposal was published in the Washington State Register and was posted on the insurance commissioner's website with contact names and numbers. Affected parties, including smaller insurers, were mailed the CR-101. The CR-101 requested comments and gave agency contact numbers for parties interested in participating in the rule-making process.

     The commissioner provided concepts and draft language to interested parties and encouraged comments, suggestions, and critiques. More refined concepts and drafts were shared and additional responses were solicited. Staff held many different discussions and welcomed meetings with impacted parties to clarify any ambiguities and improve the regulation. These conversations helped shape the original proposed rule. The previous CR-102 was sent to impacted insurers and all known interested parties. It was posted on the website and e-mailed to the rules listserv.

     As noted, after the filing of the rule and the public hearing, the commissioner decided to make numerous changes based on the comments on the proposal. A great many of the changes were technical or editing in nature. Though a new CR-102 was not required, the commissioner decided that a new CR-102 and hearing would reduce any possible confusion and allow for the fullest possible participation by interested parties. A revised draft of the rules that incorporated many of the suggestions received by the OIC was shared with interested parties and comments were solicited prior to the new CR-102. No comments were received at that point.

     The commissioner continues to encourage comments from insurers and any interested parties on the proposal. The commissioner asks for any and all suggestions that make the proposed rule clearer, fairer, or easier to administer.

     Informing and Involving Small Business in the Development of the Proposed Rule: See above.

     A copy of the statement may be obtained by writing to Kacy Scott, P.O. Box 40255, Olympia, WA 98504-0255, e-mail Kacys@oic.wa.gov, fax (360) 586-3109.

     RCW 34.05.328 applies to this rule adoption. This proposal is a significant legislative rule for the purposes of RCW 34.05.328.

     Hearing Location: Insurance Commissioner's Office, Training Room 120, 5000 Capitol Boulevard, Tumwater, WA, on June 10, 2003, at 2:00 p.m.

     Assistance for Persons with Disabilities: Contact Lori Villaflores by June 6, 2003, TDD (360) 664-3154 or (360) 407-0198.

     Submit Written Comments to: Kacy Scott, P.O. Box 40255, Olympia, WA 98504-0255, e-mail Kacys@oic.wa.gov, fax (360) 586-3109, by June 6, 2003.

     Date of Intended Adoption: June 11, 2003.

April 23, 2003

Mike Kreidler

Insurance Commissioner

OTS-6111.4

AMENDATORY SECTION(Amending Order R 87-5, filed 4/21/87)

WAC 284-30-390   ((Standards for prompt, fair and equitable settlements applicable to automobile insurance.)) Regulation of settlements of insurance claims relating to vehicles.   ((The following standards apply to insurance claims relating to motorcycles and private passenger automobiles as defined in RCW 48.18.297:

     (1) When the insurance policy provides for the adjustment and settlement of first party automobile total losses on the basis of actual cash value or replacement with another of like kind and quality, one of the following methods must apply:

     (a) The insurer may elect to offer a replacement automobile which is a specific comparable automobile available to the insured, with all applicable taxes, license fees and other fees incident to transfer of evidence of ownership of the automobile paid, at no cost other than any deductible provided in the policy. The offer and any rejection thereof must be documented in the claim file.

     (b) The insurer may elect a cash settlement based upon the actual cost, less any deductible provided in the policy, to purchase a comparable automobile including all applicable taxes, license fees and other fee incident to transfer of evidence of ownership of a comparable automobile. Such cost may be determined by

     (i) The cost of a comparable automobile in the local market area when a comparable automobile is available in the local market area. Any settlement offer which relies upon prices of automobiles advertised for sale in local newspapers may include only prices for automobiles verified by the insurer as being comparable in age and condition to the insured automobile; or

     (ii) One of two or more quotations obtained by the insurer from two or more qualified dealers located within the local market area when a comparable automobile is not available in the local market area. An insurer must accurately describe the age and condition of the insured automobile to the dealers surveyed and may use only price quotations for the retail selling price of a comparable automobile.

