California Insurance-Related Bills Signed into Law

September 30, 2014, was the deadline for Governor Jerry Brown to take action on bills passed by the California Legislature during the 2014 regular legislative session. Here are summaries of noteworthy insurance-related bills that were signed into law. Unless noted otherwise, these new laws will go into effect on January 1, 2015.  

Assembly Bills

AB 1234 - provides in statute that information reported in the registration statement required by the Insurance Holding Company System Regulatory Act and information and documents disclosed in the course of an examination or investigation made pursuant to the Act is not subject to discovery from the commissioner and is not admissible into evidence in any private civil action if obtained from the commissioner in any manner.

AB 1395 - increases from $0.25 to $0.26 the annual per vehicle fee assessment on automobile insurance policies which funds consumer service functions at the Department of Insurance related to automobile insurance; the assessment will remain at $0.26 until January 1, 2016, thereafter the amount of the assessment will be determined by the insurance commissioner but may not exceed $0.26. AB 1395 also clarifies that an insurer, after it remits the $0.15 Seismic Safety Commission assessment on property insurance policies to the Department of Insurance, does not owe a duty to the policyholder to return a portion of the assessment in the event the policy is terminated early.   

AB 1804 - requires private passenger auto insurers, residential property insurers, and insurers providing individual disability income insurance to maintain a verifiable process or to adopt a procedure that allows an applicant or policyholder to designate one additional person to receive notice of lapse, termination, expiration, nonrenewal, or cancellation of a policy for nonpayment of premium. AB 1804 does not apply to policies of private passenger auto insurance that provide coverage for less than six months. AB 1804 will become operative on January 1, 2016.

AB 1897 - adds a section to the Labor Code which provides that when a client employer obtains or is provided workers from a labor contractor to perform labor within the employer’s usual course of business, the client employer and the labor contractor share all civil legal responsibility and civil liability for all workers supplied by the labor contractor for both the payment of wages and the failure to obtain workers’ compensation insurance.

AB 2056 - requires pet insurance policies to include specified disclosures, including policy exclusions, any waiting period or deductible, and whether the insurer reduces coverage or increases premium based on claim history. AB 2056 also sets forth definitions of certain terms, including “chronic condition,” “hereditary disorder,” and “veterinary expenses,” which a pet insurer must include in its policies if the insurer uses any of the terms in its policies. AB 2056 applies to any policy of pet insurance which is marketed, issued, amended, renewed, or delivered to a California resident on or after July 1, 2015.  

AB 2064 - revises the disclosure language which must be included in a residential property insurer’s mandatory offer of earthquake insurance. The disclosure revisions enacted in AB 2064 will become operative on January 1, 2016. AB 2064 also increases the statutory cap on the California Earthquake Authority’s operating expenses from 3% of its premium income to not more than 6% of its premium income.

AB 2128 - extends the sunset date on the statutory provisions relating to the Department of Insurance’s California Organized Investment Network (COIN) from January 1, 2015 to January 1, 2020. Existing law requires all admitted insurers to file data on their community development investments in California. AB 2128 limits the requirement to report on community development investments to each admitted insurer with annual premiums written in California equal to or in excess of $100 million for any reporting year. AB 2128 further provides that an insurer meeting the $100 million threshold also must report on its community development infrastructure investments and its green investments in California. The information required by AB 2128 must be submitted by July, 1, 2016, on investments made or held during calendar years 2013, 2014, and 2015. AB 2128 also revises the information regarding insurer community development investments which the Department of Insurance is required to post on its website.       

AB 2220 - requires private patrol operators to carry a minimum of $1 million in liability insurance coverage.

AB 2293 - establishes insurance requirements for a transportation network company which the bill defines as an entity “operating in California that provides prearranged transportation services for compensation using an online-enabled application or platform to connect passengers with drivers using a personal vehicle.” AB 2293 requires a transportation network company to maintain $1 million in primary liability coverage from the moment a participating driver accepts a ride request until the driver completes the transaction on the online-enabled application or platform or until the ride is complete, whichever is later. In the timeframe from when a participating driver logs on to the transportation network company’s online-enabled application or platform until the driver accepts a request to transport a passenger, the transportation network company insurance must maintain primary liability insurance coverage in the amount of at least $50,000/$100,000/$30,000; the company also must  maintain excess coverage of at least $200,000. The statutory section on insurance coverage enacted by AB 2293 states that nothing in the section “shall be construed to require a private passenger automobile insurance policy to provide primary or excess coverage during the period of time from the moment a participating driver in a transportation network company logs on to the transportation network company’s online-enabled application or platform until the driver logs off the online-enabled application or platform or the passenger exists the vehicle, whichever is later.”   These provisions of AB 2293 become operative on July 1, 2015.      

