House Insurance Committee Meeting Notes - January 29, 2025

• HB 1271: Clarifying Lender Priority in Real Estate Construction Projects - Passed
• HB 1273: Establishing Priority of Purchase Money Mortgages - Passed
• HB 1205: Expanding Entities to Accredit Factory-Built Structure Inspectors - Passed
• HB 1238: Authorizing Award of Attorney Fees in Foreclosure Cases - Passed
• HB 1237: Prohibiting Post-Accident Solicitation of Accident Victims by Medical Providers (30-Day Ban) - Passed
• SB 76: Enhancing Competition in the Insurance Surplus Lines Market - Passed
• SB 70: Increasing Notification Period for Insurance Rate Increases - Passed

HB 1271: Clarifying Lender Priority in Real Estate Construction Projects 

Sponsor: Representative Les Warren

Presenters: Representative Les Warren, Wes Lasseigne (Arkansas Land Title Association)

Summary: This bill aims to clarify the priority of liens on real estate projects where construction begins before the mortgage is filed. Current Arkansas law can prioritize workers and material providers ahead of the lender, even if their work is done before the mortgage is filed. This bill seeks to "stop the bleed" by prioritizing the lender's claim after the mortgage is filed. It introduces the concept of an "affidavit of non-commencement," which establishes lender priority if an inspection confirms no work has begun. This affidavit can be contested if fraud is proven. The bill also removes the "Doctrine of Relation back," which currently gives priority to the last person who performed work, even if the mortgage was filed after their work commenced. This change is intended to facilitate construction loan closings by giving lenders a clearer first-priority position.

Lasseigne: Explained the two key components of the bill: the affidavit of non-commencement and the removal of the Doctrine of Relation back. He emphasized that while the bill adjusts lien priority related to the lender, it does not diminish the lien rights of contractors and material providers.

Warren: Stated the bill is designed to address a long-standing issue and protect lending institutions by clarifying their priority after any pre-mortgage work is accounted for.

Questions and Discussion:

• Rep. Fred Allen: Inquired about the priority of a company that starts construction before the mortgage is filed. Lasseigne clarified that they would still have priority if they had actually done work, unless an affidavit of non-commencement had been filed. A painter, however, who is scheduled to do work later would not have that same priority.
• Rep. McGrew: Raised concerns about the impact on contractors' ability to collect payment if the bank has priority and chooses not to pay. Lasseigne reiterated that lien rights remain and that lenders typically require sign-offs confirming payment before closing.
• Rep. Jim Wooten: Asked about the process for ensuring all outstanding debts and liens are identified before closing. Lasseigne explained that lenders usually require mortgage interest insurance, which involves underwriting that necessitates verifying no outstanding debts related to construction. He also confirmed that title reviewers would conduct research to verify this. Warren added that banks will require sign-offs confirming payment.

Outcome: Passed

HB 1273: Establishing Priority of Purchase Money Mortgages Over DFA Liens

Sponsor: Representative Les Warren

Summary: This bill aligns Arkansas law with IRS practices regarding purchase money mortgages. When someone buys real estate with a combination of cash and a loan, the loan is considered a purchase money mortgage. The bill ensures that any lien held by the Department of Finance and Administration (DFA) is inferior to this purchase money mortgage. The DFA supports the bill.

Outcome: Passed

HB 1205: Expanding Entities Authorized to Accredit Modular/Factory-Built Structure Inspectors

Sponsor: Representative Mary Bentley

Summary: This bill amends existing legislation to allow for additional entities to accredit compliance and inspection contractors for manufacturers of modular or factory-built structures. Previously, only one entity was authorized.

Bentley: Explained that the bill adds another entity that can accredit compliance and inspection contractors for manufacturers of modular or factory-built structures. She confirmed that all relevant associations support the bill.

Questions and Discussion:

• Rep. Carol Dalby: Asked if the contractors will still be held to the ISO group standard. Bentley confirmed that they will.

Outcome: Passed

HB 1238: Authorizing Award of Attorney Fees in Foreclosure Cases

Sponsor: Representative Frances Cavenaugh

Summary: This bill allows judges to award attorney fees to landowners in foreclosure cases.

Outcome: Passed

HB 1237: Prohibiting Post-Accident Solicitation of Accident Victims by Medical Providers (30-Day Ban)

Sponsor: Representative Jay Richardson

Presenter: William Buckley (Attorney, Fort Smith)

Summary: This bill aims to prevent the targeted solicitation of accident victims by medical providers within 30 days of the accident. Current practices often involve "runners" who contact victims shortly after accidents, sometimes misrepresenting themselves as being affiliated with insurance companies, and steer them towards specific medical providers. This bill prohibits such targeted solicitation by medical providers for 30 days post-accident. It provides a mechanism for victims to be reimbursed for bills incurred due to such solicitation, along with attorney fees, and also allows for prosecution of fraud and private causes of action against providers who violate the law.

