California Insurers Asked to Submit Diversity Information About Boards of Directors

by Robert Hogeboom & Samuel Sorich

The California Department of Insurance (“CDI”) has issued a notification to insurers with 2013 written premiums of $100 million or more in California to complete and submit the CDI’s Governing Board Diversity Survey.

Among other questions, the Survey asks the insurers to report on the number of directors who identify themselves as a man or a woman, how many are comprised from seven different ethnic group categories, and how many are a disabled veteran, lesbian, gay, bisexual, and/or transgender.

Completed surveys, including an affidavit on the data, are to be submitted to the CDI by August 12, 2014. All surveys will be posted on the CDI website by October 1, 2014. The notification advises that survey results will be posted on the CDI’s website and that “[f]ailure to submit a complete report or submit a report by the due date will be noted,” which we presume will be noted on the CDI website.

The Survey stems from a recommendation put forward by the CDI’s Diversity Task Force which was created shortly after the Commissioner office.

Several existing statutes require insurers to submit reports or respond to data calls on other somewhat related topics:

Insurance Code section 926.2 requires each insurer admitted in California to provide information on all its community development investments and community development infrastructure investments in California.

Insurance Code section 926.3 requires each admitted insurer writing $100 million or more in annual premiums in California to file policy statements expressing goals for community development investments and community development infrastructure investments.

Insurance Code section 927.2 requires each admitted insurer writing $100 million or more in annual premiums in California to submit reports on minority, women, and disabled veteran-owned business procurement efforts.

In contrast, there is no statute which specifically states a requirement to report on the diversity of insurance companies’ boards of directors. The department’s notification to insurers does not cite the statutory authority for the Survey.

For copies of the report or questions, please contact Robert W. Hogeboom at rhogeboom@bargerwolen.com or (213) 614-7304.

Recent Victory on Behalf of Medical Supplement Insurers against California Department of Insurance

As a result of the filing of a Writ of Mandate and Declaratory Relief Action by Barger & Wolen LLP Senior Regulatory Counsel Robert W. Hogeboom and Litigation Partner John Holmes, the California Department of Insurance (“CDI”) agreed to cease and desist its practice of requiring insurers to file and pay fees on insurer notices to policyholders policyholder “notices” in connection with Medicare supplement policies. Further, the CDI agreed to refund to each of the plaintiff insurers in the suit all filing fees that had been paid to the CDI since 2012.

The action was filed on behalf of five Torchmark Group insurers who issue Medicare supplement insurance policies in California. Under California Insurance Code (“CIC”) § 10192.14(c), each insurer is required to submit an annual rate filing for each Medicare supplement product to demonstrate compliance with a minimum lifetime loss ratio requirement.   

Since June 2012, the CDI has required insurers which issue Medicare supplement policies to file and seek approval for each form of “notice” to policyholders. The term “notice” was broadly defined by the CDI to include invoices, friendly reminder letters, changes in premium, lapse notices, etc. The CDI alleged that all of these notices were “policy forms” subject to approval under CIC § 10192.15(a). Each notice was subject to a filing fee of $460. 

The CDI also withheld approval of rate filings pending the filing of notices and payment of filing fees notwithstanding that actuarial approval had been given. The notice filing fees alone aggregated approximately $15,000 each year for the plaintiff insurers. 

A Writ of Mandate and complaint for Declaratory and Injunctive Relief was filed against the CDI alleging that the notices were not “policy forms” within the meaning of CIC § 10192.15(a). Further, we alleged the CDI had no authority to disapprove a rate filing based on failure to file notices for approval. 

Prior to a hearing on the action, the CDI agreed to discontinue the notice filing requirements and fee charges. The CDI also agreed to refund all filing fees that had been previously collected.

 

 

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Permits to test driverless vehicles pass DMV regulatory speed bumps

On January 14, 2014, the California Department of Motor Vehicles (DMV) held a hearing on proposed regulations governing the testing of autonomous vehicles on public roads in California. 

An autonomous vehicle is a vehicle that is equipped with technology which allows the vehicle to be operated without the active control or monitoring of a natural person. 

SB 1298, which was enacted in 2012, directs the DMV to adopt regulations on the testing of autonomous vehicles. The DMV’s proposed regulations set forth requirements which a vehicle manufacturer would have to satisfy in order to conduct testing of autonomous vehicles on public roads. 

The requirements include the obligation that the manufacturer provides evidence of its ability to respond to a judgment for damages or injuries arising from the operation of autonomous vehicles in the amount of five million dollars. The evidence may be in the form of a policy issued by an insurer, a surety bond, or a certificate of self-insurance.

During the hearing, representatives of Volkswagen and Google voiced general support for the regulations but urged the DMV to make several revisions before adopting the regulations. None of the revisions outlined at the hearing related to the manufacturer’s obligation to provide evidence of its ability to respond to damages.    

A representative of the Association of California Insurance Companies (ACIC) objected to the provision in proposed section 227.06 which states that the manufacturer’s evidence of insurance is in addition to the requirement that the driver must provide proof of insurance. ACIC argued that the testing of an autonomous vehicle should not involve personal insurance coverage.

At the close of the hearing, the DMV counsel said that the DMV hopes to attain final adoption of the regulations by early in the summer of 2014.          

Documents of note:

 

Title Insurance

Barger & Wolen's James Hazlehurst recently updated Chapter 39 of the California Insurance Law & Practice, Title Insurance

The chapter features many new practice tips on such diverse matters such as:

  • Filing for litigation despite the equitable tolling rule;
  • Tolling agreements;
  • The notice-prejudice rule;
  • Quiet title actions;
  • The trigger of tripartite relationships;
  • The attorney-client privilege;
  • Attorney claims adjusters;
  • Informal representations about the status of title;
  • Bad faith actions;
  • Undisclosed liens or encumbrances;
  • Failure to file an amended title report;
  • Posting collateral for an indemnification agreement;
  • Access to property rights and the title report;
  • Equitable subrogation; and
  • "Hand-crafted" endorsements.

 

Homeowners and Related Policies

Barger & Wolen recently updated Chapter 36 of the California Insurance Law & Practice, Homeowners and Related Policies

The chapter revisions include:

  • Trigger of coverage rules;
  • Triggering first-party coverage vs. third-party coverage;
  • Continuing or progressive damage issues;
  • The known loss rule;
  • Recission of the policy;
  • The Residential Property Insurance Bill of Rights; and,
  • Personal property coverage and exclusions.

In addition, there are 28 new practice tips covering a wide range of issues attorneys may confront in regard to homeowners insurance and reports of several court decisions on point.

 

Proposed Regulations list 20 standards to determine if insurer is operating in hazardous financial conditions

By Robert W. Hogeboom and Samuel J. Sorich

On June 21, 2013, the California Department of Insurance (“CDI”) submitted its Proposed Action and Notice of Public Hearing to adopt regulations listing conditions that the Commissioner may consider in determining whether an insurer is operating in a hazardous condition. If a hazardous condition is found, the Proposed Regulations permit the Commissioner to issue an Order requiring that the insurer take specific steps to correct, eliminate, or remedy the condition.

The Proposed Regulations list 20 conditions which the Commissioner may consider in making a determination whether an insurer is operating in a hazardous condition. Most are directly related to adverse findings relating to the insurer’s financial condition discovered upon review of the insurer’s filed financial statements and holding company filings. However, one of the conditions the Commissioner may consider is “adverse findings reported in market conduct exam reports.” This would include both rating and claims examinations. This suggests that the CDI is attempting to bring market conduct examinations within the framework of “hazardous financial condition.”

The Proposed Regulations permit the Commissioner to issue an Order following his determination that the continued operations may be hazardous based on any part or all of the 20 conditions. The most controversial aspect of the Proposed Regulations permits the Commissioner to order the insured to comply with any of the corrective measures in the Proposed Regulations. The corrective measures include, among others, increasing capital and surplus, suspending dividends, documenting adequacy of premium rates, and adopting and utilizing governance practices acceptable to the Commissioner. 

One of the corrective actions is the ability of the Commissioner to “increase the insurer’s liability to an amount equal to any contingent liability if there is a substantial risk that the insurer will be called upon to meet the obligation undertaken within the next 12 month-period.” 

There is no administrative hearing process to resolve disputes involving the Commissioner’s corrective action Orders. Rather, once the Order is issued, the insurer has the opportunity to be heard by requesting a meeting with the Commissioner. Thereafter, the only redress for the insurer is to seek a judicial challenge. 

Based on the fact that these Proposed Regulations provide increased powers to the Commissioner to order corrective actions based on his finding of hazardous conditions without a hearing, we believe that their legal authority will be closely scrutinized. Among the concerns we highlight the inconsistency with accounting rules and express statutory provisions which establish and limit the Commissioner’s authority.

For more information contact Robert W. Hogeboom at rhogeboom@bargerwolen.com or (213) 614-7304, or Samuel J. Sorich at ssorich@bargerwolen.com or (916) 448-2800.

 

California DMV to propose regulations on the testing of autonomous vehicles

On June 18, 2013, the California Department of Motor Vehicles (DMV) conducted a workshop on regulations that will govern the testing of autonomous vehicles on public roads. The workshop is a precursor to the drafting of regulations and the commencement of a rulemaking proceeding.

SB 1298, which was enacted last year, requires the DMV to adopt regulations on the testing of autonomous vehicles on public roads and the post-testing operation of autonomous vehicles by January 1, 2015.

SB 1298 defines “autonomous vehicle” as any vehicle that is equipped with autonomous technology that has been integrated into the vehicle. The law defines “autonomous technology” to mean “technology that has the capability to drive a vehicle without the active physical control or monitoring by a human operator.”

SB 1298 specifies the requirements that must be met in order to operate an autonomous vehicle on public roads for testing purposes:

  • The law mandates that the manufacturer of the autonomous technology performing the testing must obtain an instrument of insurance, surety bond, or proof of self-insurance in the amount of $5 million, and must provide evidence of insurance, surety bond, or self-insurance to the DMV in a form and manner set forth in regulations adopted by the DMV.
  • SB 1298 states that a driver must be seated in the vehicle’s driver seat during testing, and the driver must be an employee, contractor, or designee of the manufacturer.

Participants in the June 18 workshop included representatives of vehicle manufacturers, technology companies, insurers, and DMV staff. The discussion centered on permits that would have to be obtained in order to test autonomous vehicles, the certification of drivers, the registration of testing vehicles, and the financial responsibility requirement.

DMV staff opined that if a manufacturer complies with the financial responsibility requirement by obtaining an insurance policy, the policy must have a minimum policy limit of $5 million and must cover liability for bodily injury, death, and damage to property.  DMV plans to study the issue of whether the insurance coverage would have to be obtained from an insurer admitted to do business in California.

At the close of the workshop, DMV staff announced that the agency intends to propose regulations on the testing of autonomous vehicles in two months.

Installment Fees May Still be Considered Premium for Tax Purposes Despite Recent California Appellate Decision

A recent California appellate decision (In Re Insurance Installment Fee Cases, 211 Cal. App. 4th 1395) held that an installment fee – i.e, a fee charged to a policyholder who pays premium in installments under a payment plan separate from the policy – is not considered “premium.” 

The court found that the fee was consideration for a benefit separate from the insurance and paid under an agreement separate from the policy. As such, the insurer was not required to either:

  1. state the fee on the declarations page or elsewhere in the policy under California Insurance Code sections 381 and 383.5 or
  2. obtain approval of the fee from the California Insurance Commissioner in its rate filing under California Insurance Code section 1861.01 et seq.

However, insurers should be aware that the ruling in In Re Insurance Installment Fee Cases does not overrule or conflict with an existing line of California cases analyzing whether installment fees are part of “gross premium” for purposes of premium tax reporting and payment.

The premium tax cases suggest that installment fees collected by insurers are not gross premium if they represent the time value of money (e.g., interest that the insurer could collect by investing the premium rather than allowing the insured to pay later). However, fees intended to cover the insurer’s administrative costs (e.g., expenses of collecting multiple payments) may be includable as gross premium.

The In Re Insurance Installment Fee Cases court did not rely on the premium tax cases “because those cases and opinions … [are in] a different context than that presented by this case.”  We note that the different treatment of installment fees in different context is not without justification. In premium tax cases, the question is whether the fees constitute part of an insurer’s income. For purposes of policy and rate issues under the Insurance Code, however, the focus is instead on the bargain between the insurer and the policyholder.

Cigna Agrees to Re-evaluate and to Compensate Disability Insureds in the Amount of $77 million

In a wide ranging re-evaluation of disability claims covering its insureds in California, Connecticut, Maine, Massachusetts and Pennsylvania, Cigna Corporation may pay up to $77 million in past disability income insurance claims.  According to a statement by Cigna yesterday, "We are voluntarily agreeing to review an isolated subset of past long-term disability claims files from 2009 and 2010 (also from 2008 in California only) under updated standards,"(Law360, subs. req.).

In 2009, a market conduct action was initiated alleging certain Cigna companies may have violated federal and state insurance trade practices laws.  Cigna came up with a plan to resolve any disputes, and the parties -- which included the insurance departments of all five states listed above -- agreed to settle the market conduct action.  As part of its statement yesterday, Cigna clarified that the "regulatory settlement agreement grew out of a normal cycle of review by state regulators." 

As part of the remediation plan, Cigna agreed to:

  1. Establish an internal disability claim quality assessment team;
  2. Report on the reassessed claims involved in the remediation plan to all five insurance departments for a period of two years;
  3. Compensate the five states for costs incurred in the monitoring process;      
  4. Revise its policies to ensure compliance with Social Security Disability Income benefits laws, the selection of evaluation personnel, and the gathering of medical information; and
  5. Pay certain fines and administrative fees to the departments.

Barger & Wolen works with clients along all insurance lines on market-conduct exams and reviews before the California Department of Insurance.  For more information click here

Originally posted to Barger & Wolen's Life, Health and Disability Insurance Law blog.

Recent Regulatory Rulings May Provide Leverage for Insurers

As recently reported in this blog post, Los Angeles Superior Court Judge Gregory Alarcon invalidated the California Department of Insurance's regulation on estimating replacement costs for homeowners insurance (10 CCR 2695.183) in Association of California Insurance Companies (ACIC) and Personal Insurance Federation of California v. Jones. This represents the second judicial determination that the Department has overstepped its regulatory authority under the Unfair Practices Act in less than a year. 

In the earlier ruling (the “Torchmark” case), issued in August of 2012, Administrative Law Judge Stephen Smith found that the Department's Fair Claims Settlement Practices Regulations (FCPR) may not be used by the Department to make Unfair Practices allegations under Insurance Code section 790.03(h). A discussion of the Torchmark administrative case, which was argued by Barger & Wolen's senior insurance regulatory attorney, Robert Hogeboom, is available here

In both cases, it was determined that the Department:

  1. unlawfully expanded the intended scope of section 790.03 and
  2. failed to follow the statutory procedures mandated by Insurance Code section 790.06 for taking action against insurers based on unfair practices not listed in section 790.03.

The insurance industry raised the ruling by Judge Smith, as persuasive authority, in the ACIC case as well as in another pending administrative action. While it remains to be seen what affect the Torchmark ruling will have in these other cases, the decision may be helping insurers gain some much-needed leverage when dealing with the Department and its sometimes strong-arm enforcement actions.

The Department, for its part, has sought to downplay the significance of the Torchmark decision, noting that it is not precedential. At least one senior attorney for the Department has urged that Torchmark is not a "final" decision - a claim that we discount.

The trend in the courts, nonetheless, appears to be moving towards holding the Department to the intended limits of the Unfair Practices Act. We will continue to monitor future activities in this area.

Barger & Wolen Insurance Regulatory Attorneys Guide Insurer Through Demutualization, Acquisition

Barger & Wolen partner Robert Hogeboom was quoted in an article published on PropertyCasualty360.com on April 18, 2013, California Regulators Guide Insurer Through Demutualization, Acquisition, in regards to a recent deal he and Dennis Quinn worked on to help shore up a troubled homeowner's insurer through a mutual-to-stock conversion.

Hogeboom told the paper it was the first demutualization in California since 1997 and that the deal in which Merced Mutual Insurance Company was acquired by United Heritage Financial Group of Meridian, Idaho took 15 months. According to Hogeboom, a key component of the agreement was that it allowed regulators to keep the company in California.

For the deal to be attractive to both Merced members and United Heritage, the members had to receive from United Heritage more cash for their equity in Merced than the statute would allow Merced to pay,” he said. “In this case, the money came from a third party, leaving the capital and surplus in Merced.”

According to Hogeboom, Merced has been struggling financially because of the recession and housing bust, with led to foreclosures in a number of homes it insured. He estimated that the company had lost between a third and 40 percent of its business.

Hogeboom told the publication that Merced was looking for a company that specialized in auto so it could expand its offerings and would not have to rely as heavily on homeowner's insurance.

When you can offer both, you can sell both at a lower rate,” he said. “They were getting hurt because they couldn’t offer auto, and they didn’t have the resources or the expertise to start an auto company de novo.”

 

Judge Invalidates California Regulation on Estimating Replacement Costs for Homeowners Insurance

By Samuel Sorich and Larry Golub

On March 25, 2013, Los Angeles Superior Court Judge Gregory Alarcon issued a decision which found the California Department of Insurance’s regulation on estimating replacement costs for homeowners insurance to be invalid. The decision is Association of California Insurance Companies and Personal Insurance Federation of California v. Jones.

California Code of Regulation section 2695.183 was adopted by the insurance commissioner in 2010; the regulation went into effect on June 27, 2011. Section 2695.183 requires insurers to use a detailed method for estimating replacement costs for homeowners insurance. The regulation specifies that an insurer that communicates an estimate which does not comport with the regulation’s method makes a misleading statement in violation of Insurance Code section 790.03.

Two insurer trade associations, the Association of California Insurance Companies and Personal Insurance Federation of California, challenged the validity of section 2695.183. The associations petitioned the Los Angeles Superior Court for a judgment declaring section 2695.183 to be invalid because its adoption is beyond the insurance commissioner’s authority. Judge Alarcon granted the associations’ petition.

Insurance Code section 790.03 defines unfair and deceptive acts or practices in the business of insurance. Subdivision (b) of section 790.03 states that the definition of unfair or deceptive acts includes making a statement “which is known, or which by the exercise of reasonable care should be known, to be untrue, deceptive, or misleading.” The insurance commissioner relied on section 790.03(b) as authority to adopt section 2695.183, contending that the regulation simply interpreted section 790.03 by identifying one type of misleading statement.

Judge Alarcon rejected the commissioner’s reliance on section 790.03(b). The judge’s decision explains,

By characterizing all estimates of replacement costs as misleading (save the one provided by 10 CCR § 2695.183), Defendant, in exercising its authority under § 790.10, expands the meaning of something ‘known’ or which ‘should be known’ to be misleading beyond the parameters of § 790.03(b).”

Judge Alarcon’s decision notes that “[t]he limits of the authority granted by § 790.03 are underscored by Cal Ins Code § 790.06 which provides a special process which the commissioner can determine how acts not listed in § 790.03 can be defined as unfair or deceptive.”

The need to interpret the authority granted to the insurance commissioner by Insurance Code section 790.03 in light of Insurance Code section 790.06 was also central to the recent decision of California Administrative Law Judge Stephen J. Smith, who found that the Fair Claims Settlement Practices Regulations may not be used by the insurance commissioner to constitute unfair claims acts under section 790.03, which was discussed in this blog post.

California Department of Insurance Adopts Amendments to Auto Repair Regulations

On December 31, 2012, the California Department of Insurance received approval for the adoption of amendments to regulations which govern written estimates of auto repairs and non-original equipment manufacturer (non-OEM) replacement crash parts. The amendments will become effective on January 30, 2013. Insurers will be required to comply with the amendments in handling claims on and after March 30, 2013.

The amended version of subsections (f) and (g) of regulatory section 2695.8 is attached here.

The amendments to subsection (f) require an insurer’s written estimate of an auto repair to comply with standards described in regulations that are applicable to auto body repair shops. The subsection (f) amendments also specify requirements for adjustments that an insurer makes to a repair shop’s estimates.

The amendments to subsection (g) require an insurer that specifies the use of non-OEM replacement crash parts to provide a written disclosure that it warrants that those parts are at least equal to the original equipment manufacturer (OEM) parts in terms of kind, quality, safety, fit, and performance. The subsection (g) amendments also require an insurer that becomes aware that a non-OEM replacement crash part is not equal to the OEM part to immediately cease specifying the use of the part. In addition, the subsection (g) amendments require an insurer to pay costs related to the removal and replacement of non-OEM parts.

Insurers objected to the amendments at the public hearing on the amendments and in written submissions to the Department of Insurance.

Insurers argued that the department lacked the authority to impose auto body repair shop regulations on insurers. Insurer representatives also contended that the regulatory provision that an insurer must warrant a non-OEM part is inconsistent with a Business & Professions Code statute which explains that non-OEM parts warranties are provided by the manufacturer or distributor of the parts. Insurers pointed out that the amendments would be harmful to the public because the amendments’ restriction on the use of non-OEM parts will lessen competition in repair parts and will lead to higher repair costs.

Barger & Wolen will continue to track the developments of these new regulations.

 

More than 20 new insurance-related bills signed into law by Governor Brown

September 30, 2012, was the deadline for Governor Jerry Brown to take action on bills passed by the California Legislature during the 2012 regular legislative session.

Here are summaries of noteworthy insurance-related bills that were signed into law. All of these new laws will go into effect on January 1, 2013.

Senate Bills

SB 863 increases workers’ compensation permanent disability benefits by an estimated $750 million per year, phased in over a two-year period. The new law changes several aspects of the workers’ compensation system. Among other things, SB 863 creates an independent medical review process for resolving medical care disputes, establishes an independent bill review process for resolving medical billing disagreements, adopts a statute of limitations for workers’ compensation liens, and restricts the reasons that can be used to avoid obtaining treatment within a medical provider network.

SB 1216 conforms California law to the revisions made to the NAIC Credit for Reinsurance Model Law (adopted in 2011). Among other things, SB 1216 establishes criteria that the insurance commissioner is to use in certifying reinsurers; reinsurance provided by certified reinsurers qualifies as an asset or credit against the liabilities of a ceding insurer.

SB 1234 and SB 923 create the California Secure Choice Retirement Savings Investment Board which is charged with conducting a market analysis to determine if the necessary conditions for implementation can be met and then report to the Legislature as to whether a statewide retirement savings plan for private employees, who do not participate in any other type of employer-sponsored retirement savings plan, should be created. The Board’s analysis would have to be paid for by funds made available through a non-profit or private entity, federal funding, or an annual Budget Act appropriation.

