HB2560 - 512R

Be it enacted by the Legislature of the State of Arizona:

Section 1. Title 20, Arizona Revised Statutes, is amended by adding chapter 23, to read:

CHAPTER 23

INSURANCE COMPLIANCE SELF‑EVALUATIVE PRIVILEGE

ARTICLE 1. GENERAL PROVISIONS

START_STATUTE20-3301. Definitions

In this article, unless the context otherwise requires:

1. "Insurance compliance audit" means a voluntary, internal evaluation, review, assessment, audit or investigation for the purpose of identifying or preventing noncompliance with or promoting compliance with laws, regulations, orders or industry or professional standards that is conducted by or on behalf of a company licensed or regulated under this title, or that involves an activity regulated under this title.

2. "Insurance compliance self‑evaluative audit document":

(a) Means documents prepared as a result of or in connection with an insurance compliance audit.

(b) Includes any of the following:

(i) An insurance compliance audit report prepared by an auditor, who may be an employee of the company or an independent contractor, which may include the scope of the audit, the information gained in the audit and conclusions and recommendations, with exhibits and appendices.

(ii) Memoranda and documents analyzing portions or all of the insurance compliance audit report and discussing potential implementation issues.

(iii) An implementation plan that addresses correcting past noncompliance, improving current compliance and preventing future noncompliance.

(iv) Analytic data generated in the course of conducting the insurance compliance audit.

(c) May include a written response to the findings of an insurance compliance audit and field notes and records of observations, findings, opinions, suggestions, conclusions, drafts, memoranda, drawings, photographs, exhibits, computer‑generated or electronically recorded information, phone records, maps, charts, graphs and surveys if this supporting information is collected or developed for the primary purpose and in the course of an insurance compliance audit. END_STATUTE

START_STATUTE20-3302. Insurance compliance self‑evaluative privilege; requirements

A. Except as provided in subsections B and C of this section, an insurance compliance self‑evaluative audit document is privileged information and is not discoverable or admissible as evidence in any legal action in any civil, criminal or administrative proceeding. This privilege is a matter of substantive law of this State and is not merely a procedural matter governing civil or criminal proceedings in the courts of this State. The following provisions apply to the privilege:

1. If any company, person or entity performs or directs the performance of an insurance compliance audit, an officer, employee or agent involved with the insurance compliance audit or any consultant who is hired for the purpose of performing the insurance compliance audit may not be examined in any civil, criminal or administrative proceeding as to the insurance compliance audit or any insurance compliance self‑evaluative audit document.

2. In connection with examinations conducted under this title, a company may voluntarily submit an insurance compliance self‑evaluative audit document to the director or the director's designee as a confidential document without waiving the privilege set forth under this subsection to which the company would otherwise be entitled, except that any other provision of law permitting the director to make confidential documents public or accessible to the national association of insurance commissioners does not apply to a voluntarily submitted insurance compliance self‑evaluative audit document. To the extent that the director has the authority to compel the disclosure of an insurance compliance self‑evaluative audit document under other provisions of applicable law, any such report furnished to the director may not be provided to any other person or entity and shall be accorded the same confidentiality and other protections as provided for voluntarily submitted documents. If the director compels disclosure of an insurance compliance self‑evaluative audit document, the document may be used only to determine whether or not any disclosed defects in an insurer's policies and procedures or inappropriate treatment of customers has been remedied or that an appropriate plan for their remedy is in place.

3. If a company submits an insurance compliance self‑evaluative audit document to the director, the document remains:

(a) Subject to all applicable statutory or common law privileges, including the work product doctrine, attorney‑client privilege or the subsequent remedial measures exclusion.

(b) The property of the company and is not subject to any disclosure or production.

4. Disclosure of an insurance compliance self‑evaluative audit document to a governmental agency, whether voluntary or pursuant to compulsion of law, does not constitute a waiver of the privilege set forth under this subsection with respect to any other person or governmental agency.

B. The privilege set forth under subsection A of this section does not apply under the following circumstances:

1. To the extent that it is expressly waived by the company that prepared or caused to be prepared the insurance compliance self‑evaluative audit document.

2. In a civil or administrative proceeding, a court of record, after an in camera review, may require disclosure of material for which the privilege set forth under subsection A of this section is asserted if the court determines one of the following:

(a) The privilege is asserted for a fraudulent purpose.