AB 2494 - authorizes a trial court to order a party, the party’s attorney, or both to pay reasonable expenses, including attorney’s fees, incurred by another party as a result of bad-faith actions or tactics that are frivolous or solely intended to cause unnecessary delay.

AB 2734 - makes changes to the Insurance Code which the Assembly Insurance Committee characterizes as “noncontroversial.” Among other changes, AB 2734 1) increases from $5,000 to $20,000 the annual tax threshold which triggers the obligation on a surplus lines broker to make tax payments in monthly installments, 2) increases from $5,000 to $20,000 the annual tax threshold which triggers an obligation on an insurer to prepay taxes, 3) clarifies what constitutes “California business” for the purposes of insurers’ duty to file information with the insurance commissioner concerning procurement contracts with minority, women and disabled veteran-owned businesses, 4) changes the annual data call on private passenger auto insurance information to an every-other-year data call, 5) clarifies that the $5 million financial responsibility requirement for testing of autonomous vehicles may be satisfied with an insurance policy, and 6) authorizes the insurance commissioner to act on an application seeking status as a certified reinsurer 30 days after the application is published, rather than the 90 days required by existing law.

AB 2735 - sets forth in statute that a homeowner who has purchased an earthquake insurance policy that does not satisfy the standard coverage requirements must be reminded by the insurer at renewal that the homeowner has the right to purchase a policy that meets the standard coverage requirements. The reminder notice must be filed with the insurance commissioner 30 days before its first use and is subject to the commissioner’s disapproval.   

Senate Bills

SB 1011 - authorizes certain 501(c)(3) nonprofit organizations to insure themselves against damage to property and the losses related to the loss of use of property though a risk pool arrangement.

SB 1205 - requires the Department of Insurance’s curriculum board to develop or recommend courses of study for agents and brokers on commercial earthquake risk management.  

SB 1273 - extends the sunset date on the California Low-Cost Automobile Insurance Program from January 1, 2016 to January 1, 2020. SB 1273 also amends several statutory provisions relating to the program. Among other changes to the program, SB 1273 1) increases the cap on the value of an automobile that may be insured under the program from $20,000 to $25,000 and authorizes the California Automobile Assigned Risk Plan Advisory Committee to adopt a method to determine the value of an automobile, subject to the insurance commissioner’s approval, 2) allows a person who has fewer than three years of driving history to qualify for coverage under the program, and 3) entitles certified producers to a commission of 12% or $50, whichever is greater.

SB 1446 - allows a small employer health plan or a small employer health insurance policy that was in effect on December 31, 2013, that is still in effect on the effective date of SB 1446, and that does not qualify as a grandfathered health plan under the federal Affordable Care Act, to be renewed until January 1, 2015, and to continue to be in force until December 31, 2015. SB 1446 went into effect on July 7, 2014.

 

Which Insurance-Related Bills Met the California Deadline for Passage?

The deadline for California Assembly and Senate bills to pass their respected houses was May 30, 2014. Bills that met the deadline are eligible for enactment this year.

Bills that met the May 30 deadline will now be considered by the opposing house, with the regular legislative session ending on August 31.

Here are summaries of noteworthy insurance-related bills that met the May 30 deadline for passage.

Assembly Bills

AB 1234 would exempt from discovery or from admission in civil litigation information pertaining to an insurer that is a member of an insurance holding company system when that information is included in a registration statement or obtained by or disclosed to the insurance commissioner in the course of an examination or investigation.

AB 1804 would require private passenger auto insurers, homeowners insurers, and insurers providing individual disability income insurance policies to maintain a process which allows an insured to designate an additional person to receive notice of lapse, termination, expiration, non-renewal, or cancellation of a policy for nonpayment of premium.

AB 2064 would revise the disclosure language which must be included in a homeowners insurer’s mandatory offer of earthquake insurance. AB 2064 also would increase the statutory cap on the California Earthquake Authority’s operating expenses from 3% of its premium income to 5% of its premium income.

AB 2128 would extend the sunset date on statutory provisions relating to the Department of Insurance’s California Organized Investment Network (COIN) program from January 1, 2015, to January 1, 2020.