SB 1298 establishes conditions for the operation of autonomous vehicles on public roadways for testing purposes. The bill defines “autonomous vehicle” as a vehicle equipped with technology that has the capability to drive a vehicle without the active physical control or monitoring by a human operator.

SB 1448 conforms California law to the revision to the NAIC Insurance Holding Company System Regulatory Model Act (adopted in 2010). Among other things, SB 1448 requires the board of directors of an insurer, which is part of a holding company system, to file a statement affirming that the board is responsible for overseeing corporate governance and internal controls. In addition, SB 1448 authorizes the insurance commissioner to evaluate the enterprise risk related to an insurer that is part of a holding company.

SB 1449 permits the approval of life insurance and annuity products that include the waiver of premium during periods of disability and the waiver of surrender charges if the insured encounters specified medical conditions, disability, or unemployment.

SB 1513 expands the investment options available to the State Compensation Insurance Fund.

Assembly Bills

AB 53 requires each admitted insurer with written California premiums of $100 million or more to submit a report to the insurance commissioner on its minority, women, and disabled veteran-owned business procurement efforts. The first report is due July 1, 2013. An insurer is required to update its report biennially. AB 53 includes a January 1, 2019 sunset date.

AB 999 revises the standards used by the insurance commissioner to approve the rates for long-term care insurance. AB 999 prohibits an insurer from using asset investment yield changes to justify a rate increase for long-term care policies unless the insurer can demonstrate that its return on investments is lower than the maximum valuation interest rate for contract reserves for those policies; or the insurance commissioner determines that a change in interest rates is justified due to changes in laws or regulations that are retroactively applicable to long-term care insurance previously sold in California. AB 999 requires all of the experience on all similar long-term care policy forms issued by an insurer and its affiliates and retained within the affiliated group to be pooled together and used as the basis for determining whether a rate increase is reasonable.

AB 1631 removes the January 1, 2013, repeal date for the existing law which permits a person admitted to the bar of another state to represent a party in a California arbitration proceeding.

AB 1708 authorizes auto insurers to provide proof of insurance coverage in an electronic format that may be displayed on a mobile electronic device. Proof of insurance in this format is allowed to be presented to a peace officer.

AB 1747 requires every life insurance policy to include a provision for a grace period of not less than 60 days from the premium due date; the provision must state that the policy remains in force during the grace period. AB 1747 requires an insurer to provide an applicant for an individual life insurance policy an opportunity to designate at least one person, in addition to the applicant, to receive notice of lapse or termination of a policy for nonpayment of premium. AB 1747 provides that a notice of pending lapse or termination of a life insurance policy is not effective unless the notice is mailed by the insurer to the named policy owner, a designee for an individual life insurance policy, and a known assignee or other person having an interest in the individual life insurance policy, at least 30 days prior to the effective date of policy termination if termination is for nonpayment of premium.

AB 1875 limits the civil deposition of any person to one day of seven hours. The bill specifies exceptions to this limit.

AB 1888 allows a person who has a commercial driver’s license to attend a traffic violator school for a traffic offense while operating a passenger car, a light duty truck, or a motorcycle.  Attendance at the school prevents the offense from being counted as a point for determining whether the driver is presumed to be a negligent operator who is subject to license revocation. However, attendance at the school does not bar the disclosure of the offense to insurers for underwriting or rating purposes.

AB 2084 establishes new permitted types of blanket insurance policies and expands the list of eligible policyholders who can purchase blanket insurance.  

AB 2138 gives the insurance commissioner the authority to require every admitted disability insurer, and every other entity liable for any loss due to health insurance fraud, to pay an annual maximum fee of 20 cents for each insured under an individual or group insurance policy it issues in California. The fee is to be used to fund increased investigation and prosecution of fraudulent disability insurance claims. Under current law, the maximum fee is 10 cents. AB 2138 allows an insurer to recoup the fee through a surcharge on premiums or by including the fee in the insurer’s rates.

AB 2160 requires the California insurance commissioner to treat a domestic insurer’s investment in a company that has business operations in Iran as a non-admitted asset. We recently blogged on the passage of AB 2160 here.

AB 2219 removes the January 1, 2013, repeal date for the existing law which requires a contractor with a C-39 roofing classification to obtain and maintain workers’ compensation insurance even if he or she has no employees. AB 2219 also removes the January 1, 2013, repeal date for the existing law which requires an insurer that issues a workers’ compensation insurance policy to a roofing contractor, who holds a C-39 license, to perform an annual payroll audit for the contractor. AB 2219 adds the requirement that the insurer’s audit must include an in-person visit to the place of business of the roofing contractor to verify whether the number of employees reported by the contractor is accurate.     

AB 2298 prohibits an insurer that issues or renews a private passenger auto insurance policy to a peace officer or a firefighter from increasing the premium for the policy because the peace officer or firefighter was involved in an accident while operating his or her private passenger auto in the performance of his or her duty at the request or direction of his or her employer. AB 2298 provides that in the event of a loss or injury that occurs as a result of an accident during any time period when the private passenger auto is operated by the peace officer or firefighter and is used by him or her at the request or direction of the employer in the performance of the employee’s duty, the auto’s owner shall have no liability.

AB 2301 modifies the definition of “covered claims” in the Insurance Code article relating to the California Insurance Guarantee Association (CIGA) to make clear that a covered claim is one which is presented to the liquidator in the state of domicile of the insolvent insurer or to CIGA.  

AB 2303 is the Department of Insurance’s omnibus bill which addresses a variety of matters, including applications for non-resident surplus lines broker licenses, pre-licensing requirements for bail agents, the creation of a limited lines license for crop insurance adjusters, and changes to the conservation and liquidation process. AB 2303 abolishes the advisory committee on automobile insurance fraud within the Fraud Division of the Department of Insurance. AB 2303 also repeals the provision that excludes policies that have been effect less than 60 days from the statute which governs the cancellation of private passenger auto insurance policies.

AB 2354 revises the licensing requirements for travel insurance agents.

AB 2406 requires the Department of Insurance to publish on the Department’s website all requests by a person or group representing the interests of consumers for compensation relating to intervention in a proceeding on an insurer rate filing or participation in other proceedings. Findings on such requests also must be published on the website.

California Legislative Committees Hold Hearing on Auto Insurance Initiative

On September 25, 2012, the Assembly Insurance Committee and Senate Insurance Committee held a two-hour joint informational hearing on Proposition 33 which will be on the November 2012 California ballot. The hearing was for information purposes only and therefore the committee took no action or vote on the proposition.

Proposition 33

Proposition 33 (click HERE for text) would allow insurers to use continuous automobile insurance coverage with any admitted insurer or insurers as a rating factor for private passenger automobile insurance. We last blogged on Proposition 33 in July and August 2012.

Under an existing California Department of Insurance regulation, an insurer may use continuous coverage as a rating factor when an individual is currently insured for automobile insurance with the insurer. The existing regulation prohibits an insurer from basing the continuous coverage rating factor on coverage provided by another non-affiliated insurer. Proposition 33 would override this existing prohibition.

Proposition 33 would add a new section to the Insurance Code which would expressly allow an insurer to use continuous coverage as an optional rating factor for private passenger automobile insurance policies. The section defines “continuous coverage” to mean:

uninterrupted automobile insurance coverage with any admitted insurer or insurers, including coverage provided pursuant to the California Assigned Risk Plan or the California Low-Cost Automobile Insurance Program.”

The proposition states that continuous coverage is deemed to exist if a lapse of coverage is due to an insured’s military service, if there is a lapse of up to 18 months due to loss of employment, or if there is a lapse of coverage for not more than 90 days for any reason.

Proposition 33 would grant children residing with a parent a continuous coverage discount based on the parent’s eligibility for a continuous coverage discount. Finally, Proposition 33 would grant a proportional discount to a driver who is unable to demonstrate continuous coverage; the discount would reflect the number of years in the preceding five years for which the driver was insured. 

Testimony at the Hearing  

Testimony at the committees’ joint hearing was presented by three panels. That testimony was followed by comments from the public.

Legislative Analyst’s Office

Representatives of the Legislative Analyst’s Office stated that Proposition 33 would not have a significant effect on state revenue. According to the Office, the reduction in insurance premium taxes paid by drivers who get the proposition’s discount would be offset by the increased insurance premium taxes paid by drivers who do not qualify for the discount.

Proponents of Proposition 33

Representatives of the American Agents Alliance argued that Proposition 33 would reward drivers who obey the law that requires drivers to obtain insurance coverage. The proposition will allow more drivers to qualify for discounts.

Proposition 17, which also related to continuous coverage, was rejected by California voters in 2010. The Alliance representatives pointed out that Proposition 33 is entirely new. USAA and the Greenlining Institute opposed Proposition 17, but both organizations are supporting Proposition 33. 

The Alliance representatives testified that Proposition 33 is better for consumers than the current law. Under current law, a driver loses his or her discount whenever there is a lapse of coverage. In contrast, Proposition 33 would preserve the continuous coverage discount when the lapse results from military service, unemployment, or for any reason when the lapse is not more than 90 days.

Opponents of Proposition 33 contend that in states that allow continuous coverage to be used as a rating factor, drivers who do not maintain continuous coverage pay significantly higher insurance premiums. The Alliance representatives countered that California’s highly regulated system for automobile insurance is unique and thus comparisons with other states are invalid and misleading.

A representative of Pinnacle Actuaries testified that the major benefit of Proposition 33 is that it will encourage competition. Under the proposition, more insurance companies will be able to offer discounts. This will benefit consumers who shop for insurance.

The Pinnacle representative disagreed with the proposition’s opponents who argue that Proposition 33 will result in huge surcharges for many drivers. The actuary pointed to the experience during 1995-2002 when continuous coverage was authorized as a rating factor in California. During that time, there were no big surcharges.

Opponents of Proposition 33

Consumer Watchdog’s fundamental objection to Proposition 33 is that the proposition conflicts with the statutory provision enacted by Proposition 103, which states,

the absence of prior insurance coverage in and of itself, shall not be a criterion for determining eligibility for a Good Driver Discount policy, or generally for automobile rates, premiums, or insurability.”

Consumer Watchdog contends that proof of prior insurance is required for Proposition 33’s continuous coverage and drivers who lack prior insurance will be charged higher rates. According to Consumer Watchdog, this use of prior insurance to determine rates is barred by Proposition 103.

The Consumer Watchdog representative argued that there is no statistical evidence that the maintenance of continuous insurance coverage is related to a lower risk of loss. The representative testified that the rating factor authorized by the current Department of Insurance regulation is really a loyalty discount which is based on lower administrative costs rather than on a lower risk of loss.

A representative of Public Advocates described the organization as an association of civil rights groups. The representative stated that the Proposition 103 provision highlighted by Consumer Watchdog was aimed at insurer redlining practices. According to Public Advocates, Proposition 103 would encourage insurers to redline low income communities and communities of color.

A representative of the Consumer Federation of California characterized the supporters’ argument that Proposition 33 rewards those who obey the law as inaccurate because many law-abiding consumers will not qualify for the proposition’s discount. He pointed to drivers who let their insurance coverage lapse because of extended disabilities or use of mass transit.

The Federation representative argued that Proposition 33 would allow insurers to use continuous coverage as a rating factor without having to establish that continuous coverage has a substantial relationship to the risk of loss.

Public Comment

A representative of four veteran groups expressed support for Proposition 33.

A representative of USAA explained that USAA opposed Proposition 17 but the company supports Proposition 33 because military personnel would be better off under the proposition than they are today.

A representative of the Greenling Institute said that the organization opposed Proposition 17 but it supports Proposition 33. The Greenling Institute was established to oppose redlining practices. The Institute disagrees with those who contend that Proposition 33 would hurt low income communities and communities of color. The Institute representative accused the opponents of Proposition 33 of engaging in selective use of statistics to reach misleading conclusions.   

 

Podcast: Impact of Recent California Legislation

Sam Sorich recently participated on an A.M. Best podcast where he addressed recent legislation passed by the State of California, and the potential impact of these bills on insureds and the upcoming election.

You can listen to the podcast here.

Unfair Acts Ruling May Save California Insurers from Stiff Fines

Robert Hogeboom was quoted in a Sept. 17, 2012, Law360 article, Unfair Acts Ruling May Save Calif. Insurers From Stiff Fines (subs. req.), about the impact of a ruling in which a California administrative law judge found that California's Department of Insurance had overstepped its bounds in enforcing Fair Claims Settlement Practices Regulations. Hogeboom represents Torchmark Corp. insurers, who are defendants in the case.

According to the article, the five Torchmark companies stood accused of nearly 700 unfair or deceptive acts but Judge Stephen Smith ruled in their favor, finding that the Department of Insurance had misused the fair claims regulations to expand the state's insurance laws. Experts believe the ruling will embolden other insurers to challenge the agency.

Hogeboom told the publication that, in the past, insurers have been quick to settle unfair practice claims because they didn't want to risk having to pay the hefty fines associated with them. He said the ruling should give insurers more leverage and shows that the Department of Insurance had been using improper procedures when it came to determining unfair acts.

 “Notwithstanding that the judge says this is particular to the Torchmark case, what he said throughout [the ruling] resonates,” Hogeboom said. “It resonates to the industry, and it should resonate to the department.”

 

Administrative Law Judge Invalidates Fair Claims Settlement Practices Regulations by California Department of Insurance

Insurance companies could soon be off the hook for stiff penalties and fines imposed by the California Department of Insurance’s (“CDI”) for violations of the Fair Claims Settlement Practices Regulations (“FCPR”).  This is according to California Administrative Law Judge Stephen J. Smith, who recently issued a 51-page ruling finding the CDI’s Fair Claims Settlement Practices Regulations might not be brought as unfair claims acts.  

This ruling affects how the CDI has imposed penalties against insurers for claims since the inception of the FCPR in 1992. Since that time, only two cases have gone to adjudication challenging the procedure, and fines, as most insurance companies have chosen to settle. In both cases, the insurance companies -- an auto insurer and a life and health insurer -- retained Robert Hogeboom, senior insurance regulatory attorney with Barger & Wolen, to represent them.

In the most recent decision, Judge Smith’s ruling was based on the CDI’s Order to Show Cause (“OSC”) action alleging 697 violations against the five Torchmark groups of life and health insurers.

According to Hogeboom,

This ruling is an extraordinary indictment of the FCPR because for the past 20 years the CDI has required insurers to follow the FCPR under threat of an OSC proceeding and large fines."  

This may also result in changes to Market Conduct Examinations if they are to serve as the basis for an OSC proceeding.  

The decision will impact all lines of insurance regulated by the DOI.

Full Analysis of the Decision

Continue Reading...

Updated: California Legislature Passes Insurance-Related Bills Prior to Ending 2012 Session

The California Legislature’s regular 2012 session ended on August 31. In the last days of the session, legislators passed hundreds of bills, including several insurance-related measures. Here are noteworthy insurance-related bills that were passed by the Legislature and sent to Governor Jerry Brown. The governor has until September 30, 2012, to act on these bills.

Update: Please check back frequently for updates as the governor signs or vetoes the legislation.

Senate Bills

SB 863 is the sweeping 160-page workers’ compensation bill that was passed in the last hours of the legislative session. SB 863 would increase aggregate permanent disability benefits by approximately $740 million per year, phased in over a two-year period. The bill would change several aspects of the workers’ compensation system. Among other things, SB 863 would create an independent medical review process for resolving medical care disputes, establish an independent bill review process for resolving medical billing disagreements, adopt a statute of limitations for workers’ compensation liens, and restrict the reasons that can be used to avoid obtaining treatment within a medical provider network. SIGNED BY GOVERNOR BROWN. This measure becomes effective on January 1, 2013.

SB 1216 would conform California law to the revision to the NAIC Credit for Reinsurance Model Law that was adopted in 2011. Among other things, SB 1216 would establish criteria that the insurance commissioner is to use in certifying reinsurers; reinsurance provided by certified reinsurers would be an asset or credit against the liabilities of a ceding insurer. SIGNED BY GOVERNOR BROWN. This measure becomes effective on January 1, 2013.

SB 1234 would create the California Secure Choice Retirement Savings Investment Board which would be charged with conducting an analysis and reporting to the Legislature on whether a statewide retirement savings plan for private employees who do not participate in any other type of employer-sponsored retirement savings plan should be created. The Board’s analysis would have to be paid for by funds made available through a non-profit or private entity, federal funding, or an annual Budget Act appropriation.    

SB 1298 would establish conditions for the operation of autonomous vehicles on public roadways. The bill defines “autonomous vehicle” as a vehicle equipped with technology that has the capability to drive a vehicle without the active physical control or monitoring by a human operator.

SB 1448 would conform California law to the revision to the NAIC Insurance Holding Company System Regulatory Model Act that was adopted in 2010. Among other things, SB 1448 would require the board of directors of an insurer that is part of a holding company system to file a statement affirming that the board is responsible for overseeing corporate governance and internal controls, and SB 1448 would authorize the insurance commissioner to evaluate the enterprise risk related to an insurer that is part of a holding company. SIGNED BY GOVERNOR BROWN. This measure becomes effective on January 1, 2013.

SB 1449 would permit the approval of life insurance and annuity products that include the waiver of premium during periods of disability and the waiver of surrender charges if the insured encounters specified medical conditions, disability, or unemployment.

SB 1513 would expand the investment options available to the State Compensation Insurance Fund.   

Assembly Bills

AB 53 would require each admitted insurer with written California premiums of $100 million or more to submit a report to the insurance commissioner on its minority, women, and disabled veteran-owned business procurement efforts. The first report would be due July 1, 2013. An insurer would be required to update its report biennially. AB 53 includes a January 1, 2019 sunset date. SIGNED BY GOVERNOR BROWN. This measure becomes effective on January 1, 2013.

AB 1145 would create a supplemental job replacement benefit in the form of a voucher for up to $6,000 to cover skill enhancement expenses. The benefit would be available to an employee who is awarded workers compensation permanent partial disability benefits.

AB 1454 would allow doctors of audiology to be appointed as qualified medical evaluators by the administrative director of the Division of Workers’ Compensation.

AB 1687 would authorize the Workers’ Compensation Appeals Board to award attorney’s fees to an applicant who prevails in a dispute that arises in the course of the medical utilization review process.

AB 1708 would authorize auto insurers to provide proof of insurance coverage in an electronic format that may be displayed on a mobile electronic device. Proof of insurance in this format would be allowed to be presented to a peace officer. SIGNED BY GOVERNOR BROWN. This measure becomes effective on January 1, 2013.

AB 1747 requires every life insurance policy to include a provision for a grace period of not less than 60 days from the premium due date; the provision must state that the policy remains in force during the grace period. AB 1747 requires an insurer to provide an applicant for an individual life insurance policy an opportunity to designate at least one person, in addition to the applicant, to receive notice of lapse or termination of a policy for nonpayment of premium. AB 1747 provides that a notice of pending lapse or termination of a life insurance policy is not effective unless the notice is mailed by the insurer to the named policy owner, a designee for an individual life insurance policy, and a known assignee or other person having an interest in the individual life insurance policy, at least 30 days prior to the effective date of policy termination if termination is for nonpayment of premium. SIGNED BY GOVERNOR BROWN. This measure becomes effective on January 1, 2013.  

AB 1875 would limit the civil deposition of any person to one day of seven hours. The bill specifies exceptions to this limit. SIGNED BY GOVERNOR BROWN. This measure becomes effective on January 1, 2013.

AB 1888 would allow a person who has a commercial driver’s license to attend a traffic violator school for a traffic offense while operating a passenger car, a light duty truck, or a motorcycle. Attendance at the school would prevent the offense from being counted as a point for determining whether the driver is presumed to be a negligent operator who is subject to license revocation. However, attendance at the school would not bar the disclosure of the offense to insurers for underwriting or rating purposes.

AB 2084 would expand the list of eligible policyholders who can purchase blanket insurance. SIGNED BY GOVERNOR BROWN. This measure becomes effective on January 1, 2013.   

AB 2138 would give the insurance commissioner the authority to require every admitted disability insurer and every other entity liable for any loss due to health insurance fraud to pay an annual maximum fee of twenty cents for each insured under an individual or group insurance policy it issues in California. The fee is to be used to fund increased investigation and prosecution of fraudulent disability insurance claims. Under current law, the maximum fee is ten cents.SIGNED BY GOVERNOR BROWN. This measure becomes effective on January 1, 2013.

AB 2152 would require a health plan that intends to terminate its contract with a provider group or a general acute care hospital to notify the Department of Managed Care at least 30 days prior to the termination of the contract. AB 2152 also would require a health insurer that intends to terminate its contract with a provider group or a general acute care hospital to provide services at alternative rates of payment to notify the Department of Insurance at least 30 days prior to the termination of the contract. AB 2152 would require health insurance policies to include additional notices and disclosures. 

AB 2160 would require the California insurance commissioner to treat a domestic insurer’s investment in a company that has business operations in Iran as a non-admitted asset. We recently blogged on the passage of AB 2160 here. SIGNED BY GOVERNOR BROWN. This measure becomes effective on January 1, 2013.

AB 2298 would prohibit an insurer that issues or renews a private passenger auto insurance policy to a peace officer or a firefighter from increasing the premium for the policy because the peace officer or firefighter was involved in an accident while operating his or her private passenger auto in the performance of his or her duty at the request or direction of his or her employer. AB 2298 provides that in the event of a loss or injury that occurs as a result of an accident during any time period when the private passenger auto is operated by the peace officer or firefighter and is used by him or her at the request or direction of the employer in the performance of the employee’s duty, the auto’s owner shall have no liability.

AB 2303 is the Department of Insurance’s omnibus bill which addresses a variety of matters, including applications for non-resident surplus lines broker licenses, pre-licensing requirements for bail agents, the creation of a limited lines license for crop insurance adjusters, and changes to the conservation and liquidation process. AB 2303 would abolish the advisory committee on automobile insurance fraud within the Fraud Division of the Department of Insurance. AB 2303 also would repeal the provision that excludes policies that have been effect less than 60 days from the statute which governs the cancellation of private passenger auto insurance policies.

AB 2354 would revise the licensing requirements for travel insurance agents. SIGNED BY GOVERNOR BROWN. This measure becomes effective on January 1, 2013.   

AB 2406 requires the Department of Insurance to publish on the department’s website all requests by a person or group representing the interests of consumers for compensation relating to intervention in a proceeding on an insurer rate filing or participation in other proceedings. Findings on such requests also must be published on the website. SIGNED BY GOVERNOR BROWN. This measure becomes effective on January 1, 2013.

