MISSISSIPPI LEGISLATURE
2005 Regular Session
To: Insurance
By: Senator(s) Chaney, Burton, Dearing, King
AN ACT TO AMEND SECTIONS 83-54-5, 83-54-9 AND 83-54-19, MISSISSIPPI CODE OF 1972, TO REGULATE THE PLACEMENT OF AUTO LIABILITY INSURANCE BY A CREDITOR PURSUANT TO A CREDIT AGREEMENT AS A RESULT OF THE DEBTOR'S FAILURE TO COMPLY WITH THE MOTOR VEHICLE SAFETY-RESPONSIBILITY LAW; TO AMEND SECTION 83-54-25, MISSISSIPPI CODE OF 1972, TO REVISE THE DISCLOSURE REQUIREMENTS A CREDITOR SHALL MAKE BEFORE PURCHASING THE INSURANCE; AND FOR RELATED PURPOSES.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI:
SECTION 1. Section 83-54-5, Mississippi Code of 1972, is amended as follows:
83-54-5. As used in this chapter, unless the context otherwise requires:
(a) "Actual cash value (ACV)" means the cost of replacing damaged or destroyed property with comparable new property, minus depreciation and obsolescence.
(b) "Blanket insurance" means insurance that provides coverage on collateral as defined in a policy issued to a creditor, without specifically listing the collateral covered.
(c) "Collateral" means personal property that is pledged as security for the satisfaction of a debt.
(d) "Credit agreement" means the written document that sets forth the terms of the credit transaction and includes the security agreement.
(e) "Credit transaction" means a transaction by the terms of which the repayment of money loaned or credit commitment made, or payment of goods, services or properties sold or leased, is to be made at a future date or dates.
(f) "Creditor" means the lender of money or vendor or lessor of goods, services, property, rights or privileges for which payment is arranged through a credit transaction, or any successor to the right, title or interest of a lender, vendor or lessor.
(g) "Creditor-placed insurance" means:
(i) Property insurance that is purchased unilaterally by the creditor, who is the named insured, subsequent to the date of the credit transaction, providing coverage against loss, expense or damage to collateralized personal property as a result of fire, theft, collision or other risks of loss that would either impair a creditor's interest or adversely affect the value of collateral covered by limited dual interest insurance. It is purchased according to the terms of the credit agreement as a result of the debtor's failure to provide required physical damage insurance, with the cost of the coverage being charged to the debtor. It shall be either single interest insurance or limited dual interest insurance; or
(ii) Liability insurance that is purchased unilaterally by the creditor, subsequent to the date of the credit transaction, providing coverage that is in compliance with the limits required by Section 63-15-3(j). It is purchased according to the terms of the credit agreement as a result of the debtor's failure to comply with the Motor Vehicle Safety-Responsibility Law, Section 63-15-3 et seq., with the cost of the coverage being charged to the debtor.
(h) "Debtor" means the borrower of money or a purchaser or lessee of goods, services, property, rights or privileges for which payment is arranged through a credit transaction.
(i) "Insurance tracking" means monitoring evidence of insurance on collateralized credit transactions to determine whether insurance required by the credit agreement has lapsed, and communicating with debtors concerning the status of insurance coverage.
(j) "Insurer" means an insurance company, association or exchange authorized to issue insurance policies in the State of Mississippi.
(k) "Lapse" means that the insurance coverage required by the credit agreement is not in force.
(l) "Limited dual interest insurance" means insurance purchased by the creditor to insure its interest in the collateral securing the debtor's credit transaction. This insurance waives the three (3) conditions for loss payment under single interest insurance and extends coverage on the collateral while in the possession of the debtor.
(m) "Loss ratio" means the ratio of incurred losses to earned premium.
(n) "Net debt" means the amount necessary to liquidate the remaining debt in a single lump-sum payment, excluding all unearned interest and other unearned charges.
(o) "Producer" means a person who receives a commission for insurance placed or written or who, on behalf of an insurer or creditor, solicits, negotiates, effects, procures, delivers, renews, continues or binds policies of insurance to which this chapter applies, except a regular salaried officer, employee or other representative of an insurer who devotes substantially all working time to activities other than those specified here and who receives no compensation that is directly dependent on the amount of insurance business written, and except a regular salaried officer or employee of a creditor who receives no compensation that is directly dependent on the amount of insurance effected or procured.
(p) "Single interest insurance" means insurance purchased by the creditor to insure its interest in the collateral securing a debtor's credit transaction. Three (3) conditions must be met for payment of loss under the policy:
(i) The debtor has defaulted in payment;
(ii) The creditor has legally repossessed the collateral, unless collateral has been stolen from the debtor; and
(iii) The creditor has suffered an impairment of interest.
(q) "Commissioner" means the Commissioner of Insurance.
SECTION 2. Section 83-54-9, Mississippi Code of 1972, is amended as follows:
83-54-9. (1) Premiums for creditor-placed property insurance coverage as defined in Section 83-54-5(g)(i) may be calculated based on:
(a) An amount not exceeding the net debt even though the coverage may limit the insurer's liability to the net debt, actual cash value or cost of repair; or
(b) Other premium calculation methods that more closely reflect the exposure of each item insured and approximate the premium calculation method of the coverage required by the credit agreement.
(2) An insurer shall not write creditor-placed insurance for which the premium rate differs from that determined by the schedules of the insurer on file and approved by the commissioner. The premium or amount charged to the debtor for creditor-placed insurance shall not exceed the premiums charged by the insurer, computed at the time the charge to the debtor is determined.
(3) A method of billing insurance charges to the debtor on closed-end credit transactions that creates a balloon payment at the end of the credit transaction or extends the credit transaction's maturity date is prohibited, unless specifically disclosed at the time of the origination of the credit agreement.