AB 2293 would require a transportation network company to advise its participating drivers of the company’s insurance coverage and limits of liability. AB 2293 defines a “transportation network company” as an organization “that provides prearranged transportation services for compensation using an online-enabled application or platform to connect passengers with drivers using their personal vehicles.” AB 2293 provides that a transportation network company’s insurance policy is the primary policy coverage and that a transportation network company’s policy shall apply in the event of a loss or injury when a participating driver logs on to a transportation network company’s application program.  

AB 2734 would make changes to the Insurance Code which the Assembly Insurance Committee characterizes as “noncontroversial.” Among other changes, AB 2734 would 1) increase from $5,000 to $20,000 the threshold which triggers the obligation on a surplus lines broker or insurer to make tax payments in quarterly installments, 2) clarify what constitutes a “California business” for purposes of insurers’ duty to file information with the insurance commissioner concerning procurement contracts with minority, women, and disabled veteran-owned businesses, and 3) change the annual data call on private passenger auto insurance information to an every-other-year data call.

AB 2735 would set forth in statute that a homeowner who has purchased an earthquake insurance policy that does not satisfy the standard coverage requirement must be reminded by the insurer at renewal that the homeowner has the right to purchase a policy that meets the standard coverage requirement.

Senate Bills

SB 1034 would make clear that a health plan or insurer offering group coverage may not impose a separate waiting period in addition to the 90-day waiting period that the federal Affordable Care Act allows an employer to use.

SB 1205 would require the Department of Insurance’s curriculum board to develop or recommend a course of study for agents and brokers on commercial earthquake risk management.

SB 1273 would extend the sunset date on the California Low-Cost Automobile Insurance Program from January 1, 2016, to January 1, 2020. SB 1273 also would amend several statutory provisions relating to the program. Among other changes to the program, AB 1273 would repeal the $20,000 cap on the value of a vehicle insured under the program and would allow a person who has fewer than three years of driving history to qualify for coverage under the program.

SB 1446 would allow a small employer health plan or a small employer health insurance policy in effect on December 31, 2013, that does not qualify as a grandfathered health plan under the federal Affordable Care Act, to be renewed until January 1, 2015, and to continue to be in force until December 31, 2016.

California Insurance Laws Enacted in 2013

October 13, 2013 was the deadline for Governor Jerry Brown to act on bills passed by the California Legislature this year. Here are summaries of noteworthy insurance-related bills which Governor Brown signed into law. Unless indicated otherwise the new laws will go into effect on January 1, 2014.  

AB 32 increases the annual aggregate amount of qualified investments eligible for the existing Community Development Financial Institution tax credit from $10 million to $50 million. AB 32 authorizes the Insurance Commissioner to adopt emergency regulations to implement this credit against the insurance gross premium tax. AB 32 requires the Legislative Analyst’s Office, on or before June 30, 2016, to submit a report to the Legislature on the effectiveness of the tax credits allowed. AB 32 went into effect on October 7, 2013.

AB 584 requires admitted and nonadmitted insurance companies to regularly conduct an Own Risk and Solvency Assessment (ORSA) consistent with the NAIC’s ORSA Guidance Manual. Upon the request of the Insurance Commissioner, an insurer must submit an ORSA Summary Report to the Insurance Commissioner. AB 584 provides that the Report is not subject to public disclosure. An insurer that has an annual direct written premium of less than $500 million is exempt from the bill’s requirements however the Insurance Commissioner has the authority to require an exempt insurer to conduct an ORSA based on specified criteria. AB 584 becomes operative on January 1, 2015

AB 1236 authorizes a licensed contractor organized as a limited liability company to obtain statutorily required liability insurance coverage from an eligible surplus line insurer.   

AB 1309 limits access to the occupational disease and cumulative injury provisions of California’s workers’ compensation laws for professional athletes who are employed by out-of-state teams. The limitations established by AB 1309 do not apply to a professional athlete who played at least two years for a California team or played more than 20% of his or her career for a California team. AB 1309 applies to all claims for benefits filed on or after September 15, 2013

AB 1371 requires the driver of a vehicle to provide a three-feet distance between the vehicle and a bicycle when passing. AB 1371 becomes operative on September 16, 2014.   