Update: California Health Insurance Initiative Will Be on the Ballot in November 2014

On June 28, we reported that a proposed initiative that would bring prior approval of rates for health insurance to California had failed to qualify for the November 2012 California ballot. 

An earlier blog addressed in more detail that the the initiative would have:

  1. given the California Insurance Commissioner the power to approve health insurance rates proposed after November 6, 2012;
  2. required health insurers’ rate applications to be accompanied by a sworn statement by the insurer’s chief executive officer declaring that the contents of the application were accurate and complied in all respects with California law; and
  3. required health insurers to pay refunds with interest if the Commissioner determined that the company’s rates were excessive.

While the initiative failed to qualify for the November 2012 ballot, we observed that the backers of the initiative were seeking to obtain the requisite number of valid signatures to place the initiative on the next general election ballot in November 2014.

According to the Secretary of State, on August 23, 2012, the initiative qualified for the general election to occur on November 4, 2014.

This will ensure plenty of time for both sides to present to the California electorate their arguments in favor of and against the as-of-yet un-numbered proposition.  We will continue to update developments on this ballot initiative.    

California Legislature Passes Iran Investment Bill

by Larry Golub and Sam Sorich

On August 22, 2012, the California Assembly gave final legislative approval to Assembly Bill 2160. This bill would require the California insurance commissioner to treat a domestic insurer’s investment in a company that has business operations in Iran as a non-admitted asset.

The Assembly’s 64-2 vote to concur in Senate amendments to the bill resulted in final passage of the measure. The Senate has passed the measure on August 20, 2012. AB 2160 is now being sent to Governor Jerry Brown. The governor has until September 30, 2012, to act on the bill.

Our latest blog on AB 2160 was discussed here.   

 

Updated: Fight Begins Over Prop 33 - Even as to the Ballot Language

Update: On August 3, 2012, we reported on the legal challenge that has been filed over the description of Proposition 33, The 2012 Auto Insurance Discount Act, on the November ballot pamphlet. Please see our previous post here.

On August 9, Sacramento Superior Court Judge Timothy Frawley denied the writ petition filed by the proponents of Prop 33. The suit had alleged that the printing deadline for the November ballot is Monday, August 13

Barger & Wolen will continue to follow and update our readers here on Prop 33.

Fight Begins Over Prop 33 - Even as to the Ballot Language

Though the election is still three months away, and the campaigning over California’s Prop 33 (the automobile insurance portable persistency initiative) has not yet begun in earnest, the ballot proposition is already being fought in the courts. On July 27, one of the proponents of Prop 33 filed suit in Sacramento Superior Court challenging the description of the proposition in the November ballot pamphlet. Our last report on Prop 33 is found here.

The suit, D'Arelli v. Debra Bowen, filed by Michael D’Arelli, the Executive Director of the American Agents Alliance and a proponent of the initiative, is in the form of a writ petition against California Secretary of State Debra Bowen, who the suit states is responsible for the preparation of the ballot pamphlet. The action also named as “real parties in interest” California Attorney General Kamala Harris, alleged to be the author of the Ballot Label and the Ballot Title and Summary for Prop 33; the Acting Printer for the State of California; and five persons who the suit states have authored false and misleading statements in their written arguments against Prop 33.  The various ballot materials at issue, still in draft form, can be found on the Secretary of State’s website.

 

The first two claims in the suit allege that the Ballot Label and Ballot Title and Summary for Prop 33 are not true and impartial statements as to the purposes of Prop 33 and they are highly likely to create prejudice against the measure. Specifically, the language of the Ballot Label and Ballot Title and Summary that the suit objects to is the following:

Changes current law to allow insurance companies to set prices based on whether the driver previously carried auto insurance with any insurance company. (Emphasis added.)

The suit contends that the statement that current law allows insurers to “set prices” is not true and does not describe Prop 33 accurately since “all automobile insurance rates and rating class plans must be approved in advance by the Insurance Commissioner,” and Prop 33 does not change this system. Rather, Prop 33 merely adds another optional rating factor to the existing optional rating factors. 

 

Moreover, the phrase “set prices” will prejudice voters since it “is commonly used to describe and define illegal price fixing, and has extremely negative connotations.”

 

The suit provides a recommended re-write of the ballot language: 

Changes current law to allow an insurance company to offer a continuous coverage discount based on whether the driver previously carried auto insurance with any insurance company.

The final four causes of action in the suit are directed to four alleged false and misleading statements set forth in the written arguments against Prop 33, as submitted by several consumer groups including Consumer Watchdog. Here, the suit recommends that the Secretary of State strike each of those statements from the ballot materials.

 

Immediately following the filing of the suit, Consumer Watchdog issued attacks on not only the specific claims in the suit but as against Prop 33 as a whole. See here and here.

 

The suit alleges that the printing deadline for the November ballot is August 13, 2012, and thus the suit requests that the Sacramento court issue a peremptory writ of mandate before that date commanding the Secretary of State to (1) amend Prop 33’s Ballot Label and Ballot Title and Summary and (2) amend or delete the false and misleading statements set forth in the written arguments against the measure.

 

Please see update here.

Foreign Investments: Iran Investment Bill Well-Intentioned, But Unconstitutional

Sam Sorich and Larry Golub authored an article in the Insurance Journal discussing AB 2160, legislation that would prevent insurers from counting investments connected to the Iran's energy industry toward meeting their capital requirements. According to Sorich, the proposed California law is unconstitutional and inconsistent with the United States’ established foreign policy. 

Sorich explained that the state has broad authority to regulate the business of insurance, however, that authority is limited by the U.S. Constitution. One of the limitations is in Article II, which gives the president the power to decide U.S. foreign policy. Once the federal government establishes foreign policy on a matter, a state does not have the authority to create its own policy, no matter how well-intentioned. Sorich says the proposed law is flawed because it violates this constitutional principle.

The Assembly passed AB 2160 in May. The Senate Insurance Committee approved the bill on June 28. AB 2160 is now waiting for a vote on the Senate floor. The regular legislative session will end on Aug. 31.  

Click here for the full article.

 

2012 Automobile Insurance Discount Act will be Proposition 33 on November California Ballot

By Larry M. Golub and Samuel J. Sorich

Last January, we reported that California Secretary of State Debra Bowen announced that the “2012 Automobile Insurance Discount Act,” an initiative that would allow auto insurers to use continuous insurance coverage with any admitted insurer as a rating factor for private passenger automobile insurance, received enough signatures to qualify for the November 6, 2012 ballot. (We earlier reported on this topic last summer, when the initiative was being circulated for signatures.) 

Yesterday, the Secretary of State announced that the initiative will be titled Proposition 33 on the ballot, joining ten other ballot initiatives. The Secretary of State’s website describes Prop 33 as follows:

Changes current law to permit insurance companies to set prices based on whether the driver previously carried auto insurance with any insurance company. Allows insurance companies to give proportional discounts to drivers with some prior insurance coverage. Will allow insurance companies to increase cost of insurance to drivers who have not maintained continuous coverage. Treats drivers with lapse as continuously covered if lapse is due to military service or loss of employment, or if lapse is less than 90 days.”

As previously reported, a prior version of this initiative, Proposition 17, failed to gain voter approval at the June 8, 2010, statewide primary election.  It is anticipated that this current initiative will be hotly contested over the next four months by several consumer groups and supported by some agents and auto insurance companies.

California Health Insurance Initiative Fails to Qualify for November Ballot

By Larry Golub and Sam Sorich

On the day the Affordable Care Act was found to be constitutional by the United States Supreme Court, the backers of a proposed initiative that would bring prior approval of rates for health insurance to California announced that their initiative had failed to qualify for the November 2012 California ballot.

We initially reported on this proposed initiative back in January. Among other things, the initiative would have given the California Insurance Commissioner the power to approve health insurance rates proposed after November 6, 2012, would have required health insurers’ rate applications to be accompanied by a sworn statement by the insurer’s chief executive officer declaring that the contents of the application were accurate and complied in all respects with California law, and would have required health insurers to pay refunds with interest if the Commissioner determined that the company’s rates were excessive.

According to the Sacramento Bee, when Los Angeles County submitted its random-sample count of valid signatures, it reported that only 66.6% of signatures were valid, which fell short of the 69% threshold needed to have enough valid signatures statewide to avoid a full count.

Jamie Court, the President of Consumer Watchdog, the proponent of the measure,sought to downplay the failure to qualify for the upcoming November ballot, and stated that the close number of valid signatures will “make the initiative all but certain to appear on the next general election ballot after November,” which will occur in 2014.

California Insurance Bills Meet Deadline for Passage

June 1, 2012, was the deadline for Senate bills to be passed by the California State Senate and for Assembly bills to be passed by the California State Assembly. Bills that failed to meet the deadline are dead.

Senate bills that met the deadline are now being considered by the Assembly. Assembly bills that met the deadline are now being considered by the Senate.

This year’s regular legislative session will end on August 31.

Here are summaries of noteworthy insurance-related bills that survived the June 1 deadline. These bills will be considered by California legislators over the next 12 weeks. 

Senate Bills

SB 959 would repeal the additional reimbursement in excess of the workers’ compensation medical fee schedule for implantable medical hardware for spinal surgeries.

SB 1172 was expected to include provisions that would give the insurance commissioner the power to order an insurer or agent to pay restitution for Insurance Code violations. Those provisions never appeared in the bill, and SB 1172 now relates to psychotherapists. There is a possibility that the restitution provisions may be amended into another bill during the last weeks of the legislative session.

SB 1216 would conform California law to the NAIC Credit for Reinsurance Model Law

SB 1298 would permit a licensed driver to operate an autonomous vehicle on public roads if specified conditions are satisfied. The bill defines “autonomous vehicle” as a vehicle equipped with technology that has the capability to drive the vehicle without the active control or continuous monitoring by a human operator.    

SB 1448 would conform California law to the NAIC Insurance Holding Company System Regulatory Model Act.  

SB 1449 would broaden the definition of life insurance to include accelerated death benefits and waivers of surrender charges triggered by specified medical conditions.   

SB 1528 states an intention to establish a framework for compensating persons with injuries due to the fault of third parties. It is expected that SB 1528 will be amended with provisions that would nullify the California Supreme Court’s 2011 decision in Howell v. Hamilton Meats & Provisions, Inc., which held that a plaintiff’s recovery for medical damages is limited to the amount the medical care provider accepted for medical services. See the blog’s discussion of the Howell decision here.      

Assembly Bills

AB 52 would require health service plans and health insurers to obtain the insurance commissioner’s prior approval of rate changes.

AB 53 would require each admitted insurer with premiums of $100,000,000 or more to file with the insurance commissioner a report on its minority, women and disabled veteran-owned business procurement efforts.

AB 1551 would prohibit an insurer that issues or renews a private passenger auto policy to a peace officer or firefighter from increasing the premium for the policy because the peace officer or firefighter was involved in an accident while operating his or her private passenger auto in the performance of his or her duty at the request or direction of his or her employer.

AB 1687 would authorize the Workers’ Compensation Appeals Board to award attorney’s fees to an applicant who prevails in a dispute that arises in the course of the medical utilization review process.

AB 1708 would authorize auto insurers to provide proof of insurance coverage in an electronic format that may be displayed on a mobile electronic device.

AB 2152 would require a health insurer to give the Department of Insurance prior notice before the insurer terminates its contract with a provider group or hospital to provide services at alternative rates of payment.

AB 2160 would direct the insurance commissioner to treat a domestic insurer’s investment in a company that has business operations in Iran as a non-admitted asset.

AB 2303 is the Department of Insurance’s omnibus bill which addresses a variety of matters including applications for non-resident surplus lines broker licenses, pre-licensing requirements for bail agents, the creation of a limited lines license for crop insurance adjusters and changes to the conservation and liquidation process. AB 2303 would repeal the provision that excludes policies that have been in effect less than 60 days from the statute that governs the cancellation of private passenger auto policies.

AB 2406 would require the insurance commissioner to include on the Department of Insurance's website information about requests for compensation submitted by parties seeking to intervene in rate change proceedings.   

 

Auto Manufacturer and Insurer See In-Car Connectivity Systems as Win-Win in the Fight for Market Share - How Far Will Regulators Let Them Go?

In surely a sign of things to come, Ford Motor Company and State Farm announced on May 30, 2012, that they have partnered to offer auto insurance savings. The program allows State Farm customers with select Ford vehicles that have the SYNC in-car connectivity system to reduce their auto insurance premiums.

Specifically, by using the SYNC system, Ford owners will be able to provide verified mileage information to State Farm necessary to qualify for State Farm’s Pay-As-You Drive (PAYD) program, which may allow savings of up to 40%.

The SYNC system allows owners to request a Vehicle Health Report directly from the vehicles engine’s computers, which will provide odometer readings and other diagnostic reports about the vehicle’s performance and maintenance needs. The Vehicle Health Report is a no-subscription feature that is free for vehicle owners for the life of the vehicle. Therefore, Ford owners whose vehicles are equipped with the SYNC-system may qualify for auto discounts for years, and without having to pay a monthly subscription.

In the highly competitive automotive and auto insurance markets, partnerships such as this program present a win-win situation. In the fight for market share, the auto manufacturer can differentiate the competition by offering technologies that could allow insurance savings while insurers get a chance to secure new policyholders with a built-in retention mechanism. 

Since PAYD programs now exist in many states and are offered by many insurers, we expect to see more partnerships like this from others auto manufacturers and insurers. We also expect to see auto manufacturers and other technology providers such as cell phone manufacturers and telematics providers forge similar partnerships in other areas to offer consumers savings on all types of products and services.

The issue is how far will state insurance regulators allow these types of programs to go in the name of protecting privacy?

While it is relatively safe to assume that most states allow or will allow technology (whether embedded or after-market) to purely report or verify mileage information to insurers for the purpose of calculating premium as California does, what about other, and more arguably meaningful, types of information such as location information, sometimes referred to as GPS information, or information on braking or accelerating patterns.

Information other than mileage may be a better indicator of risk. For example, frequent braking can lead to more rear-end accidents. Insurers also predict that these systems encourage safer driving or reduced driving, which could lead to fewer crashes and insurance claims.

There are excellent arguments as to why more information collection is better and allows better products and services for consumers. However, regulators, in order to stem abuse, may feel compelled to prohibit insurance companies from collecting any information other than mileage driven, or from selling to or sharing such information with other companies (so that other product and services can be offered to the consumer), and/or to require insurance companies to allow audits of the information so collected.

Only time will tell how far the regulators will let these programs go, and in the end consumers may be deprived of meaningful products and services.

For more information or any questions, please contact Tim Moroney at 415-743-3713 or by email.

California Assembly Passes Bill Requiring Health Insurance Filing and Disclosures

On May 3, 2012, the California Assembly passed a bill that would require health insurers that are regulated by the Department of Insurance to submit information to the department when the insurer plans to terminate its contract with a provider group or hospital. The bill also would require insurers to provide insureds with additional disclosures. The 80-member Assembly passed Assembly Bill 2152 with a 46-25 vote.

AB 2152, which is sponsored by the Department of Insurance, has three major elements.

  1. The bill would require a health insurer to notify the Department of Insurance at least 75 days before the insurer terminates its contract with a provider group or hospital to provide services at alternative rates of payment. The department would have the authority to review and approve the written notice that the insurer proposes to send to the insureds affected by the termination. 
  2. AB 2152 would require a health insurer to include in its disclosure form a statement clearly describing the basic method of reimbursement made to its contracting providers of health care services, and whether financial bonuses or any other incentives are used. 
  3. AB 2152 would require health insurance policies to include additional notices and disclosures. 

The bill is now waiting to be assigned to a Senate committee. 

Originally published on Barger & Wolen's Life, Health and Disability Insurance Law blog.

 

Iran-Related Investment Bill Clears Committee

On May 2, 2012, the California Assembly Insurance Committee approved a bill that would direct the insurance commissioner to treat a domestic insurer’s investment in a company that has business operations in Iran as a non-admitted asset.

Assembly Bill 2160 requires any domestic insurer doing business in California to determine whether it has investments in companies doing business with certain segments of the Iran economy. The bill allows an insurer to rely on the list of companies published by the Department of General Services to make that determination. AB 2160 provides that the insurer’s investments in any of the companies on the DGS list are to be treated as non-admitted assets.

After more than one hour of testimony and debate on AB 2160, eight members of the 13-member Assembly Insurance Committee voted to approve the bill. AB 2160 now goes to the Assembly floor for consideration by the 80-member Assembly.

During the committee hearing, supporters of the bill argued that Iran’s volatile political environment makes it risky for an insurer to make investments in companies that do business in Iran. Moreover, supporters asserted that it is good public policy to take action to weaken Iran’s economy. The bill’s supporters conceded that AB 2160 may face litigation challenges if it is enacted, however they argued that concerns about litigation should not block passage of the bill.

Insurer representatives opposed the bill. They argued that rulings by the U.S. Supreme Court and other federal courts make clear that AB 2160 is pre-empted by federal law. The insurer representatives pointed out that there is no evidence that the investments targeted by AB 2160 threaten the solvency of insurers. Finally, the opponents of the bill reminded the committee that Insurance Commissioner Dave Jones has settled a lawsuit that challenged the Department of Insurance’s directive to insurers regarding insurer investments in companies doing business in Iran. The settlement does not authorize the commissioner to treat the investments as non-admitted assets but it does allow the commissioner to publicize the names of insurers that have investments in Iran-related businesses. The settlement is discussed in this blog here.

California Senate Committee Approves Two Bills Based on NAIC Models

The California Senate Insurance Committee has given unanimous approval to two bills that are based on NAIC model laws relating to reinsurance and insurance holding companies. The Department of Insurance testified in support of both bills at the committee’s April 25 hearing on the measures. There was no opposition to either bill.

Senate Bill 1216 (Lowenthal) would conform California law to the 2011 version of the NAIC Credit for Reinsurance Model Law

SB 1216 would allow the insurance commissioner to designate a domestic insurer as a professional reinsurer if the insurer is principally engaged in the business of reinsurance and meets other requirements; the designation would affect the credit that is granted for reinsurance provided by the professional reinsurer. SB 1216 would establish new requirements for an insurer’s reinsurance contracts in order for the insurer to obtain credit for reinsurance. The bill also would introduce new regulatory standards for allowing an insurer to get credit for reinsurance as an asset or a deduction from liability.

Senate Bill 1448 (Calderon) would conform California law to the 2010 version of the NAIC Insurance Holding Company System Regulatory Model Act. Among other things, SB 1448 would:

  1. require the board of directors of an insurer that is part of a holding company system to file a statement affirming that the board is responsible for overseeing corporate governance and internal controls,
  2. authorize the insurance commissioner to evaluate the enterprise risk related to an insurer that is part of a holding company, and
  3. require an insurer that is part of a holding company to obtain regulatory approval of amendments to affiliate agreements that were previously filed.

SB 1216 and SB 1448 are pending before the Senate Appropriations Committee.

Workshop held by California Department to Discuss Contemplated Changes to Life Settlement Regulations

Can Servicers Expect to be Brought into the Regulatory Fold?

On March 9, 2012, the California Department of Insurance (“Department”) held a Pre-Notice Public Discussion on contemplated revisions it intends to make to California’s life settlement regulations, Title 10 California Code of Regulations §§ 2548.1 et seq. (the “Workshop”) 

The Workshop was chaired by Staff Counsel Audrie Lee of the Department’s Corporate Affairs Bureau, and was attended by Special Counsel to the Commissioner Geoff Margolis, Deputy Commissioner John Finston, and Senior Staff Counsel Jennifer Chambers also of the Corporate Affairs Bureau. The industry turnout included representatives from Coventry, Maple Life, and various other trade industry representatives. The purpose of the Workshop was to discuss the following contemplated revisions to the life settlement regulations.

  • Prohibiting the commingling or investment of escrowed life settlement proceeds due to the owner in a life settlement transaction.
  • Defining grounds for the denial of a license application or the revocation of a license. For life settlement providers, failure to show financial stability will serve as grounds.
  • Regulating the life settlement transactions that allow the owner to retain an interest in the policy by requiring the owner to designate an irrevocable beneficiary and requiring contractual provisions intended to protect and preserve the seller’s interest.
  • Permitting the owner who has entered a life settlement contract to purchase annuities and retain additional benefits or optional riders that were part of the insurance policy; however, if the owner elects not to purchase an annuity or continue any additional benefit or optional rider, such elections would be terminated when the life settlement takes place.
  • Requiring any subsequent life settlement purchaser that transfers ownership or changes the beneficiary to notify the provider so that the provider may again notify the insured of the subsequent change in ownership or beneficiary.
  • Clarifying that a life settlement provider applicant or licensee must disclose any pending investigations of any criminal, civil, regulatory, or administrative action(s) taken against the applicant or licensee.

One of the big issues discussed concerned the Department’s plan to amend the life settlement regulations to include lack of financial stability as a ground for denying or revoking a provider license. The Department believes that it has the power to promulgate such a standard as the commissioner has the discretion to deny an application if the commissioner determines that issuance of a license is contrary to public interest. The Department has concluded that it is contrary to the public interest to license an entity that does not have staying power because there are ongoing obligations owed by providers to insured sellers after the close of a life settlement transaction.

The industry offered that, unless there is an objective standard for finding a lack of financial stability, it would be hard for the Department to enforce any such requirement since it would lead to arbitrary results. Also, the industry posited that the Department was not thinking of providers in the correct light, arguing that nearly all providers are simply fund originators and are not risk bearing entities since they generally do not hold policies for their own account. The industry also added that there are many reasons why providers go out of business – it is not always because of a lack of financial stability.

As for continuing post-closure obligations, the industry reported that most of the time life insurance policy servicers contract to undertake any post-closure obligations, not providers, and suggested that a better approach would be if the Department institutes a servicer registration or licensing requirement. The Department indicated that it will consider the servicers’ role in the transactions.

There was also a fair amount of discussion around retained death benefit cases and why in those cases the providers may be risk bearing entities as well as how the Department can protect insureds who try to retain some death benefits from a secondary market buyer who may stop paying premiums, thus impacting the insured. There was also discussion of the whether coverages and rights owed to the insured should transfer to the new owner. The industry believes that there is no difference in the rights and obligations under a policy sold in the secondary market since the secondary buyer simply stands in the shoes of the insured.

There were clearly differences of opinion between the Department and the industry, but the Workshop was productive. We will not know how much traction the industry’s positions will get until the Department publishes its proposed revised regulations.

The Department invited interested parties to submit written comments to assist in crafting of revised regulations. Any written comments should be received by the Department by March 23, 2012.


For more information or any questions, please contact Tim Moroney 415-743-3713 or tmoroney@bargerwolen.com.