SECTION 3. Section 83-54-19, Mississippi Code of 1972, is amended as follows:
83-54-19. (1) In the event of a loss under a creditor-placed property insurance policy as defined in Section 83-54-5(g)(i), the insurer shall pay, at a minimum, the least of the following, the value of which shall be determined as of the date of loss and shall be reduced by any payments to the creditor or debtor recovered from a third party:
(a) The cost to repair the collateral, less any applicable deductible;
(b) The actual cash value of the collateral, less any applicable deductible;
(c) The net debt, less any applicable deductible; or
(d) If single interest insurance is provided, the amount by which the creditor's interest is impaired.
(2) The net debt or actual cash value amounts in subsection (1) may be reduced by the value of salvage if the insurer does not take possession of the insured property. This does not preclude the borrower's right to retain possession of the damaged collateral, if desired.
(3) In the event of a loss under a creditor-placed property insurance policy as defined in Section 83-54-5(g)(i), no subrogation shall run against the debtor from the insurer.
(4) Whenever a claim is made on a creditor-placed property insurance policy as defined in Section 83-54-5(g)(i), the insurer shall furnish to the creditor a written statement of the loss explaining the settlement amount and the method of settlement, and the creditor shall furnish this information to the debtor.
(5) A creditor or insurer may not abandon salvage to a towing or storage facility in lieu of payment of storage fees without the consent of the facility and the claimant. The insurer shall be responsible for the payment of towing and storage charges for a covered loss occurrence from the time the claim is reported to the insurer in accordance with the terms of the policy to the time the claim is paid. After the claim is paid, the debtor shall be responsible for the payment of any towing or storage charges.
SECTION 4. Section 83-54-25, Mississippi Code of 1972, is amended as follows:
83-54-25. (1) A creditor shall not impose charges, including premium costs and related interest and finance charges, on a debtor for creditor-placed insurance coverage unless adequate disclosure of the requirement to maintain insurance has been made to the debtor. Adequate disclosure is accomplished if the following occurs:
(a) The credit agreement sets forth the requirement that the debtor must maintain insurance on the collateral as provided for in Section 83-54-21;
(b) The creditor makes reasonable efforts to notify the debtor of the requirement to maintain insurance and allows a reasonable time for compliance with this requirement;
(c) A final notice as required by this chapter is sent to the debtor; and
(d) If creditor-placed insurance coverage is issued, a copy of the policy or certificate, with disclosure of premium charged, is sent to the debtor as provided for in Section 83-54-13.
(2) After adequate disclosure of the request to maintain insurance has been made to the debtor as required by this section, a creditor may proceed to impose charges for creditor-placed insurance if the debtor fails to provide evidence of insurance. A creditor may impose charges no earlier than ten (10) calendar days after sending the final notice. However, the charges can be retroactive to the date of exposure to loss.
(3) Reasonable efforts to notify the debtor are accomplished if:
(a) The creditor mails a notice by first-class mail to the debtor's last known address as contained in the creditor's records, stating that the creditor intends to charge the debtor for creditor-placed insurance coverage on the collateral if the debtor fails to provide evidence of the property insurance to the creditor;
(b) The creditor allows the debtor at least twenty (20) calendar days to respond to the notice and provide evidence of acceptable insurance coverage before sending a final notice; and
(c) The creditor sends a final notice in compliance with this section by first-class mail to the debtor's last known address as contained in the creditor's records at least ten (10) calendar days before the cost of insurance is charged to the debtor by the creditor. Proof of the mailing of the final notice shall be retained for at least three (3) years following the expiration or termination of the coverage or as otherwise required by law. A register of letters shall be deemed sufficient proof to satisfy this requirement.
(4) The initial notice shall be in a form determined by the creditor to remind the debtor of the requirement to maintain insurance on the collateral. The final notice shall be as complete as the following notice, printed in not less than twelve (12) point type, and modified where necessary to fit the nature of the credit transaction:
"FINAL NOTICE
Your credit agreement with us requires you to have property insurance on the collateral and/or liability insurance as required by the Motor Vehicle Safety-Responsibility Law until you pay off your loan. You have not given us proof that you have the required insurance * * *. You can ask your insurance company or agent to give us proof of insurance or you can send us proof you have property and/or liability insurance as required in your credit agreement within ten (10) calendar days after the date this letter was postmarked. If you do not, we will charge you for the insurance we buy.
You must pay for the * * * insurance we buy. It may cost more than insurance you can buy on your own. The premium of the insurance we buy may be added to your loan balance and we may charge you interest on it. You will be charged interest on the premium at the rate of __________ per annum.
* * *
We may receive compensation for placing this insurance, which is included in the cost of coverage charged to you.
The property and/or liability coverage we buy will start on the date shown in the policy or certificate, which may go back to the date of the loan or the date your prior coverage stopped. We will cancel the insurance we bought for you and give you a refund or credit of unearned charges if you give us proof you have bought * * * insurance somewhere else or if you have paid off the loan."
(5) All creditor-placed insurance shall be set forth in an individual policy or certificate of insurance. Not earlier than the sending of the final notice nor fifteen (15) days after a charge is made to the debtor for creditor-placed insurance coverage, the creditor shall cause a copy of the individual policy, certificate or other evidence of insurance coverage evidencing the creditor-placed insurance coverage to be sent, first-class mail, to the debtor's last known address.
(6) A creditor's compliance with or failure to comply with this chapter shall not be construed to require the creditor to purchase property insurance coverage on the collateral nor liability insurance coverage on the debtor, and the creditor shall not be liable to the debtor or a third party as a result of its failure to purchase the insurance.
SECTION 5. This act shall take effect and be in force from and after July 1, 2005.