A life and health insurer recently reached a settlement agreement with thirty-nine (39) state insurance departments following a targeted multistate market conduct examination (“Multistate Examination”). The Multistate Examination focused on the insurer’s Life, Accident, Health and Disability business in several areas of operation, including its oversight of Third-Party Contractors and claims handling. The insurance departments of Delaware, Michigan, Pennsylvania, South Carolina, and Texas (the “Lead States”) led the Multistate Examination. 

The Multistate Examination resulted in a Regulatory Settlement Agreement (“Settlement Agreement”) in which the insurer was required to make a $5,000,000 penalty payment to be divided among all participating states. In addition to the Lead States, thirty-four (34) other state insurance departments agreed to participate in the Settlement Agreement. 

In addition to the $5,000,000 payment, the Settlement Agreement also required that the insurer take certain corrective actions as part of adopting a Compliance Plan. Some of the items in the Compliance Plan included the following: 

• The insurer was required to make a Market Conduct Compliance Manual available to all Third-Party Contractors and to enforce compliance with its terms and procedures.

• The insurer had to ensure that all contracts with its Third-Party Contractors complied with state insurance laws.

• The insurer had to ensure that Third Party Contractors it is doing business with are properly licensed as required by state insurance laws.

• The insurer had to provide documentation to the Lead States verifying that it has conducted compliance audits of its Third-Party Contractors.

• The insurer had to review its claims payments for accuracy and timeliness and also ensure that its claims handling procedures and those of its Third-Party Contractors adhere to the claims handling requirements of state insurance laws.

While there were multiple issues involved in this multistate regulatory action, it resulted in a significant monetary penalty and action by thirty-nine (39) state insurance departments. The matter is a cautionary and costly reminder that insurers must only conduct business with Third Party Administrators (“TPAs”) that are properly licensed in all required jurisdictions and that insurers must also ensure their Third Party Administrator (“TPA”) business partners are in compliance with state insurance laws.