(b) The material is not subject to the privilege.

3. In a criminal proceeding, a court of record, after an in camera review, may require disclosure of material for which the privilege described under subsection A of this section is asserted if the court determines one of the following:

(a) The privilege is asserted for a fraudulent purpose.

(b) The material is not subject to the privilege.

(c) The material contains evidence relevant to the commission of a criminal offense and all three of the following factors are present:

(i) The director or attorney general has a compelling need for the information.

(ii) The information is not otherwise available.

(iii) The director or attorney general is unable to obtain the substantial equivalent of the information by any other means without incurring unreasonable cost and delay.

C. Within thirty days after the director or attorney general serves on an insurer a written request by certified mail for disclosure of an insurance compliance self‑evaluative audit document, the company that prepared or caused the document to be prepared may file with the appropriate court a petition requesting an in camera hearing on whether the insurance compliance self‑evaluative audit document or portions of the document are privileged under this section or subject to disclosure. The court has jurisdiction over a petition filed by a company under this subsection requesting an in camera hearing on whether the insurance compliance self‑evaluative audit document or portions of the document are privileged or subject to disclosure. The company's failure to file a petition waives the privilege for this request only. If a company files a petition for an in camera hearing pursuant to this subsection, the following apply:

1. The petition shall include all of the information set forth in paragraph 4 of this subsection.

2. Within forty‑five days after the filing of the petition, the court shall issue an order scheduling an in camera hearing to determine whether the insurance compliance self‑evaluative audit document or portions of the document are privileged under this section or subject to disclosure.

3. After an in camera review, the court may require disclosure of material for which the privilege under subsection A of this section is asserted if the court determines, based on its in camera review, that any one of the conditions set forth in subsection B, paragraph 2 applies to a civil or administrative proceeding or that any one of the conditions set forth in subsection B, paragraph 3 applies to a criminal proceeding. On making this determination, the court may only compel the disclosure of those portions of an insurance compliance self‑evaluative audit document that are relevant to issues in dispute in the underlying proceeding. Any compelled disclosure will not be considered to be a public document or be deemed to be a waiver of the privilege for any other civil, criminal or administrative proceeding. A party unsuccessfully opposing disclosure may apply to the court for an appropriate order protecting the document from further disclosure.

4. At the time of filing an objection to the disclosure, the company shall provide to the director or attorney general, as appropriate, all of the following information:

(a) The date of the insurance compliance self-evaluative audit document.

(b) The identity of the entity conducting the audit.

(d) An identification of the portions of the insurance compliance self‑evaluative audit document for which the privilege is being asserted.

D. A company asserting the insurance compliance self‑evaluative privilege set forth under subsection A of this section has the burden of demonstrating the applicability of the privilege. Once a company has established the applicability of the privilege, the party seeking disclosure under subsection B, paragraph 2, subdivision (a) of this section has the burden of proving that the privilege is asserted for a fraudulent purpose. The director or attorney general seeking disclosure under subsection B, paragraph 3 of this section has the burden of proving the elements set forth in subsection B, paragraph 3 of this section.

E. At any time, the parties may stipulate in proceedings under subsection B or C of this section to entry of an order directing that specific information contained in an insurance compliance self‑evaluative audit document is or is not subject to the privilege provided under subsection A of this section. The stipulation may be limited to the instant proceeding and, absent specific language to the contrary, is not applicable to any other proceeding.

F. The privilege set forth under subsection A of this section does not extend to any of the following:

1. Documents, communications, data, reports or other information expressly required to be collected, developed, maintained or reported to a regulatory agency pursuant to this title or other federal or state law.

2. Information obtained by observation or monitoring by any regulatory agency.

3. Information obtained from a source independent of the insurance compliance audit.

G. This section or the release of any self‑evaluative audit document under this section does not limit, waive or abrogate the scope or nature of any statutory or common law privilege including the work product doctrine, the attorney‑client privilege or the subsequent remedial measures exclusion.END_STATUTE

Sec. 2. Applicability

The insurance compliance self‑evaluative privilege established in title 20, chapter 23, Arizona Revised Statutes, as added by this act, applies to all litigation and administrative proceedings pending on the effective date of this act.