AB 1391 is the Department of Insurance’s omnibus bill which addresses a number of issues. Among other things, AB 1391 deletes statutory provisions relating to the cancellation of an automobile insurance policy that has been in effect for less than 60 days, repeals Insurance Code provisions which exempt risk retention groups from the Business Transacted with Producer Controlled Insurer Act, modifies statutory provisions relating to insurer risk-based capital reports to conform to NAIC model language, amends statutory provisions relating to the exam waiver for licensees moving to California to conform to the NAIC Producer Licensing Model Act, and specifies in statute a three-hour ethics component for inclusion in the 24 hours of continuing education which agents and brokers must complete every two years. 

SB 36 requires the Department of Insurance to include on its website a dedicated web page that includes workers’ compensation data, statistics, and reports relating to insurers, including, but not limited to, claims loss data, expenses and financial reports. The Department is to only use data already collected by both the Department and the Department of Industrial Relations. The Department of Insurance must comply with SB 36 beginning on July 1, 2014.

SB 135 authorizes the Office of Emergency Services (OES), in collaboration with other entities, to create a comprehensive statewide earthquake early warning system. The authorization is contingent on OES identifying a funding source for the system by January 1, 2016. 

SB 146 has three elements. First, the bill provides that a copy of a prescription for workers’ compensation pharmaceutical services is not necessary unless the provider of services has entered into a written agreement that requires a copy of the prescription for a pharmacy service. Second, an employer, pharmacy benefit manager, insurer, or third-party claims administrator may request a copy of the prescription during a review of any records of prescription drugs dispensed by a pharmacy. Third, any entity that submits a pharmacy bill for payment, on or after January 1, 2013, and is denied payment for not including a copy of the prescription from the treating physician, has until March 31, 2014 to resubmit the bill for payment. SB 146 went into effect on August 19, 2013. 

SB 161 establishes required attachment points and exclusion prohibitions for stop-loss health insurance for small employers.

SB 251 allows an insurer to offer its automobile, homeowners, earthquake, commercial and workers’ compensation insurance policyholders the option to receive renewal notices electronically. 

SB 353 requires health care service plans and insurers that advertise or market health insurance products in the individual or small group markets in a non-English language that is not a threshold language described in the Health and Safety Code or the Insurance Code to provide specified documents and communications in that non-English language. 

SB 476 eliminates the sunset dates for the Auto Consumer Assessment, the Organized Automobile Fraud Activity Interdiction Assessment, and the Life and Annuity Consumer Protection Fund. SB 476 also lowers the maximum assessment for the Auto Consumer Assessment from $0.30 per vehicle to $0.25 per vehicle and expands the application of Life and Annuity Consumer Protection Fund to include life insurance and annuity products valued at less than $15,000.  

SB 639 codifies certain provisions of the federal Affordable Care Act (ACA) and allows a carrier, no more frequently than each calendar quarter, to establish an index rate for the small employer health insurance market based on the total combined claims cost for providing essential health benefits within the single risk pool required by the ACA.     

 

New Insurance Laws and Pending Legislation in California

The California Legislature ended its 2013 session on September 13, 2013. The Legislature passed a number of insurance-related bills during this year’s session. Some of the bills passed this year have already been signed into law; other passed bills are waiting action by Governor Jerry Brown.

Here are summaries of noteworthy new laws and bills being considered by Governor Brown.

New Laws

AB 584 requires admitted and nonadmitted insurance companies to regularly conduct an Own Risk and Solvency Assessment (ORSA) consistent with the NAIC’s ORSA Guidance Manual. Upon the request of the Insurance Commissioner, an insurer must submit an ORSA Summary Report to the Insurance Commissioner. AB 584 provides that the Report is not subject to public disclosure. An insurer that has an annual direct written premium of less than $500 million is exempt from the bill’s requirements however the Insurance Commissioner has the authority to require an exempt insurer to conduct an ORSA based on specified criteria. AB 584 becomes operative on January 1, 2015.

AB 1236 authorizes a licensed contractor organized as a limited liability company to obtain statutorily required liability insurance coverage from an eligible surplus line insurer. AB 1236 goes into effect on January 1, 2014. 

SB 146 has three elements. First, the bill provides that a copy of a prescription for workers’ compensation pharmaceutical services is not necessary unless the provider of services has entered into a written agreement that requires a copy of the prescription for a pharmacy service. Second, an employer, pharmacy benefit manager, insurer, or third-party claims administrator may request a copy of the prescription during a review of any records of prescription drugs dispensed by a pharmacy. Third, any entity that submits a pharmacy bill for payment, on or after January 1, 2013, and is denied payment for not including a copy of the prescription from the treating physician, has until March 31, 2014 to resubmit the bill for payment. SB 146 went into effect on August 19, 2013. 

