ASSEMBLY BILL NO. 3802
(First Reprint)
To the General Assembly:
Pursuant to Article V, Section I, Paragraph 14 of the New Jersey Constitution, I am returning Assembly Bill No. 3802 (First Reprint) with my recommendations for reconsideration.
Assembly Bill No. 3802 (First Reprint) would amend the definition of “legal insurance” in the "New Jersey Legal Services Insurance Act," N.J.S.A. 17:46C-1 et seq. (the “Act”), to provide that arrangements through which consumers prepay for specified legal services through an organization that contracts directly with attorneys for the provision of those services are not legal insurance. Under the bill, an organization that pays attorneys fixed, pre-arranged payments to perform legal services, with the attorneys receiving no additional payment or reimbursement from the organization for such services, would no longer be considered an insurance product and would be free from regulation by the Department of Banking and Insurance (“DOBI”) under the Act.
For decades, these types of products have been regulated, ensuring that policies are understandable for consumers, legal insurance is sold through properly qualified and licensed agents, and legal insurers are financially sound and maintain adequate reserves to provide promised benefits.
The Act’s regulatory scheme is intended to protect consumers by ensuring that minimum standards are met and that consumers are not at risk of confusion or being intentionally or unintentionally misled. DOBI also approves all policy forms, rating systems, and rates. Assembly Bill No. 3802 (First Reprint) would remove certain types of prepaid arrangements for legal services from both the regulatory scheme established by the Act, and from DOBI oversight, essentially deregulating a product that has been regulated for decades. The proponents of this bill suggest that the Judiciary’s regulation of attorneys provides adequate oversight of these products and have questioned whether DOBI is the proper regulatory agency to oversee them. I do not agree that existing regulation of attorney conduct alone is sufficient to justify exempting prepaid arrangements for legal services from regulation. A regulatory framework specific to these products is necessary to ensure the protection of consumers who utilize them.
Nevertheless, after reviewing the public commentary on the bill and hearing from the bill’s proponents, I understand that the nature of legal insurance products has evolved in the years since the enactment of the Act. In light of the changing legal insurance market, I am suggesting amendments that will lessen the regulatory burden imposed under the Act, with respect to the types of prepaid legal insurance plans described in the bill, by allowing employees and authorized representatives of certain legal insurers to sell prepaid legal insurance plan products to consumers without being subject to individual producer licensure. To ensure that consumers remain adequately protected, the entity issuing the prepaid legal insurance plan will be required to closely supervise its employees and authorized representatives and to ensure that they are properly trained. The changes that I am recommending will modernize our licensing system and make it easier for businesses to operate in the State while still providing expansive safeguards, including form and rate standards, to protect consumers from fraud, deceit, misrepresentation, and professional misconduct.
Therefore, I herewith return Assembly Bill No. 3802 (First Reprint) and recommend that it be amended as follows:
Page 2, Title, Line 1: Delete “amending” and insert “supplementing”
Page 2, Title, Line 1: After “P.L.1981, c.160” insert “(C.17:46C-1 et seq.)”
Page 2, Section 1, Line 6: Delete “Section 3 of P.L.1981, c.160 (C.17:46C-3) is amended to read” and insert “a. A prepaid legal insurance plan shall be considered “legal insurance” subject to all provisions of the “New Jersey Legal Services Insurance Act” except as provided in this section. Notwithstanding the provisions of any other law to the contrary, a person shall not sell, or offer to sell, coverage under a prepaid legal insurance plan unless licensed as a limited lines prepaid legal insurance plan producer pursuant to the provisions of the “New Jersey Insurance Producer Licensing Act of 2001,” P.L.2001, c.210 (C.17:22A-26 et seq.) or as authorized under this section. Notwithstanding the provisions of section 14 of P.L.1981, c.160 (C.17:46C-14) or any law to the contrary, a person authorized to sell or offer to sell prepaid legal insurance plans to consumers under this section may be paid commissions through an entity or a designated representative of the entity that obtains a limited lines prepaid legal insurance producer plan license.
b. The employees and authorized representatives of an entity that obtains a certificate of authority under the “New Jersey Legal Services Insurance Act,” P.L.1981, c.160 (C.17:46C-1 et seq.), may sell or offer to sell prepaid legal insurance plans to consumers as permitted by this section and shall not be subject to individual licensure as an insurance producer under P.L.2001, c.210 (C.17:22A-26 et seq.) as a condition of selling or offering to sell prepaid legal insurance plans to consumers, provided that:
(1) The entity or a designated representative of the entity obtains a limited lines prepaid legal insurance producer plan license to authorize its employees or authorized representatives to sell or offer prepaid legal insurance plans pursuant to this section;
(2) The entity possessing the certificate of authority and issuing the prepaid legal insurance plan either directly supervises, or appoints a supervising entity that is a licensed limited lines prepaid legal insurance plan producer to supervise, the employees and authorized representatives selling or offering to sell prepaid legal insurance plans pursuant to this section; and
(3) The entity possessing the certificate of authority and issuing the prepaid legal insurance plans develops a training program for employees selling or offering to sell prepaid legal insurance plans. The training required by this paragraph shall: (a) be delivered to every employee and authorized representative who is directly engaged in the activity of selling or offering prepaid legal insurance plans; and (b) include basic instruction about the prepaid legal insurance plans offered to consumers including the provisions of the prepaid legal insurance plan and the requirements of the “New Jersey Legal Services Insurance Act,” P.L.1981, c.160 (C.17:46C-1 et seq.).
c. Consistent with the provisions of the “New Jersey Insurance Producer Licensing Act of 2001,” P.L.2001, c.210 (C.17:22A-26 et seq.), an application for a limited lines insurance producer license under this section shall be made to and filed with the Department of Banking and Insurance on forms prescribed and furnished by the commissioner.
d. Limited lines prepaid legal insurance plan producer licenses issued pursuant to this section shall renew biennially in accordance with regulations promulgated by the commissioner.
e. Each entity shall pay to the commissioner a fee as prescribed by the commissioner for an initial limited lines prepaid legal insurance plan producer license and for each renewal thereof.
f. For purposes of this section, “prepaid legal insurance plan” means legal insurance that consists of an arrangement through which members prepay for specified legal services, which are available to the members, or their dependents, through an organization that contracts directly with attorneys for the provision of the specified legal services and the organization pays the attorneys fixed, pre-arranged payments and the attorneys receive no additional payment or reimbursement from the organization for the specified legal services or the specified legal expenses.”
Page 2, Section 1, Lines 7-44: Delete in their entirety
Page 3, Section 1, Lines 1-30: Delete in their entirety
Respectfully,
[seal]
/s/ Philip D. Murphy
Governor
Attest:
/s/ Kate E. McDonnell
Chief Counsel to the Governor