NORTH CAROLINA GENERAL ASSEMBLY
1979 SESSION

CHAPTER 755
HOUSE BILL 707

AN ACT TO PROVIDE FOR READABLE INSURANCE POLICIES AND TO PROVIDE FOR CONSUMERS' GUIDES FOR AUTOMOBILE AND HOMEOWNERS' INSURANCE LINES.

The General Assembly of North Carolina enacts:

Section 1.  General Statutes Chapter 58 is amended by adding a new Article to read:
"ARTICLE 33.
"Readable Insurance Policies.
"§ 58-360.  Title. — This Article is known and may be cited as the 'Readable Insurance Policies Act'.
"§ 58-361.  Purpose. — The purpose of this Article is to provide that insurance policies and contracts be readable by a person of average intelligence, experience, and education. All insurers are required by this Article to use policy and contract forms and, where applicable, benefit booklets that are written in simple and commonly used language, that are logically and clearly arranged, and that are printed in a legible format.
"§ 58-362.  Scope of application. — (a) Except as provided in subsection (b) of this section, the provisions of this Article apply to the policies and contracts of direct insurance that are described in G.S. 58-367(a).
(b)	Nothing in this Article applies to:
(1)	any policy that is a security subject to federal jurisdiction;
(2)	any group policy covering a group of 1,000 or more lives at date of issue, other than a group credit life insurance policy, nor any group policy delivered or issued for delivery outside of this State; however, this does not exempt any certificate issued pursuant to a group policy delivered or issued for delivery in this State;
(3)	any group annuity contract that serves as a funding vehicle for pension, profit-sharing, or deferred compensation plans;
(4)	any form used in connection with, as a conversion from, as an addition to, or in exchange pursuant to a contractual provision for, a policy delivered or issued for delivery on a form approved or permitted to be issued prior to the dates such forms must be approved under this Article;
(5)	the renewal of a policy delivered or issued for delivery prior to the date such policy must be approved under this Article; nor
(6)	insurers who issue benefit booklets on group and nongroup bases for the policies described in G.S. 58-367(a)(2). In such cases, the provisions of this Article apply to the benefit booklets furnished to the persons insured.
(c)	No other provision of the General Statutes setting language simplification standards shall apply to any policy forms covered by this Article.
(d)	Any non-English language policy delivered or issued for delivery in this State shall be deemed to be in compliance with this Article if the insurer certifies that such policy is translated from an English language policy which does comply with this Article.
"§ 58-363.  Definitions. — As used in this Article, unless the context clearly indicates otherwise:
(1)	'Benefit booklet' means any written explanation of insurance coverages or benefits issued by an insurer and which is supplemental to and not a part of an insurance policy or contract.
(2)	'Commissioner' means the Commissioner of Insurance.
(3)	'Flesch scale analysis readability score' means a measurement of the case of readability of an insurance policy or contract made pursuant to the procedures described in G.S. 58-367.
(4)	'Insurance policy or contract' or 'policy' means an agreement as defined by G.S. 58-3.
(5)	'Insurer' means every person entering insurance policies or contracts as a principal, as described in G.S. 58-2(2).
(6)	'Person' means any individual, corporation, partnership, association, business trust, or voluntary organization.
"§ 58-364.  Format requirements. — (a) All insurance policies and contracts covered by G.S. 58-367 must be printed in a typeface at least as large as 10 point modern type, one point leaded, be written in a logical and clear order and form, and contain the following items:
(1)	on the cover, first, or insert page of the policy a statement that the policy is a legal contract between the policy owner and the insurer and the statement, printed in larger or other contrasting type or color, 'Read your policy carefully';
(2)	an index of the major provisions of the policy, which may include the following items:
a.	the person or persons insured by the policy;
b.	the applicable events, occurrences, conditions, losses, or damages covered by the policy;
c.	the limitations or conditions on the coverage of the policy;
d.	definitional sections of the policy;
e.	provisions governing the procedure for filing a claim under the policy;
f.	provisions governing cancellation, renewal, or amendment of the policy by either the insurer or the policyholder;
g.	any options under the policy; and
h.	provisions governing the insurer's duties and powers in the event that suit is filed against the insured.
(b)	In determining whether or not a policy is written in a logical and clear order and form the Commissioner must consider the following factors:
(1)	the extent to which sections or provisions are set off and clearly identified by titles, headings, or margin notations;
(2)	the use of a more readable format, such as narrative or outline forms;
(3)	margin size and the amount and use of space to separate sections of the policy; and
(4)	contrast and legibility of the colors of the ink and paper and the use of contrasting titles or headings for sections.
"§ 58-365.  Flesch scale analysis readability score; procedures. — (a) A Flesch scale analysis readability score will be measured as provided in this section.
(b)	For policies containing 10,000 words or less of text, the entire policy must be analyzed. For policies containing more than 10,000 words, the readability of two 200-word samples per page may be analyzed in lieu of the entire policy. The samples must be separated by at least 20 printed lines. For the purposes of this subsection a word will be counted as five printed characters or spaces between characters.