Bills Being Considered by the Governor

Governor Brown has until October 13, 2013 to act on these bills.

AB 32 would increase the annual aggregate amount of qualified investments eligible for the existing Community Development Financial Institution tax credit from $10 million to $50 million. AB 32 would authorize the Insurance Commissioner to adopt emergency regulations to implement this credit against the insurance gross premium tax. AB 32 would require the Legislative Analyst’s Office, on or before June 30, 2016, to submit a report to the Legislature on the effectiveness of the tax credits allowed.  

AB 1113 would make changes to the provisional driver’s license program which applies to individuals between 16 and 18 years old. AB 1113 would require a person to hold an instructional driver’s permit for a minimum of nine months prior to applying for a provisional driver’s license (current law sets a minimum of six months), would prohibit a provisional licensee from driving between the hours of 10 p.m. and 5 a.m., with exceptions (current law sets the hours at 11 p.m. and 5 a.m.), and would prohibit a provisional licensee from transporting passengers who are under 21 years of age, with exceptions (current law applies the prohibition to passengers under 20 years of age).       

AB 1309 would limit access to the occupational disease and cumulative injury provisions of California’s workers’ compensation laws for professional athletes who are employed by out-of-state teams. 

AB 1371 would require the driver of a vehicle to provide a three-feet distance between the vehicle and a bicycle when passing.   

AB 1391 is the Department of Insurance’s omnibus bill which addresses a number of issues. Among other things, AB 1391 would repeal Insurance Code provisions which exempt risk retention groups from the Business Transacted with Producer Controlled Insurer Act, would modify statutory provisions relating to insurer risk-based capital reports to conform to NAIC model language, would amend statutory provisions relating to the exam waiver for licensees moving to California to conform to the NAIC Producer Licensing Model Act, and would specify in statute a three-hour ethics component for inclusion in the 24 hours of continuing education which agents and brokers must complete every two years. 

SB 36 would require the Department of Insurance to include on its website a dedicated web page that includes workers’ compensation data, statistics, and reports relating to insurers, including, but not limited to, claims loss data, expenses and financial reports. The Department would only use data already collected by both the Department and the Department of Industrial Relations.

SB 161 would establish required attachment points and exclusion prohibitions for stop-loss health insurance for small employers.

SB 251 would allow an insurer to offer its automobile, homeowners, earthquake, commercial and workers’ compensation insurance policyholders the option to receive renewal notices electronically. 

SB 353 would require health care service plans and insurers that advertise or market health insurance products in the individual or small group markets in a non-English language that is not a threshold language described in the Health and Safety Code or the Insurance Code to provide specified documents and communications in that non-English language. 

SB 476 would eliminate the sunset dates for the Auto Consumer Assessment, the Organized Automobile Fraud Activity Interdiction Assessment, and the Life and Annuity Consumer Protection Fund. The bill also would lower the maximum assessment for the Auto Consumer Assessment from $0.30 per vehicle to $0.25 per vehicle and would expand the application of Life and Annuity Consumer Protection Fund to include life insurance and annuity products valued at less than $15,000.  

SB 639 would codify certain provisions of the federal Affordable Care Act (ACA) and would allow a carrier, no more frequently than each calendar quarter, to establish an index rate for the small employer health insurance market based on the total combined claims cost for providing essential health benefits within the single risk pool required by the ACA.

 

Employers' Ability To Collect Attorney's Fees In Wage Cases Restricted by New Bill

On August 26, 2013, California Governor Jerry Brown signed Senate Bill 462 into law, making it harder for employers to obtain attorney’s fees in certain employment wage claim cases.

Prior to the passage of SB 462, section 218.5 of the California Labor Code required a court in any action brought for the nonpayment of wages, fringe benefits, or health and welfare pension fund contributions, to award reasonable attorney’s fees and costs to the prevailing party who requests such fees and costs at the outset of the case, regardless of whether the prevailing party was the employer or the employee.

SB 462 changed that, providing instead that an employer cannot obtain attorney’s fees under section 218.5 just by prevailing – it must also establish that the employee brought the court action “in bad faith.” By contrast, an employee can still obtain attorney’s fees and costs where he or she prevails, without having to prove “bad faith.”