Legislation to Non-Admit Iran-Related Investments

The California Legislature has introduced Assembly Bill 2160. It would prohibit California domestic insurers from treating indirect Iran-related investments (as defined in the bill) as admitted assets. The bill was just introduced on February 23rd and may be heard in committee on March 25th.

Issues relating to Iran-related investments date back to efforts in 2009 by then Commissioner Steve Poizner to police insurance companies who had investments in firms doing business in Iran.  His efforts were challenged by a number of insurance trade associations and were eventually ruled an “underground regulation” by the California Office of Administrative Law. Poizner filed a lawsuit challenging the OAL determination.

Current Commissioner Dave Jones and a group of insurers recently settled the litigation. Under the terms of the settlement, Jones retains the power to independently review and publicize the names of insurers with Iran investments. The Commissioner also retains the power to make public a list of businesses directly engaged in the Iranian nuclear, military or energy sectors.  Under the settlement, however, insurers will no longer be required to file quarterly reports regarding their Iran-related investments. While the settlement prevents the Commissioner from declaring the Iran-related investments to be non-admitted assets, the proposed Legislation would.

New York Department of Financial Services Launches Industry-wide Audit of Health Insurance Rates

The New York Department of Financial Services “DFS”) will audit the accuracy of the data used by insurers and health maintenance organizations to request health insurance rate increases (see press release). 

In connection therewith, health insurers must submit their rate increase proposals to the DFS for “prior approval.” The DFS can approve, reduce or reject the requests.

The audits will, among other things, allow the regulators to:

  1. ascertain if insurers are accurately allocating administrative costs and producer commissions;
  2. ensure that insurers have proper controls and oversight in place to make certain that data is reliable and accurate; and
  3. assist in identifying areas where action can be taken to help control costs.

The DFS will conduct on-site audits of health insurers and HMOs selling health insurance plans regulated by the state – employer, small group and individual policies.

The DFS has announced that:

[t]he audits will review selected rate requests that have already been filed. Insurers will not know beforehand whether their proposals will be the subject of an audit. Data regarding claims, insurer administrative expenses, premiums and claims reserves will be examined. The Department will hire a private accounting firm to assist DFS personnel in conducting the audits.”

 

Dodd-Frank Does Not Preempt All California's § 1011(c) Reinsurance Approval Requirements Applicable to Foreign Insurers

Prior to the Dodd-Frank Act, California Insurance Code § 1011(c) required all California-admitted insurers to obtain prior approval from the California Department of Insurance for any reinsurance transaction that exceeded a 50% or 75% threshold.  

In other words, even if each insurer that was a party to the reinsurance agreement was only licensed in California and was domiciled elsewhere, § 1011(c) approval was nonetheless required.

On its face, the Dodd-Frank Act appears to preempt those California approval requirements as they pertain to reinsurance transactions involving only foreign insurers. 

The CDI appeared to acknowledge this preemptive effect in CDI Bulletin No. 2011-2 when the CDI stated that it:

will not exercise its discretion to conserve a non-domestic insurer for failure to obtain prior consent to such reinsurance transactions."

In the CDI’s view, however, assumption reinsurance transactions do not fall within the category of Dodd-Frank preempted reinsurance transactions. 

The CDI has confirmed to us that it does not view assumption reinsurance to be a true “reinsurance” transaction, but rather a “purchase” or “sale.” Moreover, assumption reinsurance transactions are expressly included within the definition of “sale” and “purchase” in California’s Reinsurance Oversight Regulations.

Accordingly, California-admitted insurers domiciled outside California appear, at least in the CDI’s view, to remain subject to the prior approval requirements of § 1011(c) with respect to any sale or purchase transaction (including a sale or purchase involving assumption reinsurance) that exceeds the regulatory specified thresholds.

Emergency Regulation to Enforce Medical Loss Ratio in Patient Protection and Affordable Care Act of 2009 Made Permanent

On Thursday February 9, 2012, California Insurance Commissioner Dave Jones announced that he had obtained approval from the California Office of Administrative Law to make permanent the emergency regulation issued in 2011 allowing the Department of Insurance (the “Department”) to enforce the medical loss ratio guidelines in the Patient Protection and Affordable Care Act of 2009 (“PPACA”) (which we previously discussed here). 

As of January 1, 2011, the PPACA required all health insurers in the individual market to maintain an 80% medical loss ratio.

The Department obtained approval to make permanent its amendment to 10 California Code of Regulations § 2222.12 to reflect this requirement. A copy of the text of the regulation can be viewed here

This permanent regulation went into effect on February 8, 2012. 

The regulation adopted by the Department contains more stringent requirements than PPACA, as it allows the Department to evaluate whether the 80% medical loss ratio will be met at the time a rate is filed with the Department, rather than waiting until the end of the year to determine if this ratio was satisfied.

Originally posted to Barger & Wolen's Life, Health and Disability Insurance Law blog.

California Department of Insurance Settles Suit Over Iran Investments

On January 27, the California Department of Insurance (“DOI”) issued a news release that it had reached a settlement in its lawsuit that sought to require insurers to disclose investments in companies doing business with Iran. 

This blog has reported on the DOI’s continuing efforts to require such disclosures by insurers since July 2009 when prior Insurance Commissioner Steve Poizner first issued a Data Call to all insurers admitted in California seeking information on their investments in or related to Iran.  

On March 29, 2010, five insurance trade associations filed a petition with the Office of Administrative Law (“OAL”) contending that the Commissioner’s rule on Iran investment activity constituted an impermissible “underground” regulation.  

The OAL found, on October 11, 2010, that the DOI’s rule on Iranian investments was indeed such a “regulation” that should have been adopted pursuant to the procedures set forth in the California Administrative Procedure Act (“APA”).

On November 9, 2010, Commissioner Poizner filed an action in the Los Angeles Superior Court contesting the OAL’s determination and sought to clarify his authority to address insurer investments in companies doing business with Iran. The action also named the five insurance trade associations. At the time the action was filed, OAL Director Susan Lapsley issued a press release stating that the Commissioner did not follow the APA procedure “but rather simply imposed new rules unilaterally without any public input or comment,” something “the APA is designed to prevent.”

In the DOI’s news release issued January 27, 2012, current Commissioner Dave Jones announced the settlement of the litigation, which he advised will “permit the Commissioner to maintain a public list of businesses involved in volatile sectors of the Iranian economy,” and be able “to independently review and publicize the names of insurers with investments in Iran-related businesses.” 

However, the settlement also includes an agreement that “insurers will no longer be required to file quarterly reports regarding their Iran-related investment activities nor will such investments be disallowed for purposes of determining financial solvency of the insurers.”

The news release further states that the settlement will include the Commissioner withdrawing his lawsuit against OAL, and the trade associations withdrawing their challenge as to the Commissioner’s publicizing of insurer investments in companies engaged in business with Iran.

Auto Insurance Initiative Qualifies for November 2012 Ballot

On January 18, 2012, California Secretary of State Debra Bowen announced that an initiative on automobile insurance rates has qualified for the November 6, 2012 ballot.

The initiative, named the “2012 Automobile Insurance Discount Act,” would allow insurers to use continuous automobile insurance coverage with any admitted insurer or insurers as a rating factor for private passenger automobile insurance. We previously reported on this topic last summer, when the initiative was being circulated for signatures.

Under an existing California Department of Insurance regulation, an insurer may use continuous coverage as a rating factor when an individual is currently insured for automobile insurance with the insurer.

The existing regulation prohibits an insurer from basing the continuous coverage rating factor on coverage provided by another non-affiliated insurer. The initiative would override this existing prohibition.

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Signatures May Be Collected for California Health Insurance Initiative

By Sam Sorich and Larry Golub

On January 4, 2012, the California Secretary of State announced that signatures may be collected for a proposed initiative which would bring prior approval of rates for health insurance to California, and also amend the existing regulation of automobile and homeowners insurance.

Jamie Court, the President of Consumer Watchdog, is the proponent of the measure, termed the Insurance Rate Public Justification and Accountability Act. There were actually two virtually identical versions of the initiative submitted to (and allowed to proceed to collect signatures by) the Secretary of State, file numbers 11-0070 and 11-0072, but it is expected that Consumer Watchdog will pursue signature gathering for only the second version of the initiative.  (In fact, its website only links to the second version of the initiative.)

In order to qualify for the November 6, 2012 ballot, backers of an initiative must file 504,760 valid signatures in support of the measure. The deadline for submitting signatures for the initiative is June 4, 2012.

Among other things, the initiative would give the California Insurance Commissioner the power to approve health insurance rates proposed after November 6, 2012. The rate approval statutes enacted by Proposition 103 in 1988 for most property and casualty insurance would be made applicable to health insurance. A health insurer’s rate application would have to be accompanied by a sworn statement by insurer’s chief executive officer declaring that the contents of the application are accurate and comply in all respects with California law.

The initiative would require a health insurance company to pay refunds with interest if the insurance commissioner determines that the company’s rates are excessive; this requirement would apply to rates in effect on November 6, 2012 and rates in effect after that date.

Large group health insurance policies would be excluded from the scope of the initiative unless any one of four specified conditions exists; two of the conditions relate to the level of the proposed rate increase.

For health insurance, as well as automobile and homeowners insurance, the initiative would prohibit insurers from using the absence of prior insurance coverage or a person’s credit history as a rating factor or a criterion for determining insurance eligibility.

The initiative specifies that it may be amended only (1) by the Legislature if the legislation furthers the initiative’s purposes and is passed by a two-thirds vote in both the Assembly and the Senate or (2) by another voter ballot initiative.

In its summary of the fiscal effects of the initiative if approved by the voters, the Legislative Analyst’s Office estimates that the measure would increase “state administrative costs in the low tens of millions of dollars annually to regulate health insurance rates, funded with revenues collected from filing fees paid by health insurance companies.”

Potential Changes to Prior Approval Regulations for Property/Casualty Insurers Under Consideration by California Department of Insurance

By Robert W. Hogeboom, Samuel Sorich and Steven Weinstein

On November 10, 2011, the California Department of Insurance (“CDI” or “Department”) conducted a workshop to consider potential changes to regulations that govern prior approval of property/casualty insurance rates and class plan applications. The list of topics discussed at the workshop is included in the CDI Notice of Workshop Regarding the Scope of Prior Approval dated September 21, 2011.

The workshop grew out of the 2010 MacKay v. Superior Court case in which the court held, among other things, that Insurance Code Section 1860.1 exempts approved rates from civil actions and that such rates are subject only to a limited prospective challenge by administrative procedure (under Insurance Code Section 1858 et seq.). 

Barger & Wolen was counsel for the prevailing insurer, 21st Century Insurance Company, in MacKay, and our two blogs on the MacKay case can be accessed here and here.

MacKay involved 21st Century’s use of the accident verification factor which plaintiffs asserted was not an approved rating factor, but only an unapproved underwriting guideline.

The court concluded that the “language submitted to the Department for approval” is what is relevant as to whether a guideline is “submitted to the Department as a factor affecting the rates to be charged.” 

Here, though accident verification was contained as an underwriting guideline, the insurer explained the use of accident verification in an exhibit to its rate application as affecting the rates to be charged and had been approved by the Department. 

Based on MacKay, the use of underwriting guidelines was a prominent issue in the workshop.

Heading the workshop from the CDI were General Counsel Adam Cole, Joel Laucher, Chief Deputy of Rate Regulation, and Bryant Henley, Senior Counsel for the Rate Enforcement Bureau. 

While there was an exchange of views among insurer representatives, representatives of consumer groups and the CDI staff, no decisions were made at the workshop.

Mr. Cole announced that interested parties have until December 1, 2011, to submit written comments on the workshop topics.

At that point, the CDI presumably will review the workshop record and determine whether to propose any new regulations relating to the workshop topics.

Following is a summary of the key issues discussed at the workshop:

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Barger & Wolen's Insurance Litigation & Regulatory Law Blog Named to The Insurance Law Community's Top Blogs for 2011

Barger & Wolen's Insurance Litigation & Regulatory Law and Life, Health, Disability Insurance Law blogs have been named to LexisNexis' Insurance Law Community's Top Insurance Blogs 2011.

According to LexisNexis,

These top blogs offer some of the best writing out there. They contain a wealth of information for all segments of the insurance industry, and include timely news items, expert analysis, practice tips, frequent postings and helpful links to other sites and sources.

These sites demonstrate the power of the blogosphere, by providing a collective example of how bloggers can—and do—impact and influence the law and the business of insurance.

We are honored to be included among so many well-written and well-regarded blogs.

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Our philosophy for our blogs is to provide an open platform for our partners and associates to write. Whether commenting on a recent news item, informing our readers about a new piece of legislation, or providing case summaries and case reviews, each of our blogs maintains a distinct focus:

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All of our blogs are available for complimentary subscription via e-mail or RSS feed. Please visit each blog individually to subscribe.

In addition to our insurance law focused blogs, please visit the firm's Litigation Management & Attorney Fee Analysis Blog.

NAIC Working Group Proposes Controversial Plan for Implementing ORSA Reporting Requirement

On November 2nd, the Group Solvency Issues Working Group (“GSIWG”) met at the National Association of Insurance Commissioners' (NAIC) Fall National Meeting to discuss the latest exposure draft of the NAIC Own Risk and Solvency Assessment (“ORSA”) Guidance Manual (the “Manual”), and regulators’ controversial plan to implement the ORSA requirement by incorporating it into the Form B Insurance Holding Company System Annual Registration Statement (“Form B”) that each insurer is required to file annually with its domiciliary regulator. 

Once implemented, ORSA would require each non-exempt insurer (or insurance group on behalf of a subsidiary insurer) to

assess the adequacy of its risk management and current, and likely future, solvency position, internally document the process and results, and provide a high level summary report annually to the domiciliary regulator, if requested.” See Manual, Exposure Draft, dated October 14, 2011. 

An insurer would be exempt from the ORSA requirement if:

  1. it has less than $500 million in annual direct written premium and
  2. it is not a member of a group of affiliated insurers that has $1 billion or more in annual direct written premium.   

One of the primary objectives of ORSA is to provide state regulators with a means of assessing on a group wide – instead of merely on a legal entity – basis the enterprise risk management framework and capital adequacy of an insurance group. 

In effect, regulators are seeking various tools (ORSA among them) that will assist them in preventing another AIG-type scenario where risks generated by non-insurers in the group potentially pose an existential threat to the insurer legal entity.

At the meeting, the GSIWG accepted proposed revisions to the Manual that were generally non-substantive in nature and then voted to adopt the Manual (as revised) for the Financial Condition (E) Committee to implement as part of the U.S. Solvency Framework

However, the GSIWG’s proposal to utilize the Form B requirement as the legal vehicle for imposing the ORSA requirement was met with firm opposition by the industry.

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Department Provides Advice on Effective Date of Amendments to California Principally At-Fault Regulation

The California Department of Insurance issued a notice on October 24, 2011, which advises that most of the amendments to regulatory section 2632.13 apply to accidents that occur prior to the amendments’ December 11, 2011, effective date. 

However, provisions in the amendments relating to the threshold for principally at-fault determinations and to presumptions about principally at-fault accidents do not apply to accidents that occur prior to December 11, 2011.

Background

The question of whether a driver was principally at-fault for an accident has significant implications for the driver. A principally at-fault accident affects the driving record that is used to determine the driver’s auto insurance premium and also affects the driver’s eligibility for the statutory good driver discount.

Regulatory section 2632.13 sets forth the requirements that a private passenger auto insurer must follow when the insurer determines whether a driver was principally at-fault for an accident. The section was first adopted in 1994.

Two years ago, the Department of Insurance started the process of amending section 2632.13. The process resulted in amendments to section 2632.13 which were adopted on March 16, 2011. The amendments will go into effect on December 11, 2011. 

The amendments address a number of issues including insurers’ reliance on loss underwriting exchange data, notices that insurers must send to drivers, the injury or property damage accident threshold that must be met in order for a driver to be considered principally at-fault for the accident and certain presumptions that insurers must follow when they make principally at-fault determinations.

October 24, 2011, Notice

The amended version of subsection (b) of section 2632.13 changes the accident threshold that must be met in order for an insurer to determine that a driver was principally at-fault for an accident. The amended version of subsection (c) of section 2632.13 changes the presumptions that an insurer must follow when the insurer makes a principally at-fault determination.

The question of whether the amended threshold and presumptions in subsections (b) and (c) apply to accidents that occur prior to the amendments’ December 11, 2011, effective date needed resolution.  

The department’s October 24 notice advises that the amended version of subsections (b) and (c) do not apply to accidents that occur prior to December 11, 2011, because the subsections change the legal consequences of past behavior and there is no evidence that those two subsections are intended to be applied retroactively.  

The October 24 notice concludes that the remaining amendments to section 2632.13 are procedural and do apply to accidents that occur prior to the amendments’ December 11, 2011, effective date.

The department’s October 24 notice advises that the amended version of subsections (b) and (c) do not apply to accidents that occur prior to December 11, 2011, because the subsections change the legal consequences of past behavior and there is no evidence that those two subsections are intended to be applied retroactively.

Hearing Held on Premium Tax Payment Regulations

On September 8, 2011, the California Department of Insurance (“CDI”) held a hearing to consider the adoption of three regulations which would allow an insurer to continue to pay premium taxes based on premiums that are written, rather than premiums that are received, by the insurer. No testimony was put forward at the hearing, which lasted less than ten minutes.

The CDI had a longstanding requirement that insurers must pay premium taxes based on premiums-written. In 2006, the California State Board of Equalization ruled in Matter of the Petitions for Redetermination Under the Tax on Insurers Law of California Automobile Insurance Company that the CDI’s requirement was contrary to the California Constitution and California statutes.

The Board concluded that California law directs that premium taxes should be paid on the basis of premiums-received rather than on the basis of premiums-written. However, the Board’s ruling recognized that the great majority of insurers were following the CDI’s premiums-written requirement and that converting to the premiums-received basis would be costly. 

In the interests of fairness, equity and sound tax administration, the Board urged the CDI not to compel any unwilling insurer to convert to the premiums-received basis.

The proposed regulations seek to implement the Board’s 2006 ruling. The regulations allow an insurer that has been paying premium taxes based on premiums-written to continue to do so. The regulations permit, but do not require, an insurer to switch from the premiums-written basis to the premiums-received basis, but once the insurer makes the switch the insurer cannot go back to the premiums-written basis.

At the close of the September 8 hearing, the CDI made no statement regarding whether or when the proposed regulations will be adopted.

 

Auto Insurance Discount Initiative Okayed to Collect Signatures

On August 12, 2011, California Secretary of State Debra Bowen announced that supporters of a proposed initiative on automobile insurance rates may begin to collect signatures to put the measure before California voters. Supporters of the initiative have until January 9, 2012, to submit the 504,760 valid signatures needed to put the initiative on the June 5, 2012, statewide ballot.

The initiative, named the “2012 Automobile Insurance Discount Act,” would allow insurers to use continuous automobile insurance coverage with any admitted insurer or insurers as a rating factor for private passenger automobile insurance.

Under existing California Department of Insurance regulation 2632.5(d)(11), an insurer may use continuous coverage as a rating factor when an individual is currently insured for automobile insurance with his or her insurer or an affiliate insurer. The existing regulation prohibits an insurer from basing the continuous coverage rating factor on coverage provided by another non-affiliated insurer. The proposed initiative would override this existing regulatory prohibition.

Background

Actuarial analyses indicate that, in general, drivers who maintain continuous automobile insurance coverage have a lower risk of future insured losses. Over the past several years, there has been controversy in California over how this lower risk should be considered as a rating factor for private passenger automobile insurance.

Proposition 103

Proposition 103, which was passed by California voters in 1988, enacted Insurance Code Section 1861.02.

Section 1861.02(a) provides that private passenger automobile insurance rates must be determined, in decreasing order of importance, by 1) driving record; 2) number of miles driven; 3) years of driving experience; and 4) optional factors that the insurance commissioner may adopt by regulation. 

Section 1861.02(c) provides that the absence of automobile insurance, in and of itself, shall not be a criterion for determining automobile insurance rates. Proposition 103 declared that its provisions “shall not be amended by the Legislature except to further its purposes.”  

Quackenbush Regulation

In 1996, Insurance Commissioner Chuck Quackenbush exercised his power to adopt optional rating factors under Section 1861.02(a) and adopted a regulation that allowed insurers to use “persistency” as a rating factor.

The regulation did not define “persistency.” The term was interpreted differently by various insurers. Some insurers interpreted “persistency” to mean the number of years a customer has continued insurance coverage with his or her current insurer. Other insurers defined “persistency” more broadly to include continuous coverage with any insurer.

Low Regulation

In 2002, Insurance Commissioner Harry Low adopted a regulation that limited the scope of the persistency rating factor. The Low regulation, which is incorporated in the Department of Insurance’s existing regulatory section 2632.5(d)(11), requires that in applying the persistency rating factor, an insurer may consider only the length of time a driver has been continuously covered with his or her current insurance company or an affiliate of that company. 

SB 841

In 2003, the Legislature sought to override the Low regulation by expanding the scope of the persistency rating factor.

The Legislature passed SB 841, which amended Insurance Code Section 1861.02(c) to provide that an insurer may use continuous coverage with a driver’s current insurer or another insurer as an optional rating factor to determine the driver’s insurance premium. In passing SB 841, the Legislature declared that the bill “furthers the purpose of Proposition 103 to encourage competition among carriers so that coverage overall will be priced competitively.” Governor Gray Davis signed SB 841 into law on August 2, 2003.

In September 2005, the California Court of Appeal ruled in Foundation for Taxpayer & Consumer Rights v. Garamendi (2005) 132 Cal.App.4th 1354 that SB 841 was invalid because it did not further the purposes of Proposition 103. The ruling was based on two points.

  1. SB 841’s application of continuous coverage as a rating factor violated the proposition’s provision in Insurance Code Section 1861.02(c) prohibiting the use of the absence of prior insurance “in and of itself” as a criterion for determining rates. 
  2. The Legislature’s attempt to specify an optional rating factor was inconsistent with the proposition’s provision in Insurance Code Section 1861.02(a)(4) delegating the exclusive authority to adopt optional rating factors to the insurance commissioner. 

The court disregarded the Legislature’s declaration that SB 841 furthered Proposition 103’s purpose of encouraging competition.

The Court of Appeal’s ruling preserved the Low regulation which limits the application of the continuous coverage rating factor to coverage with a driver’s current insurer or an affiliate of the current insurer. That regulation remains in effect today.

Proposition 17

In 2010 there was an unsuccessful attempt to override the existing regulation with a voter initiative. Proposition 17 would have allowed a driver to demonstrate continuity of coverage by providing proof of coverage from his or her prior insurer or insurers. Proposition 17 failed to gain voter approval at the June 8, 2010, statewide primary election. 