     (c) When a first party automobile total loss is settled on a basis which deviates from the methods described in subsections (1)(a) and (1)(b) of this section, the deviation must be supported by documentation giving particulars of the automobile condition. Any deductions from such cost, including deduction for salvage, must be measurable, discernible, itemized and specified as to dollar amount and shall be appropriate in amount. The basis for such settlement shall be fully explained to the first party claimant.

     (2) Where liability and damages are reasonably clear, insurers shall not recommend that third party claimants make claim under their own policies solely to avoid paying claims under such insurer's insurance policy or insurance contract.

     (3) Insurers shall not require a claimant to travel unreasonably either to inspect a replacement automobile, to obtain a repair estimate or to have the automobile repaired at a specific repair shop, or to obtain a temporary rental or loaner automobile.

     (4) Insurers shall, upon the claimant's request, include the first party claimant's deductible, if any, in subrogation demands. Subrogation recoveries shall be shared on a proportionate basis with the first party claimant, unless the deductible amount has been otherwise recovered. No deduction for expenses can be made from the deductible recovery unless an outside attorney is retained to collect such recovery. The deduction may then be for only a pro rata share of the allocated loss adjustment expense. An insurer shall keep first party claimants apprised of its efforts relative to subrogation claims.

     (5) If an insurer prepares an estimate of the cost of automobile repairs, such estimate shall be itemized and shall be in an amount for which it may be reasonably expected the damage can be satisfactorily repaired. The insurer shall give a copy of the estimate to the claimant and shall, upon request, furnish to the claimant the names of repair shops convenient to the claimant that will satisfactorily complete the repairs for the estimated cost, having in mind, particularly, the problems associated with the repair of unibody vehicles.

     (6) In first party claim situations, if an insurer elects to exercise a contract right to repair and designates a specific repair shop for automobile repairs, the insurer shall cause the damaged automobile to be restored to its condition prior to the loss at no additional cost to the claimant other than as stated in the policy and within a reasonable period of time.

     (7) In any claim situation, an insurer shall make a good faith effort to honor a claimant's request for repairs to be made in a specific repair shop of the claimant's choice, and shall not arbitrarily deny such request. A denial of such a request solely because of the repair shop's hourly rate is arbitrary if such rate does not result in a higher overall cost of repairs. The insurer shall make an appropriate notation in its claim file setting forth the reason it has rejected a claimant's request.

     (8) Deductions for betterment and depreciation are permitted only for parts normally subject to repair and replacement during the useful life of the insured motor vehicle. Deductions for betterment and depreciation shall be limited to the lesser of an amount equal to the proportion that the expired life of the part to be repaired or replaced bears to the normal useful life of that part, or the amount which the resale value of the vehicle is increased by the repair or replacement. Calculations for betterment, depreciation, and normal useful life must be included in the insurer's claim file.)) WAC 284-30-390 through 284-30-3915 are the standards for prompt, fair, and equitable settlements for insurance claims relating to vehicles.

[Statutory Authority: RCW 48.02.060, 48.44.050 and 48.46.200. 87-09-071 (Order R 87-5), § 284-30-390, filed 4/21/87. Statutory Authority: RCW 48.02.060 (3)(a). 85-02-019 (Order R 84-8), § 284-30-390, filed 12/27/84. Statutory Authority: RCW 48.02.060 and 48.30.010. 78-08-082 (Order R 78-3), § 284-30-390, filed 7/27/78, effective 9/1/78.]

     (1) "Actual cash value" means the cost to you to replace your vehicle with a comparable vehicle.

     (2) "Comparable vehicle" means a vehicle that has been verified by the insurer to be the same make and model, same or newer year, similar body style, similar options and mileage as your vehicle and in as good or better overall condition as established by current data. To achieve comparability, any deductions or additions for options, mileage or condition can only be made as determined and measured within the principally garaged area.

     (3) "Current data" means data no older than ninety days from the date of loss.

     (4) "Principally garaged" means the zip code where the vehicle is normally kept.

     (5) "Settlement" means when the payment is actually made to you and/or your lien holder.