Buckley: Testified about the increasing problem of his clients being contacted by individuals claiming to be from insurance companies within days of an accident. He described how these "runners" often pressure accident victims into visiting specific medical providers, leading to inflated bills and potentially unnecessary treatments. He shared examples of clients who felt pressured and confused after an accident, making them vulnerable to these solicitations. He argued that this bill protects vulnerable individuals and helps curb this predatory practice.

Questions and Discussion:

• Rep. Les Eaves: Inquired about payment to healthcare providers if a patient seeks treatment within the 30-day period. Buckley clarified that providers would have to reimburse if they violated the law and received payment. He also discussed the difficulty of proving violations, suggesting evidence like phone records or doorbell camera footage could be used. Eaves also explored the line between targeted solicitation and general advertising, asking about mailers. Buckley clarified that general advertising and mailers are still permissible, but direct contact like phone calls, texts, and in-person visits are prohibited.
  
  
• Rep. Dwight Tosh: Clarified that the bill prohibits medical professionals, not insurance companies, from soliciting (unless the medical facility is using the insurance company as their agent). Tosh also questioned the extent of the problem.
  
  
• Rep. John Maddox: Shared an anecdote about patients coming to the ER after being contacted and told to get checked out, even without experiencing pain, highlighting the potential for unnecessary medical costs. This illustrated the real-world impact of these solicitations.
  
  
• Rep. Zack Gramlich: Asked who is perpetrating these solicitations, specifically naming insurance companies, chiropractors, and "reps." Buckley confirmed that these are people misrepresenting insurance companies.
  
  
• Rep. Austin McCollum: Questioned why digital outreach by licensed professionals is considered more intrusive. Buckley emphasized the timing of the outreach, often within hours of the accident, and the pressure it puts on victims. He contrasted this with mail, which allows for more considered responses.
  
  
• Rep. Robin Lundstrum: Expressed confusion about the distinction between this type of solicitation and door-to-door sales.
  
  
• Rep. Mark Perry: Shared a personal experience of a family member being contacted immediately after an accident and directed to specific providers, providing a concrete example of the problem the bill aims to address. He recounted the timeline of the calls, emphasizing how quickly they occurred after the accident.
  
  
• Rep. Jim Wooten: Asked if there is evidence of inflated medical prices in these cases. Buckley confirmed, citing an example of a $1,500 initial chiropractic visit that should have cost $200-$300. He also asked if this would help with insurance premiums, to which Buckley responded that he believed it would.
  
  
• Rep. Tosh: Inquired about the penalties for violations. Buckley stated that violations are a Class D Felony, and that wrongful gains must be repaid with attorney fees, and that individuals have private causes of action. He also asked about penalties for attorneys violating similar rules, to which Buckley responded that it would likely result in disbarment or a malpractice suit.
  
  

Public Comment:

• Robbie Wills (WSG Consulting): Represented clients opposed to the bill. He acknowledged the problem and mentioned Act 515 from 2013, which regulates healthcare marketing through procurers, as well as a similar rule passed by the Board of Chiropractic Examiners in 1999 that was later overturned by the Arkansas Supreme Court under a right to commercial speech argument, as long as it is not deceptive. He questioned the constitutionality of this new bill.

Closing:

• Buckley: Asserted the constitutionality of the bill, citing similar statutes that have been upheld. He distinguished the overturned case mentioned by Wills, noting that it lacked a time limit and a defined class of victims, both of which are present in this bill. He expressed confidence that this bill would survive judicial scrutiny.

Outcome: Passed

SB 76: Enhancing Competition in the Insurance Surplus Lines Market

Sponsor: Representative Trey Steimel

Summary: This bill aims to create a more competitive insurance surplus lines market in Arkansas. This market deals with insurance for risks that standard insurance companies won't cover. The goal is to make it easier for Arkansans to find coverage for these specialized needs.

Outcome: Passed unanimously out of the Senate.

SB 70: Increasing Notification Period for Insurance Rate Increases (Agent: 60 Days, Consumer: 30 Days)

Sponsor: Representative Robin Lundstrum

Summary: This bill increases the notification period for insurance rate increases. Currently, insurance agents receive a 30-day notice that a client's rate is going up, and the consumer receives a 10-day notice. This bill would extend those periods to 60 days for agents and 30 days for consumers. This gives both agents and consumers more time to shop around for alternative insurance plans if they are unhappy with the rate increase.

Outcome: Passed