Proposed Initiative

The proposed initiative, which was approved for signature gathering on August 12, 2011, also seeks to override the existing regulation but does not use the same language that was contained in Proposition 17. 

The proposed initiative would enact a new Insurance Code section that expressly allows a private passenger automobile insurer to use continuous coverage as an optional rating factor. 

The initiative defines “continuous coverage” to mean “uninterrupted automobile insurance coverage with any insurer or insurers, including coverage provided pursuant to the California Automobile Assigned Risk Program or the California Low Cost Automobile Program.”

The initiative specifies certain circumstances that qualify for continuous coverage, including a lapse in coverage due to an insured’s active military service or a lapse in coverage of up to 18 months in the last five years due to loss of employment resulting from a layoff or furlough.

The initiative grants a proportional discount to a driver who is unable to demonstrate continuous coverage; the discount reflects the number of years in the immediately preceding five years for which the driver was insured.

Barger & Wolen will continue to report on the state of this new initiative.

 

New Law Makes Significant Changes to the Regulation and Taxation of Surplus Line Insurance

California Assembly Bill 315 (pdf), signed into law by Governor Jerry Brown on July 13, 2011, conforms California law to the Nonadmitted and Reinsurance Reform Act (NRRA) that was part of H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (signed into law by President Barack Obama on July 21, 2010).

AB 315’s provisions became operative on July 21, 2011.

It was important for California to enact AB 315 by July 21, 2011, because the NRRA, which went into effect on that date, pre-empts several aspects of state surplus line insurance regulation and taxation. 

The enactment of AB 315 preserves California’s authority to regulate surplus line insurance and to collect surplus line insurance taxes.

Here is a summary of key elements of AB 315. The cited sections are the California Insurance Code sections that are added or amended in the chaptered version of AB 315.

Home State

AB 315 introduces the concept of the “home state” of the insured. The concept of home state is especially important for determining whether California law governs a surplus line transaction (1761(a)), whether a producer must obtain a surplus line license (1761(a)), and whether a California tax is imposed on surplus line premiums (1774(a)).

AB 315’s description of home state mirrors the provisions of the NRRA.

If an insured is a business, the insured’s home state is the state where the insured maintains its principal place of business. If an insured is an individual, the insured’s home state is where the insured maintains his or her principal residence. However, if 100% of the insured risk is located outside the state where the insured maintains its principal place of business or principal residence, the home state is the state to which the greatest percentage of the insured’s taxable premium for the insurance contract is allocated (1760.1(e)(1)(A)and(B)).

If more than one insured from an affiliated group is named in a single non-admitted insurance contract, the home state is the home state of the member of the affiliated group that has the largest percentage of premium attributed to it under the insurance contract (1760.1(e)(4)). Existing Insurance Code section 1215(a) defines “affiliate.”

A surplus line broker has the responsibility to determine whether California is the insured’s home state (1760.2), and is required to maintain records that verify that the insured is a California home state insured (1768).

Premium Tax Payment

Under pre-AB 315 law, the surplus line insurance tax is imposed on the portion of the premium allocated to risks in California. AB 315 changes that system in order to conform California law to the NRRA.

AB 315 imposes a tax on 100% of the surplus line insurance premium when California is the home state of the insured (1775.5(b)).

AB 315 includes special transition rules. If a new policy or a renewal policy has an effective date on or before July 20, 2011, and is placed on or before July 20, 2011, the provisions of AB 315 do not apply (1774(d)(3)).

States are allowed to enter into interstate compacts to determine the allocation of surplus line premium taxes. California has not entered into any such compacts.

Insurer Eligibility

AB 315 sets eligibility requirements for a non-admitted insurer that wants to insure California home state insureds. 

First, if the insurer is a U.S.-domiciled insurer, the insurer must be licensed to write the type of insurance in its domiciliary jurisdiction and must have a capital and surplus that together total $45 million. 

Second, if the insurer is not domiciled in the U.S., the insurer must be listed on the NAIC International Insurers Department’s Quarterly Listing of Alien Insurers (1765.1(a) and (b)).

AB 315 includes detailed requirements that must be met in order to place insurance on a limited basis with an insurer that does not meet the bill’s eligibility requirements (1765.1(h)).

AB 315 repeals provisions in Insurance Code section 1765.1 that established the List of Eligible Surplus Line Insurers (LESLI). The bill replaces LESLI with the List of Approved Surplus Line Insurers (LASLI) (1765.2(f)). The requirements of LASLI are substantially the same as the requirements of LESLI. Surplus line insurers that are on LESLI as of July 21, 2011, are automatically on LASLI (1765.1(i)). In order to remain on LASLI, insurers will have to file required documents and pay filing fees (1765.2(c)-(e) and (j)).

Commercial Insured

AB 315 retains the general requirement that a surplus line broker may place business with a non-admitted insurer only after making a diligent search for coverage in the admitted market (1763(a)). 

However, AB 315 creates a new exception to the general requirement. The diligent search requirement does not apply to a commercial insured (1763(h)). 

In order to qualify as a commercial insured, an insured must employ or retain a qualified risk manager, must have paid nationwide commercial property/casualty insurance premiums in excess of $100,000 in the immediately preceding 12 months and must meet one of five listed criteria which include minimum standards relating to net worth, revenues and number of employees (1760.1(b)). The surplus line broker is responsible for ensuring that an applicant for insurance is a commercial insured (1763(h)(2)).

Administrative Services

AB 315 allows a California domiciled insurer to have common directors with an affiliated non-admitted insurer and permits a California domiciled insurer to perform administrative services for an affiliated non-admitted insurer (1761(b)).

 

Another Toehold in Using the UCL to Scale the Barriers of Moradi-Shalal

In 1988, the California Supreme Court issued its landmark decision in Moradi-Shalal v. Fireman’s Fund Ins. Cos., 46 Cal. 3d 287, disallowing private rights of action based on violations of the Unfair Insurance Practice Act (“UIPA”), otherwise known as third-party bad faith claims. Shortly thereafter, the prohibition was extended to first-party bad faith claims.

Most significantly, a series of Court of Appeal decisions disallowed violations of the UIPA to be brought as claims under the California’s “Unfair Competition Law” (Business and Professions Code Section 17200, et seq., or the “UCL”). 

As one court concluded:

we have no difficulty in [holding] the Business and Professions Code provides no toehold for scaling the barriers of Moradi-Shalal.” Safeco Ins. Co. v. Superior Court, 216 Cal. App. 3d 1491, 1494 (1990). 

More recently, another court held that “parties cannot plead around Moradi-Shalal’s holding by merely relabeling their cause of action as one for unfair competition.” Textron Financial Corp. v. National Union Fire Ins. Co., 118 Cal. App. 4th 1061, 1070 (2004).

In November 2009, we reported on Zhang v. Superior Court, a case that rejected Textron, and held that because the UCL allows a plaintiff to allege unfair, unlawful, and misleading conduct against businesses generally (including insurers), the fact an insured asserts what appear to be violations of the UIPA is not necessarily an end run around Moradi-Shalal so long as the insured also alleges the insurer acted unfairly by engaging in false and deceptive advertising, suggesting it would provide coverage in the event of a loss, when it had no intent to do so. 

The case was short-lived, as the Supreme Court accepted review in February 2010 and the decision became depublished. While the Zhang case is fully briefed, the Supreme Court has not yet set oral argument.

On June 15, however, another Court of Appeal decision issued again sought to undercut the prohibition on using the UCL to pursue UIPA-like claims. 

In Hughes v. Progressive Direct Ins. Co., the plaintiff sued his insurer in a purported class action based on the automobile insurer’s alleged company-wide practice of steering its insureds to repair shops that were part of Progressive’s Direct Repair Program (DRP) and misrepresenting their ability to take their vehicle to a non-DRP repair shop. 

The sole claim alleged was under the UCL, but the predicate statute relied on to support the UCL claim was Insurance Code section 758.5.

That statute, which prohibits insurers from requiring an insured’s vehicle to be repaired at a specific repair shop, or suggesting a specific shop be used, unless the insured is informed in writing of his or her rights to select another repair shop, does not, just like the UIPA, permit a private right of action but only enforcement by the Insurance Commissioner pursuant to the UIPA. 

Accordingly, the trial court sustained the insurer’s demurrer to the complaint, concluding that just as the UCL could not be used to circumvent UIPA claims under Moradi-Shalal, neither could a UCL claim proceed based upon Section 758.5.    

The Court of Appeal reversed, and concluded that Moradi-Shalal does not bar a claim by an insured against an insurer under the UCL based solely on the allegations the insurer violated Section 758.5. 

After discussing in detail the decisions issued since the time of Moradi-Shalal vis-à-vis the UCL, as well as the legislative history of Section 758.5, and then relying on a parsed reading of the language of the UCL in which its remedies are “cumulative” to other laws unless otherwise “expressly” provided, the court found that an alleged violation of a statute like Section 758.5, so long as it does not involve conduct violating the UIPA, “may serve as the predicate for a UCL claim absent an express legislative direction to the contrary.”  

The decision, however, was not one of clear unanimity. One of the three Justices on the appellate panel issued his own concurring opinion, in which he expressed his “considerable misgivings” as to the majority opinion. After noting that the opinion “hangs precipitously on one word, namely ‘express,” Justice Fred Woods lamented that the social problems sought to be addressed by the Moradi-Shalal decision and various legislative remedies might now be undone, and that he saw “storm warnings on the horizon.”

Perhaps, just as the Supreme Court accepted review of the Zhang case last year to address that appellate decision seeking to create a chink in the armor of Moradi-Shalal, it will similarly accept review of Hughes to address this latest attack on the scope of Moradi-Shalal and bring some certainty to whether the reach of the UCL is as broad as these two lower appellate courts have held

Rate Regulation Bill Applicable to Health Care Service Plans and Health Insurers Passed by California Assembly

On June 1, 2011, the California State Assembly passed AB 52, which was initially introduced in December 2010.

Beginning January 1, 2012, the bill would require health care service plans and health insurers in California to obtain prior approval from the Department of Managed Health Care or the Department of Insurance for all proposed rate increases.

Under the proposed legislation, the Department of Managed Health Care and the Department of Insurance would be prohibited from approving any rate or rate change that is excessive, inadequate, or unfairly discriminatory. 

In addition, the bill calls for an examination by the Department of Managed Health Care and the Department of Insurance of all rate increases that become effective between January 1, 2011 and December 31, 2011, to ensure that those rates are not excessive, inadequate, or unfairly discriminatory, and to order the refund of any payments made pursuant to any such rate.

The bill must still be approved by the California Senate and signed into law by the Governor in order to become legally operative.

Originally posted on Barger & Wolen's Life, Health and Disability Insurance Law Blog.

California Insurance Commissioner Dave Jones' Holds Investigatory Hearing on Life Insurer Claims Payments of Death Benefits

By Robert W. Hogeboom and Alexandra E. Ciganer

On May 23, 2011, California Insurance Commissioner Dave Jones along with State Controller John Chiang held an investigatory hearing on the claims practices of Metropolitan Life Insurance Company (“MetLife”) regarding the payment of death benefits under life insurance policies and annuities. Joining the Commissioner and State Controller were regulatory officials from the Florida and Minnesota Departments of Insurance who are also investigating death benefits claims practices.

 

MetLife was called to the hearing pursuant to the California Department of Insurance’s (“CDI”) investigatory subpoena to appear and provide documents to determine whether the insurer’s practices and procedures relating to its use of its death master file data and related information violates various sections of the Insurance Code.

 

The Commissioner’s opening statement reflects his concern that a number of life insurers are using death information to “boost their finances by stopping annuity payments, but not using the same information to pay policyholders the beneficiary payments they are due.” 

 

The CDI announced that it is commencing market conduct exams on the ten largest life insurers to investigate these practices. Adam Cole, CDI General Counsel, along with Insurance Commissioner Jones, gave opening statements and conducted the bulk of the questioning of MetLife officials. Mr. Cole indicated that the CDI is reviewing the death claims practices to determine if violations exist under California Insurance Code subsections 790.03(h)(3) and (5). Subsection (3) refers to failing to adopt reasonable standards for the prompt investigation and processing of claims. Subsection (5) refers to not attempting in good faith to effect prompt, fair and equitable settlements of claims. Other sections of the California Insurance Code were also cited.

 

In assessing whether claims settlement practices violated these statutes, Commissioner Jones dedicated a significant portion of the inquiry to MetLife’s use of the U.S. Social Security Administration death master file in identifying deceased insureds. Much of the time was spent questioning the application of the death master file to different insurance products, including group annuity, group life and individual life products, frequency of the death master file sweeps, and what constitutes a match in the death master file.

 

Commissioner Jones raised his concern with the varying frequency of death master file sweeps to the different products. He probed into the reasons for conducting a death master file sweep of individual life insurance products annually versus monthly or quarterly for other products. The regulators also dedicated significant attention to MetLife’s use and characterization of the death master file as a “safety net” procedure in identifying the deceased individual life insurance insured. Commissioner Jones’ view appears to be that the use of the death master file as a safety net is not sufficient and should be used as “an integral part of the normal process.” 

 

While the investigatory hearing was characterized by the CDI as a public hearing to investigate company actions, policies and practices, in actuality it was a disciplinary investigatory hearing to determine specific violations, which is tantamount to a deposition. As such, it was not being used as a public forum to exchange information which could ultimately lead to best practices legislation with respect to payment of death benefits, but to provide traction for the CDI to institute disciplinary proceedings against members of the life insurance industry.

 

A copy of the Commissioner’s Press Release on the hearing and his plans to conduct market conduct examinations is found here.

 

For more information, please contact Robert Hogeboom at (213) 614-7304, or rhogeboom@bargerwolen.com.

 

SB 631 - Restitution Bill Update

Robert Hogeboom Testifies on California Restitution Remedy Bill

On April 28, 2011, Barger & Wolen Senior Regulatory Counsel, Robert W. Hogeboom, testified before the Senate Insurance Committee as an industry expert opposing Senate Bill 631

SB 631, as drafted, would give the Insurance Commissioner additional remedies of restitution and reimbursement of attorney’s fees and costs in California Department of Insurance enforcement actions brought on behalf of consumers claiming wrongful conduct by insurers or other licensees, including producers. For more details, please see New Restitution Remedy Proposed for Insurers and Licensees in California.

Immediately before the Senate Insurance Committee hearing, author Senator Noreen Evans (D-District 2) announced her decision to make SB 631 a two-year bill. Her decision is presumed to be the result of the Legislative Counsel’s opinion to the Senate Insurance Committee raising California constitutional issues that the legislation may give the Commissioner remedies only available to the courts. 

At the hearing, Hogeboom testified that the legislation would violate the separation of powers clause in the California Constitution. Restitution is only given to quasi-judicial entities such as the California Workers’ Compensation Appeals Board. Further, reimbursement of attorney’s fees and costs would exceed even the power of the courts in most cases. 

Hogeboom also testified that because the legislation would extend payment of restitution for violations of Proposition 103’s rating law, the bill would likely require a two-thirds vote of the Legislature to pass.

Based on his lengthy experience as an enforcement regulatory lawyer, Hogeboom testified that the measure would actually hinder due process rights from licensees because many producer licensees would not be able to afford an administrative hearing when they face the risk of having to pay both restitution and reimbursement of attorney’s fees and costs. This would give the CDI more leverage in forcing licensees into settlements. 

Following the April 28, 2011 hearing, the bill was put over for another year in order to more fully explore its legal issues.

For more information, contact Robert Hogeboom at (213) 614-7304 or rhogeboom@bargerwolen.com.

Two Air Ambulance Suits Grounded in Two Days by Federal and State Courts

 

Over the course of two days at the end of March, the Ninth Circuit Court of Appeals and the Sonoma County Superior Court issued two separate decisions dismissing claims by air ambulance companies that sought to obtain medical provider benefits under workers’ compensation without following the dictates of the California workers’ compensation system. In both instances, the courts found that they did not have subject matter jurisdiction to consider the claims alleged by the air ambulance companies.

In early 2009, California Shock Trauma Air Rescue (“CALSTAR”) filed two virtually identical actions in federal court in Sacramento against more than 75 workers’ compensation insurers and self-insured employers. 

CALSTAR’s lead lawsuit in the consolidated actions, California Shock Trauma Air Rescue v. State Compensation Insurance Fund, et al., argued that, as a result of CALSTAR being certified by the Federal Aviation Administration to operate as an air carrier, any claims for payment it submitted to workers’ compensation insurers and self-insured employers in California should not be limited to those amounts set forth in the Official Medical Fee Schedule for ambulance services, California Code of Regulations, title 8, section 9789.70

Rather, as a federally certified air carrier, CALSTAR asserted that the Fee Schedule is preempted by the Federal Aviation Act of 1958, as amended by the Airline Deregulation Act (“FAA/ADA”).

In other words, CALSTAR sought to avoid the limitations on payment that would apply to all other medical providers and even ground-based ambulances set forth in the Fee Schedule. CALSTAR’s complaint alleged causes of action for declaratory relief and a number of state law claims.

As reported in this blog, the federal district court dismissed CALSTAR’s lawsuits on July 24, 2009, finding, on a number of grounds, that it lacked federal subject matter jurisdiction to consider CALSTAR’s claims. CALSTAR appealed the dismissal of its two actions to the Ninth Circuit.

On March 31, 2011, the Ninth Circuit published its opinion in the two consolidated appeals, affirming the decision of the trial court and concluding that the well-pleaded complaint rule precluded the federal court’s exercise of federal subject matter jurisdiction with respect to purely state law claims.

More specifically, the three-judge panel found that CALSTAR’s claims did not “arise under” the laws of the United States, and its attempt to obtain a determination as to federal preemption of the Fee Schedule was, at most, in anticipation of its response to the defense that would be posited by the defendants – and this is not adequate to create federal court jurisdiction. 

The Ninth Circuit further dismissed CALSTAR’s attempt to fall within the case law that allows federal court jurisdiction over state law claims that “implicate significant federal issues,” since, once again, CALSTAR could not satisfy the well-pleaded complaint rule, and its state law claims do not turn on a federal issue.

Finally, the Court concluded that the mere fact that CALSTAR had alleged claims for declaratory relief in addition to its state law claims did not allow the “procedural” device of such a declaratory relief claim to confer “arising under” jurisdiction. This is especially true here, since CALSTAR’s actions did not sue any state official, which the Supreme Court and other federal circuits had found to be a prerequisite to allowing any such Supremacy Clause claims to proceed in federal court.

One of the defenses raised by the insurers and self-insured employers in CALSTAR, but never addressed by the federal trial and appellate courts was that, even if there were federal subject matter jurisdiction, the air ambulance company’s action must still be dismissed because the claims are subject to the exclusive jurisdiction of the Workers’ Compensation Appeals Board (“WCAB”) and fall within the exclusive remedies of the Workers’ Compensation Act

The day before the Ninth Circuit issued its decision, a California state trial court in Sonoma County had the occasion to address that precise issue, dismissing claims by another air ambulance company due to the exclusive jurisdiction of the WCAB and the exclusive remedy the Act.

REACH Air Medical Services LLC sued many of the same defendant insurers and self-insured employers as did CALSTAR, and the defendants demurred to REACH’s state court complaint on the grounds of exclusive jurisdiction/exclusive remedy. On March 30, Sonoma County Superior Court Judge Elliot Daum issued his Order sustaining the demurrers and dismissing the action without leave to amend. If REACH wanted to pursue its claims for additional benefits beyond those paid by the Fee Schedule under worker’s compensation, it could only do so within the exclusive remedies provided by the Act and before the exclusive jurisdiction of the WCAB.

One final note. In October 2010, CALSTAR filed its own state court action in Solano County Superior Court against many of the same defendant insurers and self-insured employers. That action seeks further payment of medical provider benefits for services rendered after the time CALSTAR filed its federal court action. The defendants have demurred to that state court complaint, and a hearing on their demurrers is set for April 21.

Larry Golub of Barger & Wolen has represented a number of the defendants in all three lawsuits.

 

California Seeking Suitability Requirements Again

The California Department of Insurance (“CDI”) published, on March 11, 2011, proposed regulations containing suitability requirements to govern the sale of annuities (see Insurance Commissioner Jones' press release). This represents an attempt by the CDI to accomplish by regulation what it failed to accomplish several times by statute in the past decade.

The proposed regulations are based on the NAIC Suitability in Annuity Transactions Model Regulations, as revised by the NAIC in 2010, but include some revisions.

It is important to note that for many years the CDI has held the position that the prior versions of the NAIC Suitability Model did not go far enough in protecting consumers. The CDI supported unsuccessful legislation in California at least three times in the mid-2000s that sought to impose suitability requirements that were more onerous than the then current NAIC Suitability Model.

Thus, while most states have adopted laws that follow the NAIC Suitability Model, California currently lacks laws that provide specific suitability requirements that pertain to the sale of annuities.

Given the lack of express suitability requirements, the CDI has sought to regulate suitability in connection with the sale of annuities using other tools such as:

  1. general legal concepts of principal-agent responsibility;
  2. requirements relating to replacements; and,
  3. California Insurance Code Section 785(a)’s imposition of a duty of good faith and fair dealing in connection with the sale on an insurance product to a senior.

The regulations proposed by the CDI include a provision that would make them applicable only to sales of annuities to purchasers aged 65 and older. This is in contrast to the NAIC Suitability Model which applies to all sales of annuities.

Another important distinction between the CDI’s proposed regulations and the NAIC Suitability Model is that the CDI proposal does not include the “FINRA Safe Harbor” provisions which were some of the primary revisions made by the NAIC to the Suitability Model last year. A public hearing will be held on the CDI’s proposed regulations on April 25, 2011. 

It is interesting to note that the The National Conference of Insurance Legislators recently endorsed the NAIC Suitability Model. Also, the Senate Insurance Committee of the California Legislature introduced legislation, SB 715, on February 18, 2011, that seeks to codify the NAIC Suitability Model. SB 715’s draft language is the same as the NAIC Suitability Model that was revised by the NAIC last year. 

It is not clear at this point in time why the CDI has proposed the NAIC Suitability Model in the form of regulations when the Model is pending as a proposed statute. One thought is that the CDI is hedging its bets. One problem that the CDI may have is that it is unclear whether there is sufficient statutory authority for the CDI to promulgate the NAIC Suitability Model as a regulation.

