Client Alert UPDATE: Georgia Department Of Insurance Proposes Permanent Regulation Of Auto Clubs

In response to the Georgia Supreme Court ruling earlier this year affecting auto clubs transacting business in the State of Georgia, the Georgia Department of Insurance adopted Emergency Regulation Chapter 120-2-47-0.17 entitled, “Vehicle and Automobile Club Service Contracts.” On December 9, 2005, the Georgia Department of Insurance will hold a hearing for the purpose of adopting a permanent regulation which was adopted on an emergency basis as Chapter 120-2-47. The Georgia Department of Insurance drafted the emergency regulation in response to the ruling of Love et al. v. Money Tree, Inc., NO S04G1474 (Ga. June 6, 2005) by the Georgia Supreme Court.  The emergency regulation required that providers of auto club memberships must obtain insurance coverage on the risk resulting from the sale of auto club memberships, file a copy of the service contract with the Georgia Commissioner of Insurance, and conspicuously disclose the identity of the insurance company to the purchaser of the auto club membership.

In our Client Alert dated July 29, 2005, we reported on the ruling of Love v. The Money Tree. By unanimous decision, the Court found that the sale of memberships in automobile clubs constituted the sale of insurance and triggered the McCarran-Ferguson Act, thus preempting the Federal Arbitration Act (“FAA”) and prohibiting the enforcement of the arbitration clause contained in the auto club’s service agreement. The Georgia Attorney General previously issued Opinion 76-59, Automobile or Motor Club Benefits dated June 11, 1976 that opined that the plans offered by Automobile Clubs are insurance. However, the Georgia courts and the Georgia Insurance Department had not acted upon that Opinion until the Love v. The Money Tree decision.

There are only two substantive changes proposed that would amend the language adopted in the Emergency Regulation.  The first change would by allow the provider of the service contract to be a named insured under a service contract reimbursement insurance policy issued by a surplus lines insurer and which is provided by a licensed surplus lines broker. The Emergency Regulation did not permit the purchase of a surplus lines insurance policy by the provider of the service contract.

The second change would require that any insurer that has filed, and had their reimbursement policy accepted by the Commissioner, shall file with the Commissioner, at least quarterly, a report updating a list of providers insured under their program.

Interested persons may participate in the proposed rulemaking by submitting their written comments by 4:30 P.M. on December 2, 2005.  Interested persons may also participate in the proposed rulemaking by submitting oral comments at a hearing to be held at 10:00 A.M. on Friday, December 9, 2005, in the Hearing Room of the Office of Commissioner of Insurance, Seventh Floor, West Tower, Floyd Building, Two Martin Luther King, Jr. Drive, Atlanta, Georgia 30334.

Lord Bissell & Brook LLP is working with the Georgia Auto Club Coalition to address this important matter affecting all auto clubs transacting business in the State of Georgia.