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     (2) Upon your request, the insurer must provide you names of repair shops within your principally garaged area that will satisfactorily complete the repairs for the estimated cost.

     (3) The insurer cannot require you to travel unreasonably to:

     (a) Inspect a replacement vehicle;

     (b) Obtain a repair estimate;

     (c) Have the vehicle repaired at a specific repair shop; or

     (d) Obtain a temporary rental or loaner vehicle.

     (4) Deductions for betterment and depreciation may be taken only for parts normally subject to repair and replacement during the useful life of the insured motor vehicle. Deductions for betterment and depreciation are limited to the increase in the actual cash value of the vehicle caused by the replacement of the part, or the amount equal to the proportion that the expired life of the part to be repaired or replaced bears to the normal useful life of that part, whichever is less.

     (5) Your insurer may elect to exercise its right, under the terms of your insurance contract, to repair your vehicle and designate a specific repair shop for your vehicle repairs. In this case, the insurer shall restore your vehicle to its condition prior to the loss at no additional cost to you other than as stated in your policy.

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     (2) A denial of your request solely because of the repair shop's hourly rate is arbitrary if the rate does not result in a higher overall cost of repairs.

     (3) If the overall cost of repairs cannot be agreed upon, the insurer will:

     (a) Provide you with the name of a reputable repair shop that can satisfactorily complete the repairs for the amount of their estimate; and

     (b) Make an appropriate notation in its claim file setting forth the reason it has rejected your request.

     (4) If you choose to take your vehicle to a repair facility in which the overall cost for a satisfactory repair is higher than the insurer's estimate, you may be liable for any additional amount above their estimate.

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     (2) The insurer will inform you of its efforts relative to collection of your deductible.

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     (2) No deduction for expenses can be made from the deductible recovery unless an outside attorney is retained to collect such recovery, and then only for the pro rata share of the allocated loss adjustment expense.

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     (1) Replacing your vehicle: An insurer can settle your claim by offering to replace your vehicle with a comparable vehicle that is available for inspection within a reasonable distance from where your vehicle is principally garaged. An insurer must advise you by phone or in writing of their settlement offer. This communication must be documented in the claim file. If it is a phone call, the documentation must include the date, time, and name of the person in your household they spoke with.

     (2) Cash settlement: An insurer can settle your claim by offering a cash settlement based on the actual cash value to purchase a comparable vehicle. Only vehicles identified as comparable may be used to arrive at the actual cash value. You can request a copy of the "valuation report" that notes the information used to determine the amount of the cash settlement. The offer of a cash settlement must use one of the following methods:

     (a) The actual cash value of a comparable vehicle based on current data obtained from the principally garaged area. If a comparable vehicle cannot be found within the principally garaged area, the search area may be expanded only in increasing circles of twenty-five mile increments until a comparable vehicle is identified.

     (b) Quotations for the actual cash value of a comparable vehicle obtained from two or more licensed dealers located within the principally garaged area. If two or more licensed dealers cannot be found within the principally garaged area, the search area may be expanded only in increasing circles of twenty-five mile increments until two or more quotes for comparable vehicles are obtained.

     (c) The actual cash value of two or more comparable vehicles advertised for sale in the local media if the advertisements are no older than ninety days. The vehicle must be located within the principally garaged area. If two or more comparable vehicles cannot be found within the principally garaged area, the search area may be expanded only in increasing circles of twenty-five mile increments until two or more comparable vehicles are identified.

     (d) Any source for determining statistically valid actual cash values within your vehicle's principally garaged area that meets all of the following criteria:

     (i) The source must give primary consideration to the values of vehicles in the zip code where your vehicle was principally garaged.

     (ii) The source's data base must produce values for at least eighty-five percent of all makes and models for a minimum of fifteen years taking into account the values of all major options for such vehicles.

     (iii) The source must produce actual cash values based on current data available from the principally garaged area. If comparable vehicles cannot be found within the principally garaged area, the search area may be expanded until comparable vehicles are identified to assure statistical validity.