New Restitution Remedy Proposed for Insurers and Licensees in California

By Robert W. Hogeboom and Larry M. Golub

On March 1, 2011, California State Senator Noreen Evans introduced Senate Bill 361 as spot bill legislation. The legislation was at the request of California Insurance Commissioner Dave Jones who seeks to enable consumers to obtain their out-of-pocket costs associated with claimed wrongful conduct by insurers or other licensees, which would include producers. 

As explained in Senator Evans’ press release, the bill grants explicit authority to the California Department of Insurance (CDI) to “order restitution as part of an administrative enforcement action.” 

Because the legislation is a spot bill, the next version of the bill will provide the details discussed in the press release. Senator Evans’ office also issued an SB 631 Fact Sheet that provides further information on the proposed legislation.

The press release and fact sheet acknowledge that the CDI presently does not have the authority to order insurers or other licensees to restore out-of-pocket expenses or money wrongfully obtained.   

The fact sheet provides examples of the types of monetary losses that are sought to be dealt with by SB 631:

  1. health insurance rescissions for out-of-pocket costs for medical treatment that the CDI alleges should be covered under the policy;
  2. the charging of a premium that is higher than allowed; and,
  3. the effect of the recent court decision in MacKay v. Superior Court.  MacKay held that consumers cannot sue an insurer directly for rating activities that were subject to the CDI’s approval in the rate application process. 

The effect of this bill would likely result in the CDI initiating administrative actions based on consumer complaints as well as market conduct rating and underwriting and claims examinations for the primary purpose of ordering restitution to consumers.  

The press release advises that SB 631 would allow insurers to challenge the CDI’s determination in court, and it also states that the bill would preserve the ability of consumers to sue their insurer in court over the claimed wrongful conduct.

Perhaps just as important, the legislation allows the CDI to seek reimbursement for all of its costs in bringing the enforcement action.  Currently, the CDI has no authority to seek reimbursement for the costs it incurs in administrative actions.

Proponents of SB 631 may face an uphill battle with the aspect of this legislation that amends Proposition 103’s penalties relating to rating and underwriting matters. 

It is our preliminary analysis that Proposition 103 and California Insurance Code (CIC) § 1861.14 specify that violations of Article 10 “Reduction and Control of Insurance Rates” are subject to the penalties set forth in CIC §§ 1859.1 and 1858.07 (i.e., $5,000 for each act and $10,000 if willful). 

Because this legislation would have the effect of amending CIC § 1861.14 to provide restitution, it would require a two-thirds vote of the legislature.

For more information, contact Robert Hogeboom at (213) 614-7304 | rhogeboom@bargerwolen.com, or Larry Golub at (213) 614-7312 | lgolub@bargerwolen.com.

Has California Gone Too Far in Responding to Underinsurance Problems in Homeowners Insurance?

Barger & Wolen insurance litigation and regulatory law partner Marina Karvelas will be a guest blogger for the DRI’s blog, DRI Today for the next two weeks.

Her first post, Has California Gone Too Far in Responding to Underinsurance Problems in Homeowners Insurance? is live.

California’s Office of Administrative Law recently approved new regulations promulgated by the California Insurance Commissioner for homeowners insurance. 

The regulations create new duties, impose additional standards and establish a new "unfair trade practice" violation on insurance companies and insurance producers selling homeowners insurance policies in California.

Months in the making, the new regulations profess to respond to underinsurance problems experienced by California homeowners who in the wake of wildfire disasters throughout the state in the past decade discovered they did not have enough insurance to rebuild their homes. 

The new regulations, as well as a newly revised California Residential Property Disclosure Form and California Residential Property Insurance Bill of Rights, mark a key shift in California’s public policy. 

The new California homeowner insurance regulations and disclosure requirements take effect on June 27, 2011, and July 1, 2011, respectively.

Click here to read more.

Guidelines for Health Insurers Requesting Rate Increase Issued by California Insurance Commissioner (SB 1163)

On February 4, 2011, California Insurance Commissioner Dave Jones released draft guidelines for implementing SB 1163 (“Guidance 1163:2”).

SB 1163, signed by former Governor Schwarzenegger on September 30, 2010, responds to the federal Patient Protection and Affordable Care Act (“PPACA”), which requires the United States Secretary of Health and Human Services to establish a process for the annual review of “unreasonable” increases in premiums for health insurance coverage.

Under the federal act, health insurers must submit to the secretary, and the relevant state, a justification for an “unreasonable” premium increase prior to implementation of the increase.

SB 1163, effective January 1, 2011, requires health insurers to file with the California Department of Managed Health Care or the California Department of Insurance detailed rate information regarding proposed premium increases and requires that the rate information be certified by an independent actuary. 

The bill authorizes the departments to review these filings and issue guidance regarding compliance. It also requires the departments to consult with each other regarding specified actions as well as post certain findings on their Internet Web sites.

In his draft guidelines (“Guidance 1163:2”), Commissioner Jones lists several factors that will be used by the Department to determine if a rate is “unreasonable.”

Continue Reading...

Emergency Regulations to Enforce PPACA Medical Loss Ratio Guidelines Granted to California Department of Insurance

On Monday January 24, 2011, newly elected California Insurance Commissioner Dave Jones announced in a press release that he had obtained approval from the California Office of Administrative Law to issue an emergency regulation allowing the Department of Insurance (the “Department”) to enforce the medical loss ratio guidelines in the Patient Protection and Affordable Care Act of 2009 (“PPACA”). 

As of January 1, 2011, the PPACA requires all health insurers in the individual market to maintain an 80% medical loss ratio. The Department obtained approval to amend 10 California Code of Regulations § 2222.12 to mirror this requirement. A copy of the amended text can be viewed here

The emergency regulation went into effect on January 24, 2011, and expires on July 26, 2011. It requires California health insurers to demonstrate compliance with the 80% medical loss ratio at the time of the Department’s rate review.

Originally posted to Barger & Wolen's Life, Health and Disability Insurance Law Blog.

Decision Stands: Proposition 103 Approved Insurance Rates Cannot be Attacked in a Civil Action

California Supreme Court Rejects Requests to Depublish MacKay

by Kent R. Keller

On October 6, 2010, Division Three of the Second Appellate District issued a landmark decision in MacKay v. Superior Court, 188 Cal. App. 4th 1427 (2010), declaring that approved insurance rates subject to Proposition 103 cannot thereafter be collaterally attacked in a civil action.

In brief, MacKay was a certified Unfair Competition Law (UCL) class action involving more than 500,000 class members who contended that 21st Century Insurance Company had used two illegal “rating factors” in developing automobile insurance premiums. The two factors had been included in rate and class plan filings approved on multiple occasions by the Insurance Commissioner. 

The issue, as the Court explained, was:

whether the approval of a rating factor by the DOI [Department of Insurance] precludes a civil action against the insurer challenging the use of that rating factor.” MacKay, supra at 1434. 

In a detailed opinion, authored by Justice H. Walter Croskey, the Court concluded that approval did preclude a collateral attack in a civil action. 

This decision is of critical importance to insurers and consumers subject to rate approval pursuant to Proposition 103. 

Prior to MacKay, it was not clear whether approval precluded civil actions. As a result, many insurers were sued, virtually always in class actions, by parties challenging approved rates on one basis or another. 

The result was that, while insurers were required to obtain rate approval before putting a rate into effect and once approval was obtained could had to use the approved rate, they did so at the peril of a class action lawsuit. 

Whether such lawsuits benefited insureds or simply increased premiums in the future is a continuing debate. What, however, was clear was that such actions often produced large attorneys’ fees awards.

Given the value of these class actions to the plaintiffs’ bar, it was not surprising that requests to depublish MacKay were numerous. 

In addition to a request from counsel for the plaintiffs in MacKay, requests were filed by Consumer Watchdog, the City and County of San Francisco, the Consumer Attorneys of California, Public Advocates, the Mexican American Legal Defense & Education Fund, the Southern Christian Leadership Conference of Greater Los Angeles, United Policyholders, the California State Insurance Commissioner, and others. 

Indeed, by a letter dated January 10, 2011, new Commissioner Dave Jones advised the California Supreme Court that he, like his predecessor, supported depublication.

Despite this tsunami of support for depublication, on January 12, 2011 the Supreme Court denied all requests and declared the case closed

While the reasons for denying or granting depublication are never certain, we have to believe that the Supreme Court recognized the correctness of Justice Crokey’s decision. As a result of the Supreme Court’s action, MacKay remains valid and precedential authority.

21st Century Insurance Company was represented in this case by Kent R. Keller, Steven H. Weinstein, Marina M. Karvelas and Peter Sindhuphak of Barger & Wolen.

New Regulations for Replacement Cost Estimating in Homeowners' Insurance approved by California Office of Administrative Law

On December 29, 2010, the Office of Administrative Law ("OAL") approved California Insurance Commissioner Poizner's new regulations setting forth "Standards and Training for Estimating Replacement Value on Homeowners' Insurance." The regulations take effect on June 27, 2011. 

As discussed earlier in this blog here, the regulations encompass significant new obligations on producers and insurers:

  • Require all California resident fire and casualty broker-agents and personal lines broker-agents, who have not already done so, to satisfactorily complete one three-hour training course on homeowners’ insurance valuation prior to estimating the replacement value of structures in connection with, or explaining the various levels of coverage under, a homeowners’ insurance policy;
  • Require insurers, agents and brokers that provide replacement cost estimates to applicants and insureds to document who created the estimate and the sources or methods used to create the replacement cost estimate; and
  • Require that all replacement cost estimates communicated to applicants or insureds be complete, based upon specifically enumerated standards set forth in the regulations. [CDI 12/31/2010 Press Release]

The final regulations, as adopted by the OAL, address some of the criticisms from industry opponents.

For example, Section 2695.183(e) was amended to remove any reference to setting or recommending a policy limit. The Commissioner's Final Statement of Reasons explains that the language was removed in response to comments that it "could be interpreted as establishing an obligation on the part of licensees to set or recommend policy limits, which is not the intent of the regulations."

Issues concerning whether the new regulations exceed the authority of the enabling statute remain and may be the subject of litigation down the road.

 

Insurance Commissioner Removes Four Companies from List of Companies Doing Business with Iran

As we have previously reported in this blog, the CDI issued a broadly-drafted Data Call on July 9, 2009, to all insurers admitted in California seeking information on their investments in or related to Iran as a measure to enforce U.S. governmental sanctions against Iran, including restrictions with respect to doing business with companies that do business in Iran.

As a result of that Data Call, Commissioner Poizner issued a press release advising that more than 1000 insurers licensed to do business in California had agreed to a voluntary moratorium as to future investments in companies that do business in Iran (read more here). He also released a list of 296 insurers doing business in California that would not agree to the voluntary moratorium.

The press release further advised that, as of March 31, 2010, the CDI “disqualified an estimated $6 billion in holdings” in the 50 Iran-related companies (based on 2008 data). The list of the 50 “Iran-related” companies was expanded to 51 companies in April 2010.

Earlier today, Commissioner Poizner issued a press release advising that the CDI has removed four companies from the original list of the 51 “Iran-related” companies based on those companies’ decisions to end operations in Iran. The companies removed form the List are Royal Dutch Shell (Netherlands), Shell International Finance (Netherlands), Total SA (France), and Reposol YPF (Spain).

Commissioner Poizner commends these companies for “putting principle ahead of profit” and hopes the remaining 47 companies on the List follow suit.

He also notes that the CDI’s efforts, together with efforts by the United States Government, the European Union, the United Nations, and recently by the California Legislature (in connection with divestment of State assets in connection with awarding state contracts to companies with Iranian investments), are proving to "add a layer of financial pressure to the broader legal and public relations aspects of the Iran divestment effort.”

The updated CDI List of Iran-related companies is attached here.

Barger & Wolen will continue to follow the CDI’s activities on this matter.

Recent Trends in Market Conduct Examinations

Led by Robert W. Hogeboom, with special commentary from Robert J. Cerny and Western General Insurance Company General Counsel, Daniel Mallut, Recent Trends in Market Conduct Examinations will cover:

  • The statutory framework for claims examinations and what §790.03(h) really means
  • Understanding the Unfair Claims Settlement Regulations and how, if and when they relate to a §790.03 violation
  • The examination process—new trends on which the examination will focus
  • Negotiation, resolution and cost
  • Order to Show Cause hearing process
  • New issues in market conduct compliance

When:   Wednesday, December 8, 2010
Where:  Los Angeles Airport Marriott
            5855 West Century Boulevard
            Los Angeles, CA 90045
Time:    10:00 a.m.—2:00 p.m. (lunch provided)

Who should attend? In-house counsel and senior claims personnel who specialize in the claims examination process and disciplinary actions in California.

For more information, or to register for the event: Please e-mail Heather Milligan here or 213.614.7382.

California CLE credits are provided.

California Residential Property Disclosure - AB 2022 (Update)

On November 30, 2010, California Insurance Commissioner Steve Poizner issued a Notice to all California Residential Property Insurers attaching the revised California Residential Property Disclosure Form and Bill of Rights.

Pursuant to AB 2022, which was written about in detail here, California insurers must implement the new notice and revised bill of rights on July 1, 2011.

On October 27, 2010, Commissioner Poizner invited public comment with respect to changes recently made to his proposed regulations setting forth "Standards and Training for Estimating Replacement Value on Homeowners’ Insurance.” (Amended Text of Regulation). The deadline for comments was November 12, 2010.

Personal Insurance Federation of California submitted comments addressing, among other issues, whether the amended regulation meets the requirements of California Government Code section 11349.1 in that it appears to exceed the authority of the enabling statute; whether the regulations would apply to manufactured homes; as well as problems with the broad definition of "estimate of replacement cost" and new obligations imposed on insurance licensees.

As of this date, the proposed regulations have not been adopted.

Request for Increase in Workers' Comp Cost Benchmark Rejected by Commissioner Poizner

California Insurance Commissioner Requires Overhaul of Workers’ Comp Rate-Making System to Increase Transparency

Citing the inclusion of avoidable costs, California Insurance Commissioner Steve Poizner for the third straight time rejected a filing submitted on behalf of insurers by the Workers’ Compensation Insurance Rating Bureau (“WCIRB”) seeking an increase in the workers’ compensation pure premium rates and claims cost benchmark (“Benchmark”). See this link for Commissioner Poizner’s Decision and Order.

The WCIRB had originally submitted a filing recommending a 29.6% increase, which was subsequently amended to 27.7%. The WCIRB justified the recommended rate increase as warranted primarily because of rising medical costs. This increase would have affected policies with effective dates on or after January 1, 2011. See this link for a summary of the proceedings relating to the WCIRB’s filing.

Pure premium rates reflect the loss (both medical and indemnity) and loss adjustment expense expected to occur on policies. Pure premium rates are a benchmark that insurers can use as a tool for determining their own rates. Pure premium rates have not been increased since January 1, 2009, and this is the third increase in excess of 20% filed by the WCIRB since then.

While the Benchmark is purely advisory and does not set workers’ compensation rates, Commissioner Poizner criticized the requested increase as the Benchmark has in the past allowed insurers to file for and pass on rate increases to businesses.

Calling for transparency and stating that “[t]he workers’ compensation rate-making system is long overdue for some much needed reforms,” Commissioner Poizner also announced three reforms that he believes will significantly improve and inject transparency into the workers’ compensation rate-making process. Under these reforms, the WCIRB will be required to:

  1. calculate future advisory pure premiums based on insurers’ actual, filed rates rather than on theoretical benchmark numbers;
  2. include in each future rate filing a table showing (in addition to industry average numbers) the proposed change for each individual worker classification; and
  3. use California Department of Insurance filing information and data from the WCIRB to evaluate overall workers’ compensation insurer profitability.

 

Defining "What is a Group?" Under Proposition 103

Notice of California Department of Insurance Workshop

By Robert W. Hogeboom

On Monday, November 11, 2010, the California Department of Insurance (CDI) issued a Notice of Workshop Regarding Affinity Groups Under California Insurance Code Section 1861.12.

The Workshop, scheduled for Friday, December 3, 2010, in San Francisco, deals with group rating programs and the likely need for regulations defining the term “group” for eligibility under Section 1861.12, “which is a part of Proposition 103 and authorizes insurers to issue property and casualty ‘insurance coverage on a group plan.’”

Section 1861.12 does not define the term “group” and does not specify the conditions as to when insurance may be issued on a group plan.  

Barger & Wolen notes that the issue as to “what is a group?” is of major importance to insurers that have submitted group rating plans. It is likely that the CDI will issue regulations with respect to the usage of those plans, and those regulations will likely continue the present policy of ensuring that all of the coverage offered by group members be available and offered to all insureds.

The notice sets forth 13 areas that the CDI will address at the workshop and invites written comments to be submitted prior to the close of business on December 3, 2010:

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Commissioner Poizner Criticized By Director of Office of Administrative Law Over His Filing of Lawsuit Concerning Iran "Underground" Regulations

In response to news that, on November 9, 2010, California Insurance Commissioner Steve Poizner filed a lawsuit against the California Office of Administrative Law's (OAL) over the OAL's rejection of the Commissioner's rules relating to insurers' investments in companies that do business with Iran, OAL Director Susan Lapsley issued a press release later that same day indicating:

Our office is authorized by law to scrutinize rules that have been challenged as ‘underground regulations’ (regulations and rules that state agencies issue or use that have not been properly adopted pursuant to the [Administrative Procedures Act]…The Commissioner did not follow that required process but rather simply imposed new rules unilaterally without any public input or comment. This is exactly the type of action the APA is designed to prevent.”

As readers to this blog know, the OAL issued a Determination on October 11, 2010, in which it concluded that the rules Commissioner Poizner unilaterally imposed upon insurers in February 2010, regarding the treatment of their investments in companies that do business with Iran, should have been promulgated pursuant to the APA.

Since the rules did not follow the correct legal process, the OAL found those rules to be void.

Not to be deterred, the Commissioner retained the California Attorney General’s office to file his lawsuit against the OAL alleging that the OAL abused its discretion.  (While the lawsuit is directed against the OAL as the only "respondent," the action also names as "real parties in interest" the five insurance trade associations that brought this issue to the OAL.) 

In a letter to the Attorney General, also issued on November 9, Director Lapsley similarly criticized the Attorney General’s office, stating that,

in any litigation against [the OAL], just as we have in the past, we would request and expect representation from the Attorney General’s office as the Attorney General has an affirmative duty to represent state agencies…It appears to me that there is a conflict in the Attorney General representing the Insurance Commissioner and the Department of Insurance in an action against this Office. This Office has no other option but to bring this to your attention and to inform you that it does not consent to or waive the conflict.”

Director Lapsley specifically noted that the Attorney General's office is currently representing the OAL in another matter involving underground regulations.

Finally, in her press release, Director Lapsley stated:

Given the enduring fiscal crisis facing the State of California, it is regrettable to have to devote any public resources toward resolving this matter. Our mission of regulatory oversight makes it our responsibility and statutory obligation to issue an opinion if we believe an agency is acting outside the law using underground regulations. We stand by our opinion.”

We will continue to follow and report on the developments in this matter.

Commissioner Poizner Files Suit Against Office of Administrative Law

By Larry Golub and Marina Karvelas

On November 9, 2010, California Insurance Commissioner Steve Poizner issued a Press Release announcing that he is filing a lawsuit challenging the California Office of Administrative Law's (OAL) October 11, 2010, determination that the Commissioner's efforts to stop insurers from investing in Iran constituted "underground regulations." 

In a Petition for Writ of Mandate, to be filed in the Los Angeles Superior Court, the Commissioner contests the OAL's analysis of the issues and seeks to clarify his authority to address insurance company investments in contracts in Iran.

Attorney General Jerry Brown is representing the Commissioner in the lawsuit.

In his Petition for Writ of Mandate , the Commissioner alleges three causes of action based on specific conduct engaged in by the Commissioner that the OAL determined amounted to "underground regulations."  These include the Commissioner's:

  1. creation of a List of companies doing business in Iranian energy, nuclear, banking and defense sectors and the determination that these companies are subject to financial risk;
  2. creation of a Form requiring California licensed insurance companies to notify the Commissioner whether they would agree voluntarily not to invest in such companies in the future;
  3. directive to California licensed insurance companies to file financial statements identifying Iran related investments and treating those investments as "non-admitted."  

The Commissioner defends his actions under his authority pursuant to Ins. Code 12921.5 to "disseminate information concerning the insurance laws of this State for the assistance and information of the public," his examination powers under Ins. Code 729, 730, 733, 734 and 736 and under Ins. Code 923, his authority to

"make changes from time to time in the form of  the statements and the  number and method of filing reports as seem to him or her best adapted to elicit from the insurers a true exhibit of their condition."  (Poizner v. Office of Administrative Law)

Earlier, on November 1, 2010, notwithstanding the OAL's determination, the Commissioner  issued a reminder letter to all California licensed insurance companies that they need to comply with the supplemental filing requirements for Iran related investments no later than November 15, 2010.

Barger & Wolen will continue to follow further developments in this matter.

For more information, please contact:

Larry Golub | 213.614.7312 | lgolub@bargerwolen.com

California Office of Administrative Law Disallows Insurance Department Rule on Iranian Investments

Yesterday afternoon, the California Office of Administrative Law (“OAL”) issued a decision finding that a rule adopted by California Department of Insurance (“CDI”) to restrict insurers’ investment in companies that do business with Iran was an improper “underground” regulation. A copy of the OAL’s decision is found here (pdf).

As we previously reported in this blog, on July 9, 2009, the CDI issued a broadly-drafted Data Call to all insurers admitted in California seeking information on their investments in or related to Iran.

The Data Call not only sought information as to insurers’ direct investments in organizations owned or controlled directly or indirectly by the Iranian government, but also indirect investments, including investments in a company that, in turn, does business with any of the five sectors set forth in the Data Call (defense, nuclear, petroleum, natural gas or banking). The information was due by September 30, 2009. 

At the time, it was announced that California Insurance Commissioner Steve Poizner sought such information as a measure to enforce U.S. governmental sanctions against Iran, including restrictions with respect to doing business with companies that do business in Iran.

On May 13, 2010, we reported that Commissioner Steve Poizner issued a press release advising that more than 1000 insurers licensed to do business in California had agreed to a voluntary moratorium as to future investments in companies that do business in Iran. He also released a list of 296 insurers doing business in California that would not agree to the voluntary moratorium. The press release further advised that, as of March 31, 2010, the CDI “disqualified an estimated $6 billion in holdings in the 50 Iran-related companies” (based on 2008 data).

Meanwhile, on March 29, 2010, five insurance trade associations (the American Council of Life Insurers, the American Insurance Association, the Association of California Insurance Companies, the Association of California Life and Health Insurance Companies, and the Personal Insurance Federation of California) filed a petition with the OAL contending that the Commissioner’s rule on Iran investment activity constituted an impermissible “underground” regulation. “Underground” regulations are rules issued by state agencies that meet the definition of a “regulation” under Government Code section 11342.600 and are subject to the California Administrative Procedure Act (“APA”), but were not adopted pursuant to the APA process.