(c)	The number of words and sentences in the text must be counted and the total number of words divided by the total number of sentences. The figure obtained must be multiplied by a factor of 1.015. The total number of syllables must be counted and divided by the total number of words. The figure obtained must be multiplied by a factor of 84.6. The sum of the figures computed under this subsection subtracted from 206.835 equals the Flesch scale analysis readability score for the policy.
(d)	For the purposes of subsection (c) of this section the following procedures must be used:
(1)	a contraction, hyphenated word, or numbers and letters, when separated by spaces, will be counted as one word;
(2)	a unit of words ending with a period, semicolon, or colon, but excluding headings and captions, will be counted as a sentence; and
(3)	a syllable means a unit of spoken language consisting of one or more letters of a word as divided by an accepted dictionary. Where the dictionary shows two or more equally acceptable pronunciations of a word, the pronunciation containing fewer syllables may be used.
(e)	The term 'text' as used in this section includes all printed matter except the following:
(1)	The name and address of the insurer; the name, number or title of the policy; the table of contents or index; captions and subcaptions; specification pages, schedules or tables; and
(2)	Any policy language that is drafted to conform to the requirements of any law, regulation, or agency interpretation of any state or the federal government; any policy language required by any collectively bargained agreement; any medical terminology; and any words that are defined in the policy: Provided, however, that the insurer submits with his filing under G.S. 58-366 a certified document identifying the language or terminology that is entitled to be excepted by this subdivision.
"§ 58-366.  Filing requirements, duties of the Commissioner. — (a) No insurer may make, issue, amend, or renew any insurance policy or contract after the dates specified in G.S. 58‑367 for the applicable type of insurance unless the policy is in compliance with the provisions of G.S. 58-364 and G.S. 58-365 and unless the policy is filed with the Commissioner for his approval. The policy will be deemed approved 90 days after filing unless disapproved within the 90-day period. The Commissioner may not unreasonably withhold his approval. Any disapproval must be delivered to the insurer in writing and must state the grounds for disapproval. Any policy filed with the Commissioner must be accompanied by a certified Flesch scale readability analysis and test score and by the insurer's certification that the policy is, in the insurer's judgment, readable based on the factors specified in G.S. 58-364 and G.S. 58-365.
(b)	The Commissioner must disapprove any policy covered by subsection (a) of this section if he finds that:
(1)	it is not accompanied by a certified Flesch scale analysis readability score as follows:
a.	as to policies covered by G.S. 58-367(a)(1): after July 1, 1980, but before July 1, 1981, a score of 40 or more, and after June 30, 1981, a score of 50 or more;
b.	as to policies covered by G.S. 58-367(a)(2): after July 1, 1981, but before July 1, 1982, a score of 40 or more, and after June 30, 1982, a score of 50 or more.
(2)	it is not accompanied by the insurer's certification that the policy is, in the judgment of the insurer, readable under the standards of this Article; or
(3)	it does not comply with the format requirements of G.S. 58-364.
"§ 58-367.  Application to policies; dates; duties of the Commissioner. — (a) The filing requirements of G.S. 58-366 apply as follows:
(1)	as described in Article 12B of this Chapter, to all policies of private passenger nonfleet motor vehicle insurance, to all policies of insurance against loss to residential real property with not more than four housing units located in this State and any contents thereof and valuable interest therein, and other insurance coverages written in connection with the sale of such property insurance, that are made, issued, amended, or renewed after July 1, 1980; and
(2)	to all policies of life insurance as described in Article 22 of this Chapter, to all benefit certificates issued by fraternal orders and societies as described in Subchapter VII of this Chapter, to all policies of accident and health insurance as described in Subchapter VI of this Chapter, to all subscribers' contracts of hospital, medical, and dental service corporations as described in General Statutes Chapter 57, and to all health maintenance organization evidences of coverage as described in General Statutes Chapter 57A, that are made, issued, amended, or renewed after July 1, 1981; and
(b)	The Commissioner must make the following reports to the Legislative Research Commission and the General Assembly:
(1)	on or before March 31, 1980, a report detailing and evaluating the efforts made by the Commissioner and insurers to implement the provisions of subdivision (a)(1) of this section, and particularly examining the feasibility and practicality of requiring accident and health and life insurance policies to comply with the provisions of this Article and in the time prescribed;
(2)	on or before March 31, 1981, a report detailing and evaluating:
a.	the operation of and the extent of compliance with the provisions of this Article;
b.	the efforts made by the Commissioner and insurers to implement the provisions of subdivision (a)(2) of this section; and
(3)	the Commissioner's recommendations regarding the extension of the application of the provisions of this Article to other lines and types of insurance and his reasons therefor.