     (iv) The source must rely upon the actual cash value of comparable vehicles that are currently available or were available in the market place within ninety days from the date of loss.

     (v) Any adjustments for betterment or depreciation must be in compliance with WAC 284-30-3908.

     (vi) The source must provide a list of the comparable vehicles (minimum thirty) used to determine the actual cash value.

     (e) When you and your insurer both agree, an evaluation that varies from the methods described in (a) through (d) of this subsection may be used. The determination of value must be supported by documentation. The insurer must take reasonable steps to validate that the value so determined is accurate and representative of what the actual cash value would be of a comparable vehicle in the principally garaged area.

     (f) Insurers remain responsible for the accuracy of evaluations based on outside sources used to establish actual cash values.

     (3) Appraisal: If you and your insurer fail to agree on the actual cash value of your vehicle and your policy has an appraisal provision, you or your insurer may request that the appraisal provision of your policy be used as a method to resolve disputes concerning the actual cash value.

     (4) Applicable taxes, license fees, and other fees incidental to transfer of evidence of ownership must be added to the actual cash value.

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     (1) Deductions are allowable for prior damage. The amount of deduction can be no greater than the decrease in actual cash value due to prior damage.

     (2) When you retain your total loss vehicle, your insurer may deduct the salvage value from the actual cash value, including all applicable taxes and fees. The insurer must provide you with the name and address of a salvage dealer or dismantler who will purchase the salvage for the amount deducted with no additional charge. This option must be available for at least thirty days after receipt of the settlement. This option will not be available if, after settlement, the condition of the salvage has been changed.

     (3) Any additions or deductions from the actual cash value must be measurable, discernible, itemized and specified as to dollar amounts.

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     (2) If your claim is being handled under your insurance policy, it will depend on the terms and conditions in your policy.

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     (1) All information collected during the initial inspection that sets forth the condition, equipment, and mileage of the vehicle;

     (2) All information that the insurer used to arrive at the actual cash value of the vehicle;

     (3) A list of the comparable vehicles used by the insurer to arrive at the actual cash value. This list must include:

     (a) The source of the information used;

     (b) The date of the information;

     (c) The seller's telephone number;

     (d) The asking price;

     (e) The sold price, if the sold price is available and verified;

     (f) The location of each vehicle at the time of the valuation.

     (g) When an insurer uses a source for determining statistically valid actual cash values meeting the requirements of WAC 284-30-3907 (2)(d), the list required under this section must include a minimum of thirty comparable vehicles and give primary consideration to vehicles in the zip code where your vehicle was principally garaged.

     Any supplemental or ancillary information must be clearly identified with a separate heading. Any weighing of identified vehicles to arrive at an average must be documented and explained.

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     (2) If you notify your insurer within thirty-five days of receipt of the settlement that you cannot purchase a comparable vehicle for the settlement amount and you located, but did not purchase a comparable vehicle in excess of the settlement amount, the insurer must reopen your claim file and either:

     (a) Locate a comparable vehicle that is currently available for the settlement amount;

     (b) Pay you the difference between the settlement amount before applicable deductions and the cost of the comparable vehicle or purchase the comparable vehicle for you; or

     (c) If not previously utilized, conclude the loss settlement in the manner provided in the appraisal section of your insurance policy in force at the time of the loss.

     (3) Your insurer is not required to reopen your claim file if:

     (a) At the time of settlement, you were provided written notification of the availability and location of a specific and comparable vehicle that could have been purchased for the settlement amount; and

     (b) You did not purchase the vehicle within thirty-five days of the receipt of the settlement.

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     (1) Advise you by phone or in writing before they stop payment for storage of your vehicle. This communication must be documented in the claim file. If it is a phone call, the documentation must include the date, time, name of the person in your household they spoke with, and specifics of the conversation;

     (2) Provide reasonable time, in no event greater than five business days, for you to remove your vehicle from storage before stopping payment; and

     (3) Pay any and all reasonable towing charges unless otherwise provided in your policy. You may use any towing company unless the insurer provides you with the name of a specific towing company before your vehicle is towed.

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