The OAL found that the CDI’s rule on Iranian investments was indeed a “regulation,” such that it should have been, but was not, adopted pursuant to the procedures set forth in the APA. The OAL specifically advised that it was not evaluating the advisability or wisdom of the underground regulation, nor whether the CDI possessed the authority to issue such a regulation under the proper APA procedure.

Barger & Wolen will continue to follow further developments in this matter.

For more information, please contact Larry Golub at (213) 614-7312 or (lgolub@bargewolen.com)

The New and Improved California Residential Property Disclosure Form: A Harbinger of More Significant Reforms in Replacement Cost Estimating

On September 30, 2010, Governor Schwarzenegger signed AB 2022 into law (Chaptered copy).

Introduced by Assembly Member Ted Gaines (R), AB 2022 revamps California’s Residential Property Disclosure Form (current page 3; new page 10) and the accompanied California Residential Property Insurance Bill of Rights (current page 13; new page 15). The new disclosure form, drafted in plain and simple language, significantly improves the current form and makes understandable the differences in residential insurance coverages available to California insurance consumers. The changes, however, are much more than stylistic.

Commissioner Poizner, whose office helped craft AB 2022, has also drafted comprehensive regulations in an effort to respond to the under-insurance problems caused by the 2003, 2007 and 2008 California wildfires.

The Proposed Regulations establish standards for accurate replacement cost estimating, broker agent training on replacement cost estimating, and new record keeping requirements. The Proposed Regulations place the burden of accurately estimating replacement value of a home squarely on the insurance industry. The new disclosure form, the first step towards this regulatory reform, removes critical language found in the current disclosure form that obligates the consumer to determine and maintain the proper policy limits on their home. 

PART 1

California Residential Property Disclosure Form (July 1, 2011)

Effective July 1, 2011, insurance companies must use the new disclosure form. The new form eliminates the legalese that plagues the current form and presents the different coverage levels in a reader friendly manner. The new form calls specific attention to the fact that “actual cash value” coverage is “the most limited level of coverage listed,” while “guaranteed replacement cost” coverage is “the broadest level of coverage.” The new coverage definitions are as follows:

  • ACTUAL CASH VALUE COVERAGE pays the costs to repair the damaged dwelling minus a deduction for physical depreciation. If the dwelling is completely destroyed, this coverage pays the fair market value of the dwelling at the time of loss. In either case, coverage only pays for costs up to the limits specified in your policy.
  • REPLACEMENT COST COVERAGE is intended to provide for the cost to repair or replace the damaged or destroyed dwelling, without a deduction for physical depreciation. Many policies pay only the dwelling’s actual cash value until the insured has actually begun or completed repairs or reconstruction on the dwelling. Coverage only pays for replacement costs up to the limits specified in your policy.
  • EXTENDED REPLACEMENT COST COVERAGE is intended to provide for the cost to repair or replace the damaged or destroyed dwelling without a deduction for physical depreciation. Many policies pay only the dwelling’s actual cash value until the insured has actually begun or completed repairs or reconstruction on the dwelling. Extended Replacement Cost provides additional coverage above the dwelling limits up to a stated percentage or specific dollar amount. See your policy for the additional coverage that applies.
  • GUARANTEED REPLACEMENT COST COVERAGE covers the full cost to repair or replace the damaged or destroyed dwelling for a covered peril regardless of the dwelling limits shown on the policy declarations page.
  • BUILDING CODE UPGRADE COVERAGE, also called Ordinance and Law coverage, is an important option that covers additional costs to repair or replace a dwelling to comply with the building codes and zoning laws in effect at the time of loss or rebuilding. These costs may otherwise be excluded by your policy. Meeting current building code requirements can add significant costs to rebuilding your home. Refer to your policy or endorsement for the specific coverage provided and coverage limits that apply.

In addition, the new disclosure form removes the following statements from the replacement cost coverage definitions in the current disclosure form:

To be eligible for [this coverage], you must insure the dwelling to its full replacement cost at the time the policy is issued, with possible periodic increases in the amount of coverage to adjust for inflation and increases in building costs; you must permit inspections of the dwelling by the insurance company; and you must notify the insurance company about any alterations that increase the value of the insured dwelling by a certain amount (see your policy for that amount).”

To be eligible to recover this benefit, you must insure the dwelling to [company shall denote percentage] [ ] percent of its replacement cost at the time of loss.”

California Residential Property Insurance Bill of Rights (July 1, 2011)

The revised bill of rights that must accompany the new disclosure form eliminates the first 16 lines of the current disclosure form. The omitted lines include statements concerning the applicant’s/policyholder’s burden to determine and maintain proper policy limits such as: “Take time to determine the cost to rebuild or replace your property in today’s market.” “Once the policy is in force, contact your agent or insurance company immediately if you believe your policy limits may be inadequate.” 

The language deleted from the current versions of the disclosure form and bill of rights marks a significant change in California public policy. In Everett v. State Farm General Ins. Co., 162 Cal. App. 4th 649 (2008), the court held that the homeowner, rather than the property insurer, had the duty to maintain insurance policy limits equal to replacement costs. In reaching this conclusion, the court relied on the current version of the residential property disclosure which places the burden of determining whether a higher policy limit is needed on the homeowner.

AB 2022 and Commissioner Poizner’s proposed regulations effectively nullify Everett.

14th Annual Insurance Forum in Chicago Sponsored by Barger & Wolen

Barger & Wolen is proud to join JVP Partners in sponsoring the 14th Annual Insurance Forum on November 9th, 2010 in Chicago. This complimentary event is open to all.

14th Annual Insurance Forum
Tuesday, November 9, 2010
7:30 a.m. - 5:30 p.m.
The Union League Club
65 West Jackson
Chicago, IL

What is the Insurance Forum? The Forum is an event presented by the Insurance Forum Committee, chaired by Kenneth M. Weine. This is an executive level program designed for insurance and risk management professionals, accountants, attorneys, corporate officers, financial examiners, and regulators.

Can I Earn Continuing Education Credit? Continuing Education credit is available for attorneys, AIRs, CPAs, CFEs, CIRs and other insurance designations. (Certain restrictions apply, so please verify that your designation is approved in the state(s) you require).

To register for this complimentary event, click here

For more information, click here

Panels & Speakers (order subject to change)

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Patient Protection and Affordable Care Act of 2009 Now in Effect

By Larry M. Golub and Misty A. Murray

On March 23, 2010, President Obama signed the Patient Protection and Affordable Health Care Act of 2009 (“PPACA”) into law. (After the amendments made March 30, 2010, the law is referred to as The Affordable Care Act.) 

While Republicans in Congress vow to repeal such enactment, key aspects of the PPACA went into effect on September 23, 2010, which marks the six-month anniversary of the legislation. 

Although the following list is not exhaustive, here are some of the more notable changes in the health care reform law (effective September 23, 2010) that will apply to individual and group health plans:

Coverage Changes

No Lifetime or Annual Limits on Essential Benefits:

Health plans may not contain lifetime limits on the amount of benefits that will be provided for essential benefits. No regulations have yet been issued regarding the definition of “essential benefits, which in general include, but are not limited to, ambulatory patient services, emergency services, hospitalization, maternity and newborn care, prescription drugs, laboratory services, preventive and wellness services, and chronic disease management.  As for annual limits, for plan years beginning before January 1, 2014, the Department of Health and Human Services’ (“HHS”) interim regulations adopt a three-year phase-in approach of removing annual limits on essential health benefits. For more information, click here.

Anti-Rescission Rules:

Health plans may not rescind, i.e., retroactively cancel coverage, except in cases of fraud or intentional misrepresentations of material fact. These rules do not apply to prospective cancellations or any cancellation due to failure to timely pay premiums.

Mandatory Preventative Health Care Services:

Health plans must provide benefits without cost sharing (i.e., no co-payments, deductibles or co-insurance) for certain preventative services, including, but not limited to, immunizations recommended by the CDC, as well as preventative care and screening for infants, children and adolescents and for women as recommended by the Health Resources and Services Administration. Grandfathered health plans are exempt. (A grandfathered health plan is a group health plan that was created – or an individual health insurance policy that was purchased – on or before March 23, 2010, and a health plan must disclose in its plan materials whether it considers itself to be a grandfathered plan.) 

Extension of Adult Dependents Coverage:

For health plans that elect to provide dependent coverage, such coverage must be extended to adult children up to age 26.

No Pre-existing Condition Exclusions for Children:

Health plans may not impose any preexisting condition exclusions for children 19 and under. (Grandfathered plans are exempt.).

Patient Protection Changes

Right to Choose Primary Care Provider (“PCP”):

For health plans that require designation of a PCP, the patient must be allowed to designate any participating PCP accepting new patients. For children, any participating physician specializing in pediatrics can be designated as the child’s PCP and, for women, any participating OB-GYN can be designated as a PCP.

Coverage for Emergency Services:

For health plans that provide coverage for emergency services, such plans must do so without requiring prior authorization and regardless of whether the provider of emergency services is a participating provider. Emergency services provided by a non-participating provider must also be provided at the same level of cost-sharing as would apply to a participating provider.

Appeals Process:

Group plans must provide for an internal appeals process that complies with the U.S. Department of Labor regulations and individual plans must provide an internal appeals process that comports with the standards established by the Secretary of Health and Human Services. Both group and individual plans must also provide for an external appeals process that complies with applicable law or at a minimum with the NAIC Uniform External Review Model Act.

Additional health care reform changes will continue to take effect in 2010 and as late as 2018. More information about the PPACA can be found on the National Association of Insurance Commissioners (NAIC) website here.

For additional information on ERISA plans and the PPACA, the U.S. Department of Labor has posted information on its website here.

For additional information on the PPACA and individual policies and nonfederal governmental plans, the HHS has posted information on its websites here and here.

California Department of Insurance Requests Insurers to Submit Rate Decrease Application Filings

by Robert W. Hogeboom

The California Department of Insurance (CDI) Rate Regulation Division has recently issued a first round of letters to insurers requesting that they submit rate decrease applications. All Proposition 103 lines are affected. 

Because many insurers have not recently filed rate applications, the California Rate Division suspects that due to a trend of lower loss ratios, that many insurers may be charging excessive rates.

The CDI is requesting insurers to submit rate filings and advise them of the time frame to submit the filing and threatens that if the insurer does not comply, the CDI will issue an Order to Show Cause or a mandatory request for the filing.

We have questioned the CDI's authority to mandate the submission of rate application filings. 

For more information, please view the full client alert here (pdf).

For the Government, Transparency and Accountability Is a One-Way Mirror

The much-touted and recently signed Financial Reform Bill includes a provision that prevents the public from obtaining any documents relating to SEC investigations (past or present, open or closed) pursuant to the Freedom of Information Act

As discussed in an article by Barger & Wolen partner Michael A.S. Newman in the Los Angeles and San Francisco Daily Journals, the law flies in the face of well-established notions in this country that the workings of the government must remain visible to the general public. 

Click here to read the full article (pdf).

Barger & Wolen's Insurance Law Blogs Named to Top 50 Blogs by LexisNexis Insurance Law Community

Barger & Wolen's insurance law blogs have collectively been ranked No. 5 by LexisNexis in the Insurance Law Community's Top 50 Insurance Blogs 2009 Honorees.

According to LexisNexis,

These top blogs offer some of the best writing out there. They contain a wealth of information for all segments of the insurance industry, and include timely news items, expert analysis, practice tips, frequent postings and helpful links to other sites and sources. 

Demonstrating on a daily basis that insurance makes the world go round, these blogs also show us how insurance issues interact with politics and culture. These sites also demonstrate the power of the blogosphere, by providing a collective example of how bloggers can—and do—impact and influence the law and the business of insurance."

We are honored to be included among so many well-written and well-regarded blogs.

A Firm Approach
Our philosophy for our blogs is to provide an open platform for our partners and associates to write. Whether commenting on a recent news item, informing our readers about a new piece of legislation, or providing case summaries and case reviews, each of our blogs maintains a distinct focus:

For all of their hard work, we would like to congratulate and thank the editors of our blogs, as well as all our attorney contributors.

All of our blogs are available for complimentary subscription via e-mail or RSS feed. Please visit each blog individually to subscribe.

In addition to our insurance law focused blogs, please visit the firm's Litigation Management & Attorney Fee Analysis Blog.

California Department of Insurance Corporate Application Filing Deadline Fast Approaching

The California Department of Insurance has issued a notice establishing deadlines for all applications seeking approval by 2010 year-end.

  • Corporate applications must be received by September 17, 2010. 
  • Holding company applications must be received by October 29, 2010. 

For details, please see the attached notice

Financial Services Reform Bill and the Insurance Industry

On July 15, 2010, the United States. Senate passed the Restoring American Financial Stability Act of 2010. The bill now goes to President Obama for his signature, which is expected in the coming days.

The bill, which is over 1,600 pages, establishes new regulations designed to prevent the repeat of the recent financial crisis and end the prospect of future government bailouts. Oversight is established through the creation of the Financial Stability Oversight Council (“Council”).

Members of the Council consist of the heads of several Federal financial regulatory agencies and departments (including the Treasury Secretary who is to act as the Chairman of the Council) and an independent member having insurance expertise who will be appointed by the President subject to Senate confirmation. 

Article V of the bill covers insurance and creates within the Treasury Department a new Office of National Insurance (“Office”). The Office will monitor the insurance industry, coordinate international insurance issues, and provide a study with recommendations to Congress on ways to modernize insurance regulation.        

Various duties that the Office will oversee include:

  1. Monitoring all aspects of the insurance industry and identifying issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the insurance industry or U.S. financial system.
  2. Identifying entities that could become subject to regulation by the Council.
  3. Coordinating federal efforts on prudent aspects of international insurance matters.
  4. Consulting with state regulators on insurance matters of national and international importance.
  5. Advising the Secretary of Treasury on major domestic and international insurance policy issues.
  6. Providing ability to collect financial information from certain insurers (smaller insurers may be exempt).

Robert W. Hogeboom, Senior Regulatory Attorney with Barger & Wolen, along with several insurance executive members of the Pacific Association of Domestic Insurance Companies (PADIC) were escorted by staff of the National Association of Mutual Insurance Companies (NAMIC) in late June to meet with key legislators from the California House of Representatives and U.S. Senate in Washington D.C. to discuss the legislation and its effect on California insurers. 

Most important to the insurance industry is the fact that within 18 months the Office must conduct a study and issue a report to Congress providing recommendations on how to modernize and improve the system of insurance regulation in the United States.

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The Federal Insurance Office is on the Way

While not yet approved by the United States Senate, the Federal Insurance Office (FIO) – the first time an entity in the federal government has been created to specifically address the insurance industry – moved that much closer to reality when the House of Representatives on June 30 passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, H.R. 4173.  The bill passed the House by a vote of 237-192.

The Senate is expected to vote on the bill when it returns from its July 4 recess on July 12.

The FIO will be housed under the U.S. Treasury Department, though it will not have any regulatory authority. Among other things, the FIO will gather information regarding the insurance industry, will monitor the industry for systemic risks, and will serve as a negotiator for international insurance treaties. The bill contains a provision that will modernize and streamline the surplus lines and non-admitted markets. As explained by the National Underwriter, the “surplus lines provisions in the bill dictate that in any multi-state placement of surplus lines, the only state whose rules govern access to the products is the state in which the insurance is placed—the ‘principal place of business’ for the insured.”

Just prior to passage in the House, the bill dropped a tax on financial institutions to raise $19 billion to pay for implementation of the bill over five years, a provision strongly opposed by the insurance industry.

Speaking for the National Association of Insurance Commissioners (NAIC), its President and West Virginia Insurance Commissioner Jane L. Cline thanked the congressional negotiators for essentially preserving the role of state insurance regulators in protecting consumers and ensuring the viability of the insurance industry, stating, “We were pleased to see that the Federal Insurance Office (FIO) set up under the bill is narrowly designed to carry out its mission while not unnecessarily undermining strong state regulation.”  NAIC President Cline also stated: 

“The package provides senior investment protection grants for annuity suitability, an area where the NAIC and the states have a solid track record,” and “The bill also provides important clarification in regulatory authority for indexed annuities, ensuring that these guaranteed products are under the clear authority of state insurance regulators.”

While the bill will allow federal regulators to wind down troubled large institutions, the NAIC further stated that the bill made “clear that state insurance regulators will continue to have the ability to ‘wall off’ insurance companies from troubled holding companies, protecting insurance policyholders from other risks in the financial system” and that state regulators “will also retain their role to monitor consumer protections in the insurance sector.”

When the Obama administration first proposed a national insurance office last year, California Insurance Commissioner Steve Poizner stated at the time that such plan “appropriately acknowledges the primary role the states play in regulating the insurance business to benefit consumers. State oversight of insurance companies, coordinated among all state regulators, is the reason that, among all the financial players in this country, it is the insurers who are and remain the most stable and the least in need of federal assistance.”

California Department of Insurance to Implement Outside Actuarial Reviews for All Major Health Insurer Rate Increases

California Department of Insurance Commissioner, Steve Poizner, issued a press release today indicating that the Department has retained an outside actuarial firm to analyze regulatory rate change filings made with the Department by the four major health insurers in the individual market – Anthem Blue Cross, Aetna, Health Net, and Blue Shield of California

The purpose of the independent actuarial analysis is to ensure that health insurers, in raising their premium rates, comply with state law mandating that 70 cents of every dollar collected in health insurance premiums are to be spent on medical benefits.

In February 2010, after the Department received Anthem Blue Cross’ proposed rate change filing indicating that it was seeking to increase individual rates by up to 39%, Commissioner Poizner took the unprecedented step of requesting that an outside actuarial firm analyze the proposed rate increase to ensure that Anthem Blue Cross’ actuarial assumptions were justified and that it complied with the 70 cents on the dollar state law mandate. 

The Commissioner indicated at that time in a letter to Anthem’s parent, Wellpoint, Inc., that

[i]f the independent actuary concludes that Anthem’s assumptions are unjustified and that Anthem will pay out less than 70 cents of the premium dollar for benefits, I will take immediate action to stop Anthem from charging the increased rates to California consumers.”

On April 28, 2010, Axene Health Partners, LLC (“Axene”), the actuarial firm retained by the Department to analyze Anthem’s rate change filing, issued a report containing its findings. In short, Axene found that Anthem’s actuarial calculations and methodology were flawed which resulted in inflated total lifetime loss ratios. This, in turn, resulted in a finding by the Department that Anthem had attempted to charge consumers 50% more than state law allows. In response to these findings, Anthem withdrew its rate change filing.

The press release issued today by the Department indicates that, in light of Axene’s findings with respect to Anthem’s rate change filing, the Department will require that, in addition to the actuarial review conducted internally by the Department, the four major health insurers’ rate change filings be scrutinized by an outside actuarial firm to ensure accuracy and compliance with state law.  

Currently, Axene is reviewing rate change filings made by Aetna and Blue Shield, and will no doubt be reviewing Anthem’s anticipated rate change re-filing, as well as any future rate change filings made by Health Net.

 

Robert Hogeboom Testifies Against Homeowners' Insurance Regulations Proposed by the California Department of Insurance

Robert H. Hogeboom, Senior Regulatory Attorney at Barger & Wolen LLP, testified on May 17, 2010, that the California Department of Insurance (“CDI”) should withdraw its proposed regulations on standards and training for estimating replacement value on homeowners’ insurance (“Proposed Regulations”). 

Representing the Insurance Agents and Brokers Association of California, Hogeboom criticized the CDI for proposing draconian regulations with no proper authority and creating a new “unfair practice” violation applicable to producers and insurers. Specifically, the Proposed Regulations provide that an estimate not conforming to the new CDI standards set forth in the Proposed Regulations is a misleading statement within California Insurance Code § 790.03, which identifies certain prohibited acts in the business of insurance.

For Hogeboom’s full analysis of the Proposed Regulations, click here.

For Hogeboom’s filed comments and objections to the Proposed Regulations, click here.

For a copy of the Proposed Regulations, click here.

California Insurance Commissioner Issues List of 296 Insurers Refusing to Agree Not to Invest in "Iran-Related" Companies

Earlier today, California Insurance Commissioner Steve Poizner issued a press release advising that more than 1000 insurers licensed to do business in California have agreed to a voluntary moratorium as to future investments in companies that do business in Iran. 

At the same time, Commissioner Poizner released a list of 296 insurers doing business in California that would not agree to the voluntary moratorium. The list of those 296 insurance companies is attached here, and the list of the 50 “Iran-related” companies, as found on the Department’s website, is also attached here.

Our blog previously reported on this issue after Commissioner Poizner first announced his Terror Financing Probe back in June 2009, and shortly thereafter issued a Data Call on July 2, 2009, to all insurers admitted in California seeking information on their investments in or related to Iran. As stated in the press release issued today:

100 percent of the 1,306 insurance companies licensed in California responded to his request to provide data on their investments with companies doing business with Iran’s, nuclear, defense, and energy sectors.

This has been a controversial issue in California over the past year, and it is unclear, now that this list of 296 has been generated, how far Commissioner Poizner, who is currently running for the Republican nomination for Governor, will pursue matters with respect to insurance companies that have refused to agree they will not make any future investments in companies that do business with Iran. 

Today’s press release provides no clue, other than to note that as of March 31, 2010, the California Department of Insurance “disqualified an estimated $6 billion in holdings in the 50 Iran-related companies” (based on 2008 data). 

Among the questions facing insurers are the following: 

  • Will the Department seek to have any future investments “disallowed” as part of an insurer’s surplus? 
  • Will the Department order insurers to dispose of such investments? 
  • Does the Department have any legal ability to take any further action? 

Barger & Wolen will continue to follow the Commissioner's activities on this matter.

For more information, please contact Larry Golub at (213) 614-7312 (lgolub@bargerwolen.com).

AB 2578: Proposition 103 Coming to Managed Health Care?

by Richard De La Mora

Having unsuccessfully urged Congress to impose a national freeze on health insurance rates, Harvey Rosenfield has refocused his efforts on the California legislature and AB 2578.

Who is Harvey Rosenfield? He is, in his own words, the “author of California’s landmark property-casualty insurance rate regulation Proposition 103 – recognized as the most successful rate regulation in the country.” In fact, AB 2578, which cleared Assembly Health Committee earlier this week, includes the following provisions modeled closely on Proposition 103:

  • A prohibition on the use or approval of rates that are “excessive, inadequate, or unfairly discriminatory”;
  • A right for consumer advocates to request a hearing on a rate application, and a requirement that a hearing be granted whenever the rate increase sought exceeds 7%.