"§ 58-368.  Construction. — (a) The provisions of this Article will not operate to relieve any insurer from any provision of law regulating the contents or provisions of insurance policies or contracts nor operate to reduce an insured's or beneficiary's rights or protection granted under any statute or provision of law.
(b)	The provisions of this Article shall not be construed to mandate, require, or allow alteration of the legal effect of any provision of any insurance policy or contract.
(c)	In any action brought by a policyholder or claimant arising out of a policy approved pursuant to this Article, the policyholder or claimant may base such an action on either or both (1) the substantive language prescribed by such other statute or provision of law or (2) the wording of the approved policy."
Sec. 2.  G.S. 58-1 76(b) is amended by rewriting lines 4 through 6 to read:
"thereof, on any property in this State, unless it conforms in substance with all of the provisions, stipulations, agreements, and conditions of the policy form in subsection (c) of this section".
Sec. 3.  G.S. 58-176(b) is further amended by striking the fourth paragraph, which begins with the words, "No provision" and ends with the words, "of this section."
Sec. 4.  G.S. 58-176(c), as found in the 1977 Cumulative Supplement to Volume 2B, is amended in line 7 by inserting the words, "in substance" between the words, "shall be" and "as follows".
Sec. 5.  G.S. 58-177 is amended by rewriting lines 4 and 5 to read:
"property in this State other than those of the substance of the standard form as set forth in G.S. 58-176 except as follows:".
Sec. 6.  G.S. 58-177(6) is amended in line 10 by inserting the words, "substance of the" between the words, "the" and "form".
Sec. 7.  G.S. 58-177(7) is amended in line 3 by inserting the words, "substance of" between the words, "the" and "provisions".
Sec. 8.  G.S. 58-250(a)(4) is rewritten to read:
"(4)	The style, arrangement, and overall appearance of the policy, any endorsements, or attached papers give no undue prominence to any portion of the text. For the purpose of this subdivision, 'text' includes all printed matter except the name and address of the insurer, the name or title of the policy, and captions and subcaptions."
Sec. 9.  G.S. 58-251.1(a) is amended by rewriting lines 4 through 8 to read: "provisions specified in this subsection in the substance of the words that appear in this section. Such provisions shall be preceded".
Sec. 10.  G.S. 58-251.1(a)(1) through G.S. 58-251.1(a)(12) are amended by rewriting the words in the first line of each of those subdivisions to read: "A provision in the substance of the following language:".
Sec. 11.  G.S. 58-251.1(b) is amended by rewriting lines 4 through 7 to read: "are in the substance of the words that appear in this section. Any".
Sec. 12.  G.S. 58-251.1(b)(1) through G.S. 58-251.1(b)(11) are amended by rewriting the words in the first line of each of those subdivisions to read: "A provision in the substance of the following language:".
Sec. 13.  G.S. 58-251.2 is amended in line 5 by inserting the words, "in substance" between the words, "include" and "the".
Sec. 14.  G.S. 58-254.2 is amended in line 2 by inserting the words, "the substance of" between the words, "contain the" and "provisions".
Sec. 15.  G.S. 58-254.7 is amended in lines 9 and 11 by substituting the number, "90" for the number, "30".
Sec. 16.  G.S. 58-347(b), as found in the 1977 Cumulative Supplement to Volume 2B, is amended in lines 1 and 6 by substituting the number "90" for the number "30"; and in line 4 by inserting after the word, "Article" the following: ", Article 33 of this Chapter,".
Sec. 17.  G.S. 57-3 is amended in line 18 by inserting the words, "in substance" after the word, "contain".
Sec. 18.  G.S. 57A-8(c), as found in the 1977 Cumulative Supplement to Volume 2B, is amended in line 8 by substituting the number, "90" for the number, "30".
Sec. 19.  G.S. 58-9 is amended by adding a new subsection to read:
"(8)	Compile and make available to the public such lists of rates charged, including deviations, and such explanations of coverages that are provided by insurers for and in connection with contracts or policies of (1) insurance against loss to residential real property with not more than four housing units located in this State and any contents thereof or valuable interest therein and other insurance coverages written in connection with the sale of such property insurance and (2) private passenger (nonfleet) motor vehicle liability, physical damage, theft, medical payments, uninsured motorists, and other insurance coverages written in connection with the sale of such insurance, as may be advisable to inform the public of insurance premium differentials and of the nature and types of coverages provided. The explanations of coverages provided for in this section must comply with the provisions of Article 33 of this Chapter."
Sec. 20.  If any provision of this act or its application to any person or circumstances is held invalid by any court of competent jurisdiction, the invalidity will not affect other provisions or applications that can be given effect without the invalid provision or application; and to this end the provisions of this act are severable.
Sec. 21.  Sections 2 through 7 of this act will become effective on July 1, 1980.
Sec. 22.  Sections 8 through 18 of this act will become effective on July 1, 1981.
Sec. 23.  The remaining sections of this act are effective upon ratification.
In the General Assembly read three times and ratified, this the 4th day of June, 1979.