Finally, Mr. Rosenfield has made sure that he and his friends in the consumer advocacy industry are taken care of by advocating a provision requiring health plans to pay the consumer advocacy fees associated with fighting the health plan’s rate application.    

We have seen this played out before, as our firm has represented property-casualty insurers in administrative and judicial matters involving insurance rates regulated under Proposition 103 since 1989.

While property-casualty insurers have had plenty of time to adjust to the dictates of rate regulation, health plans will face a steep learning curve if AB 2578 becomes law. 

We are hopeful that this legislation will not become law. Even if it does, AB 2578 will likely face legal challenges and hurdles as did Proposition 103.

From our experience, we learned some of those challenges will be more successful than others. Nevertheless, if rate regulation comes to pass, a company’s goals can still be achieved provided that it has a complete understanding of the proposed regulatory system, plans ahead, has input into the development of regulations, and prepares itself for life after the system is implemented.

Barger & Wolen will continue to keep our clients and friends apprised on new issues pertaining to AB 2578 via the firm’s Insurance Litigation & Regulatory Law Blog and the Life, Health & Disability Law Blog. If you would like to be notified about upcoming events and seminars pertaining to AB 2578 and other issues, please subscribe to our blog via the RSS feed or add your e-mail in the left column.

From Out of the Blue Comes a Proposed Exemption for Air Ambulance Companies to Avoid California Workers' Compensation Official Medical Fee Schedule

 

This week, the Administrative Director of the Division of Workers’ Compensation of the California Department of Industrial Relations (“DWC”) proposed a regulation, California Code of Regulations, title 8, Section 9789.70(c), that would completely exempt air ambulance companies from the Official Medical Fee Schedule (“OMFS”) that applies to all other providers who furnish medical services under the California workers’ compensation system.

The DWC’s purported impetus for this abrupt action was “to avoid the hazards and cost of litigation against the Division,” as stated in the DWC’s Initial Statement of Reasons. That Statement further advised that the DWC based its proposed regulation on the contention that the OMFS may likely be preempted by the Airline Deregulation Act of 1978, which it says “prohibits states from adopting or enforcing regulations which have any effect on airline rates of air carriers.”

This issue of preemption by the Federal Aviation Act of 1958, as amended by the Airline Deregulation Act of 1978 (“FAA/ADA”), was asserted in a lawsuit filed last year by California Shock Trauma Air Rescue (“CALSTAR”), an air ambulance company rendering services primarily in California. That action, filed in federal court in Sacramento against more than 75 workers’ compensation insurers and self-insured employers, is entitled California Shock Trauma Air Rescue v. State Compensation Insurance Fund, et al.  This blog reported on that case on July 30, 2009, after the federal district court dismissed the case, finding that the federal court lacked subject matter jurisdiction over CALSTAR’s claims.  

CALSTAR then appealed the action to the Ninth Circuit Court of Appeals, where the case is now fully briefed and awaiting oral argument.

Apparently not satisfied with the court's decision in its federal court action, CALSTAR threatened to sue the DWC unless it did something to offer relief to CALSTAR and other air ambulance companies.  In an article posted on workcompcentral.com, the president and chief executive officer of CALSTAR stated that, after having the federal trial court dismiss his company’s action, “we went back to the DWC and said, ‘We’ve been instructed to sue you,’ is what brought this action on their part.” It is clear that the threat of a lawsuit prompted the DWC to issue the proposed regulation and completely exempt CALSTAR and other air ambulance companies from the ambit of the OMFS.  

The defendants in the pending federal court action contend that the FAA/ADA does not preempt the OMFS as it applies to the medical services that air ambulance companies provide in California, and indeed exempting such companies from the scope of the OMFS on preemption ground is anathema to the legislative goals and purposes of the FAA/ADA. Larry Golub and Sandra Weishart of Barger & Wolen LLP represent a number of the defendants in the litigation.

The DWC will be holding a full-day hearing on the proposed regulation in Oakland on Tuesday, April 13, 2010, to receive statements and argument from all interested persons.

Medicare Secondary Payer Reporting (Update)

As referenced in our February 23, 2010 blog, "Reprieve for Insurers: Medicare Secondary Payer Reporting Requirements Delayed," the CMS recently published several important alerts, including the latest version of the User Guide (3.0). A brief summary of the alerts and changes to the User Guide are described below. The documents are also linked in pdf for easy reference.

NGHP RRE Compliance Alert (2/24/2010): Specifies what CMS will consider to "be in compliance" with Section 111. Basically, compliance equals: (a) Registering with the CMS Coordination of Benefits Contractor ("COBC"); (b) Engaging in data exchange testing; (c) Beginning and continuing regular Section 111 production data exchanges with the COBC. In its 2/25/2010 Teleconference for NGHP Policy Questions and Answers, CMS emphasized that they are "not interested in civil monetary penalties but a good data exchange." The CMS Alert alleviates concerns over the $1,000 per day penalty provision.

NGHP RRE Who Must Report Alert (2/24/2010): Clarifies multiple scenarios in which questions have arisen as to who is an RRE, including corporate structure issues and siblings; deductibles versus self-insured retentions, self-insurance pools, subrogation, and workers compensation, among several others.

NGHP User Guide (Version 3.0) (2/22/2010): In connection with the first production of Claim Input Files for the first quarter of 2011, TPOC reporting begins 10/1/2010; ORM reporting goes back to 1/1/2010.  CMS provides a  summary of changes to the User Guide, which is set forth in Section 1 of the User Guide.

 

Reprieve for Insurers: Medicare Secondary Payer Reporting Requirements Delayed

 

by Steven Weinstein & Marina Karvelas

The U.S. Department of Health and Human Services (“HHS”) announced on February 16, 2010, that it will extend the deadline for reporting requirements under the Medicare Secondary Payer Act from April 1, 2010 to January 1, 2011. The news provides welcome relief for property and casualty insurers who have been working diligently to meet the new reporting requirements amidst significant uncertainties in implementation.

In addition, the HHS promised it will release during the week of February 22 the next version of its User Guide as well as provide an alert that describes the steps that reporting entities can take to assure their ongoing compliance with the new reporting requirements. 

The Medicare Secondary Payer Mandatory Reporting Requirements

Over two years ago, Congress passed the Medicare, Medicaid and SCHIP Extension Act of 2007 (“MMSEA”) 42 U.S.C., § 1395y(b)(7)(8). Section 111 of MMSEA added new and significant mandatory reporting requirements for liability insurance (including self-insurance), no-fault auto insurance and workers’ compensation (collectively “NGHPs” or non group health plans) as well as group health plans (“GHPs”). Every settlement, judgment, award, or other payment from insurers to a Medicare beneficiary must be reported to the HHS through its Centers for Medicare & Medicaid Services (“CMS”). Likewise, individuals who receive ongoing reimbursement for medical care through no-fault insurance or workers’ compensation must be reported to CMS.

The new MMSEA reporting requirements do not change existing rules that determine whether Medicare or another payer is the primary or secondary payer with respect to the Medicare beneficiary. The goal behind the new reporting requirements is to enable the HHS through CMS to better obtain necessary information to determine when Medicare’s financial responsibility is secondary, and if so, reduce Medicare payments, or if already paid, recoup them. In this regard, Medicare may recover any conditional payments it has made that should have been paid by the primary insurance plan.

Take for example, an auto accident where the injured party is a Medicare beneficiary. If that Medicare beneficiary has available auto liability or no-fault auto insurance to cover medical expenses, payments under those policies are primary to any Medicare payments for such expenses. In fact, Medicare is always a secondary payer to liability insurance (including self-insurance), no-fault insurance, and workers’ compensation.

Continue Reading...

Commissioner Poizner Diligent in Rejecting Any Requested Increase in the Workers' Compensation Claims Cost Benchmark

Insurance Commissioner Steve Poizner today once again rejected a rate application from the Workers’ Compensation Insurance Rating Bureau (WCIRB) to raise the Workers’ Compensation Claims Cost Benchmark. After rejecting a slightly larger increase request in July of this year, the Commissioner this time rejected a proposed hike of 22.8% in the cost benchmark.  This was yet another blow to the hopes of workers’ compensation insurers for an increased cost benchmark anytime soon.

The Commissioner explained:

One in eight Californians is unemployed. Countless others are also suffering and have either given up looking because they cannot find work or have taken part-time jobs while they seek full-time work. Any increase in costs for employers will only make our already dire economic situation worse.

Given these harsh economic realities, I refuse to rubber stamp double-digit increases to the Workers Compensation Claims Cost Benchmark, especially when I see clear evidence that the cost control reforms from 2003-2004 have yet to be fully implemented,”

These increases requested by the WCIRB give insurers an excuse to raise rates in concert without fully utilizing all of their cost containment tools or increasing efficiency. I will not consider an increase in the Claims Cost Benchmark until I see substantial efforts being made by insurers to use all available tools to constrain costs and improve efficiency.

With regard to the controlling of costs, in the Commissioner’s prior July denial of a request by the WCIRB to raise the Workers’ Compensation Claims Cost Benchmark, the Commissioner issued a 27 point outline of means in which costs can be trimmed by workers’ compensation insurers. Commissioner Poizner’s remarks seemed to indicate that he was disappointed by insurers’ efforts to curb costs. More specifically, the Commissioner stated, “I will not consider an increase in the Claims Cost Benchmark until I see substantial efforts being made by insurers to use all available tools to constrain costs and improve efficiency.”

This denial of the cost benchmark is the latest in a long string of decisions by the Commissioner that have been stringent in their treatment of the cost benchmark, despite the WCIRB’s repeated requests for significant increases. We expect Commissioner Poizner to continue to reject any attempt to raise the cost benchmark until there is significant improvement in California’s unemployment rate (as of last check unemployment in California is a stifling 12.2%, 4th highest among states in the country).

 

November 9, 2009 WC Benchmark Decision and Order

 

November 9, 2009 Department Press Release

California Insurance Commissioner Announces New "Pay-As-You-Drive" Rating Option

Effective immediately, insurers may offer a verified actual mileage option instead of, or in addition to, the estimated mileage program that traditionally has been used in determining automobile insurance premiums in California.

Specifically, for purposes of determining the number of miles driven annually by the insured, as required under the Second Mandatory Rating Factor, insurers can either: (a) switch to the new program; (b) offer both the verified actual mileage program and the traditional estimated mileage program; or (c) stick with the traditional program. Insurers that offer both programs must make participation in the verified actual mileage program voluntary. 

The underlying impetus behind the new regulations is the Commissioner's environmental push to reduce CO2 emissions and gasoline consumption by incentivizing drivers to drive less. "The Commissioner finds that basing the Second Mandatory Rating Factor on verified actual miles driven, rather than on estimated miles driven, may enable policyholders to reduce their premiums by driving less and create incentives for innovation in insurance rating in California with numerous attendant benefits." 10 CCR, § 2632.5(c)(2)(F); ("Commissioner Poizner Announces Final Approval of Pay-As-You Drive Regulations.")

 

Under the new option, an insurer may require an insured who chooses the verified actual mileage option for one vehicle to choose that option for all vehicles insured under the same policy.

The new option allows for a variety of different verification methods.  An insurer may select one or more of the following:

  1. odometer readings which are read by the insurer or its agent or insurer's third-party vendor;
  2. odometer readings read by auto repair dealer in servicing the vehicle or by a vendor retained by the insurer;
  3. odometer readings obtained by government licensed smog check stations or any other government agency that maintains public records of odometer readings;
  4. odometer readings reported to the insurer by the insured or the insured's agent;
  5. by a technological device provided by the insurer or otherwise made available to the insured that accurately collects vehicle mileage information. Such a device can only be used by the insurer to collect information for determining actual miles driven and not to collect or store information about the location of the insured vehicle, with the following caveat: "nothing in this section shall prevent a motor club or insurer from using a technological device to collect information about the location of the insured vehicle as part of an emergency road service, theft service, map service or travel service."
  6. any other method approved by the Commissioner.

The verification methods selected by the insurer must be made available to all insureds equally. For example, if the insurer permits its insureds to self-report odometer readings, it must uniformly offer that verification method to the public.

In addition, by utilizing the new program, insurers are permitted to do the following: 

  • retroactively or prospectively adjust premiums based on actual miles driven provided the insurer gives notice to the policyholder prior to the effective date of the policy;
  • where both a mileage estimation program and a verified actual mileage program are offered, the insurer may provide a discount to a policyholder who participates in the verified actual mileage program. Such a discount, however, must be actuarially supported. Specifically, in order to use the discount, the insurer must demonstrate "cost savings or actuarial accuracy associated with obtaining and using actual miles driven rather than estimated mileage." In addition, the discount must be applied to all policyholders in the verified actual mileage program, regardless of the method of verification used.
  • offer the option to purchase coverage for a specified price per mile – "Price Per Mile Option." The regulation, however, offers no guidance in setting that "price per mile," other than making it subject to compliance "with all applicable laws." (This provision of the new regulation will likely require further clarification by the Commissioner or the courts).
  • combine Percent Use, Academic Standing, Gender, Marital Status, and Driver Training with the Second Mandatory Rating Factor. If so, the insurer must demonstrate in its class plan that the rating factors used in combination, when considered individually, comply with the weight ordering requirements of 10 CCR § 2632.8.

Lastly, where an insurer utilizes both programs, they must be included in one class plan.

 

24-Hour Health Coverage Draws Industry Fire

An amendment introduced by Sen. Jay Rockefeller, D-W.Va. to require “24-hour health coverage”* has drawn industry fire, according to an article, Another Health Care Amendment Draws P&C Industry Fire, by Arthur D. Postal.

In a letter to the Senate Finance Committee, which was not expected to take up the amendment today, the p&c industry argues that, “the amendment would upend the systems now in place to protect injured workers, drivers and passengers.”

The insurers added that the 24-hour coverage concept “would destroy the healthy and competitive auto insurance marketplace.”

According to a lobbyist for the American Insurance Association, the amendment is not likely to be taken up by the committee, although it has been officially filed.

In a bulletin to members, the Independent Insurance Agents and Brokers of America said the work on language in the legislation in the Senate panel was supposed to be completed this week, but “the markup could very well slip into next week and potentially beyond.”

The letter, delivered to all members of the Senate Finance Committee was signed by:

  • American Insurance Association
  • Council of Insurance Agents and Brokers
  • Independent Insurance Agents and Brokers of America
  • National Association of Health Underwriters
  • National Association of Mutual Insurance Companies
  • Property Casualty Insurers Association of America

* Twenty-four hour health coverage typically refers to a coordinated system of health care delivery, whereby a person receives all medical care for injuries and illnesses from a single health care provider.

 

Producer Groups Critical of Proposed New York Producer Compensation Transparency Regulation

Certain producer group representatives have publicly criticized the current version of the proposed Producer Compensation Transparency Regulation (the “Proposed Regulation”) that was forwarded recently by the New York Insurance Department (“NYID”) to the Governor’s Office of Regulatory Reform (“GORR”) for review. As discussed in our September 14, 2009, Client Alert, if the Proposed Regulation becomes effective it will apply to all insurance producers that transact business in New York. 

In a September 15, 2009, P&C National Underwriter article N.Y. Comp Regulation Proposal Unacceptable, Says IIABNY, the Independent Insurance Agents & Brokers of New York  objected, among other things, to the Proposed Regulation’s requirement that producers explain to their customers whether they are functioning as an agent or a broker and how these legal classifications affect the producer’s compensation, saying such a technical discussion would engender confusion amongst consumers. Representatives of IIABNY have also criticized the Proposed Regulation’s ambiguity regarding the disclosure rules that apply to policy renewals.

 

The spokesman for IIABNY raised the possibility that producer groups might institute legal action if the State did not agree to make necessary revisions to the Proposed Regulation.

In addition to IIABNY, spokespersons for the Independent Insurance Agents & Brokers of America, the National Association of Professional Insurance Agents and the Council of Insurance Agents & Brokers have also criticized certain aspects of the Proposed Regulation.

Proposed New York insurance regulation would require mandatory disclosures to purchasers

On September 10, 2009, the New York Insurance Department (NYID) announced that it had sent the long anticipated Producer Compensation Transparency Regulation (the Proposed Regulation) to the Governor’s Office of Regulatory Reform (GORR) for review. Following GORR approval, the Proposed Regulation will be published in the New York Register and will be subject to a forty-five day period of public comment. After reviewing any comments received during such public comment period, the NYID may adopt, revise or withdraw the Proposed Regulation.

Assuming the current form of the Proposed Regulation becomes effective, it would require insurance producers selling or renewing an insurance contract in New York to make certain mandatory disclosures to purchasers regarding the compensation the producer will receive related to the sale of the insurance. Such disclosures are required to be provided to the purchaser no later than the time the application for insurance is submitted.

More notable among the various required disclosure items are the following:

  • The producer must disclose to the purchaser that the purchaser has the right to obtain information about the compensation expected to be received by the producer for the sale and for any alternative quotes obtained by the producer by requesting this information from the producer.
  • If the purchaser, in fact, requests more information regarding the producer’s compensation, the producer is required to provide, among other mandatory disclosures, a description of any alternative quotes obtained by the producer, including the coverage, premium and compensation that the insurance producer or any parent, subsidiary or affiliate would have received based, in whole or in part, upon any such alternative quotes.

In addition, the Proposed Regulation would require that insurance producers maintain records evidencing that they have provided the disclosures required by the regulation for a period of three years subsequent to the date of such disclosures.

In anticipation of the likely adoption of the Proposed Regulation, insurance producers may wish to begin developing a compliance process, including the preparation of disclosure forms, which is designed to satisfy the regulation’s requirements.

If you have any questions regarding the Proposed Regulation, please contact Dennis C. Quinn at (212) 655-3878 or dquinn@bargerwolen.com.

Harvey Rosenfield Seeks Initiative to Prohibit Broker and Installment Fees

by Robert W. Hogeboom

On September 4, 2009, Harvey Rosenfield submitted the Stop Insurance Overcharges Act (pdf), a proposed state-wide ballot measure, to Attorney General Jerry Brown.

The initiative would:

  • limit all insurance broker fees charged if brokers also receive a commission;
  • mandate that all other fees, including installment fees billable to a policyholder, is premium subject to prior approval;
  • seek to eliminate the absence of prior insurance as a criteria for automobile and homeowner rates or insurability;
  • preclude use of claims experience in calculating discounts or surcharges for automobile insurance. 

We anticipate that insurers, managing general agents, brokers and trade associations will be establishing a strategy to contest the proposed initiative.

I look forward to your comments and/or thoughts regarding this significant issue as I will be coordinating our efforts to defeat this initiative. Please contact Robert W. Hogeboom at rhogeboom@bargerwolen.com and/or (213) 614-7304.

 

Federal Court Dismisses Claim by Air Ambulance Company Seeking to Avoid California Workers' Compensation Official Medical Fee Schedule

Earlier this year, California Shock Trauma Air Rescue (“CALSTAR”), an air ambulance company rendering services primarily in California, filed an action in federal court in Sacramento against more than 75 workers’ compensation insurers and self-insured employers. CALSTAR’s lawsuit, California Shock Trauma Air Rescue v. State Compensation Insurance Fund, et al., argued that, as a result of it being certified by the Federal Aviation Administration to operate as an air carrier, any claims for payment it submitted to workers’ compensation insurers and self-insured employers in California should not be limited to those amounts set forth in the Official Medical Fee Schedule for ambulance services, California Code of Regulations, title 8, section 9789.70.  

Rather, as a federally certified air carrier, CALSTAR asserted that the Fee Schedule is preempted by the Federal Aviation Act of 1958, as amended by the Airline Deregulation Act (“FAA/ADA”).  In other words, CALSTAR sought to avoid the limitations on payment that would apply to all other medical providers and even ground-based ambulances set forth in the Fee Schedule.  CALSTAR’s complaint alleged causes of action for declaratory relief and a number of state law claims.

The defendants filed motions to dismiss on a variety of grounds. Prominent among the bases for the motions was the claim that the federal court lacked subject matter jurisdiction over CALSTAR’s action.  Another basis for the lack of federal court subject matter jurisdiction was that CALSTAR’s claims are subject to California’s exclusive workers’ compensation system and which claims can and should be resolved through lien requests by CALSTAR at the Workers’ Compensation Appeals Board. 

 

In a detailed ruling issued July 24, 2009, the federal court granted the motions to dismiss on the basis that the court lacked subject matter jurisdiction over CALSTAR’s claim. The fact that CALSTAR sought to use a federal statute, the FAA/ADA, to claim that certain state laws were preempted was inadequate to support jurisdiction in the federal courts under well-established case law.  The court also observed that CALSTAR had not sued the State challenging its power to enforce the Fee Schedule, but rather only sued third parties (i.e., insurers and self-insured employers) who have neither “the ability to enact or enforce state laws.” In short, CALSTAR was asking the federal court for an advisory opinion as to the preemption of the Fee Schedule, something it lacked the power to do.

Barger & Wolen represented a number of the defendants in the litigation.

Insurance Commissioner Poizner Denies WCIRB's Request for An Increase in the Workers' Compensation Claims Cost Benchmark

Insurance Commissioner Steve Poizner today rejected a rate application from the Workers’ Compensation Insurance Rating Bureau (WCIRB) to raise the Workers’ Compensation Claims Cost Benchmark by 23.7 percent. This was contrary to what was hoped for by workers' compensation insurers.

Based on testimony received in June hearings, the Commissioner noted that he believes that an increase in the cost benchmark would lead to increased worker’s compensation premiums for small business. More specifically, the Commissioner sternly noted,

[m]y response to this requested record increase by workers' comp insurance companies is this – no. I will not include avoidable costs in the Benchmark.

The Commissioner further explained,

[b]ecause of the faltering economy, record unemployment levels, and objections to the proposed increase from employers, I have focused on whether insurers and other parties in the workers' comp system are exhausting every available avenue to control costs before granting any increase to the Benchmark.

With regard to the controlling of costs, following hearings last month, the Commissioner issued a 27 point outline of means in which costs can be trimmed by workers compensation insurers. That outline can be found here. The Commissioner further noted that he expects insurers to implement the efficiency procedures he outlined before a re-application for a cost benchmark increase.

Today’s denial of the cost benchmark is consistent with the Commissioner’s recent treatment of such requests over the past several years – as he has routinely either denied the requests outright or allowed for a minimal increase, despite much larger requests.

2009 WC Benchmark Proposed Decision and Proposed Order

2009 WC Benchmark Addendum Report

2009 WC Benchmark Decision and Order