The bill is a response to the California Supreme Court’s decision in Kirby v. Immoos Fire Protection, Inc. which, while denying section 218.5 attorney’s fees in the case before it, affirmed that section 218.5 “awards fees to the prevailing party whether it is the employee or the employer; it is a two-way fee-shifting provision.” Following the Court’s issuance of that opinion, plaintiffs’ attorneys have been seeking to change fee shifting provisions of section 218.5, claiming that a two-way fee-shifting provision has a chilling effect on contractual wage claims.

Opponents of the measure, as reported in the official senate records on the bill, point out that section 218.5 has been in place since 1986, that Kirby merely reaffirmed its clear language, and that the bill will “incentivize further meritless wage and hour litigation.”

What does the law mean for employers? First, it is important to note that while SB 462 raises the bar for employers to obtain attorney’s fees where they prevail in such cases, this law does not apply to minimum wage or overtime claims. Another provision of the Labor Code, section 1194, already provides for just a one-way fee-shifting provision, providing attorney’s fees to employees who are successful in proving their overtime and minimum wage claims, but not corresponding attorney’s fees to successful employers.

In other words, the Labor Code, which is already quite lopsided in favor of employees seeking attorney’s fees, has just become more lopsided.

The meaning of the law’s “bad faith” provision is also far from certain. Until subsequent litigation settles the matter, we can only be guided by cases that have sought to define “bad faith” in similar contexts.

For example, in Gemini Aluminum Corp v. Cal. Custom Shapes the Court dealt with a statute awarding attorney’s fees to successful defendants in claims under the Uniform Trade Secrets Act, which provides such fees if a claim of misappropriation is made “in bad faith” – a term which, as in the present case, was not defined by the statute. The court ruled that “bad faith” requires objective “speciousness” of the plaintiff’s claim together with subjective bad faith in bringing or maintaining the claim.

If such a standard is adopted in the context of section 218.5, it might have the unexpected consequence of increasing the prevalence of discovery aimed at the subjective intentions of the plaintiff employee, which might conceivably justify more extensive inquiries into the employee’s personal life and circumstances. This is perhaps one small silver lining employers and employment defense attorneys can take away from what is, on the whole, a win for the plaintiff’s bar.

To discuss SB 462, or other aspects of wage and hour law, please contact the author.

Originally posted to Barger & Wolen's Employment Law Observer.

California Legislators to Consider Insurance Bills During Final Weeks of Session

Members of the California Assembly will return to Sacramento from their summer recess on August 5. State Senators will return to the Capitol on August 12. This year’s legislative session will end on September 13.

During the last weeks of this year’s session, legislators will vote on insurance-related bills that have advanced to the final stages of passage. Here are summaries of noteworthy bills:

Assembly Bills

AB 32 would increase the annual aggregate amount of qualified investments eligible for the Community Development Financial Institution tax credit from $10 million to $50 million.  Insurers are able to obtain a credit against the insurance gross premium tax for qualifying investments. AB 32 has passed the Assembly and is scheduled to be heard by the Senate Governance & Finance Committee on August 14.

AB 584 would require domestic insurance companies to regularly conduct an Own Risk and Solvency Assessment (ORSA) consistent with the NAIC’s ORSA Guidance Manual. Insurers would be required to submit an ORSA Summary Report annually to the Insurance Commissioner. AB 584 provides that the Report is not subject to public disclosure. An insurer that has an annual direct written premium of less than $500 million would be exempt from the bill’s requirements, however the Insurance Commissioner would have the authority to require an exempt insurer to conduct an ORSA based on specified criteria. AB 584 has passed the Assembly and is scheduled to be heard by the Senate Appropriations Committee on August 12.

AB 612 would require local agencies that use red light cameras at intersections to establish yellow light intervals that are one second longer than the yellow light intervals which are normally in place. AB 612 has passed the Assembly and is pending before the Senate Transportation & Housing Committee.

AB 1113 would make changes to the provisional driver’s licensing program which applies to individuals between 16 and 18 years old. AB 1113 would require a person to hold an instructional driver’s permit for a minimum of nine months prior to applying for a provisional driver’s license (current law sets a minimum of six months), would prohibit a provisional licensee from driving between the hours of 10 p.m. and 5 a.m., with exceptions (current law sets the hours at 11 p.m. to 5 a.m.), and would prohibit a provisional licensee from transporting passengers who are under 21 years of age, with exceptions (current law applies the prohibition to passengers under 20 years of age). AB 1113 would prohibit the Department of Motor Vehicles from issuing a provisional license if the applicant has been convicted of a driving offense in the prior six months. AB 1113 has passed the Assembly and is scheduled to be heard by the Senate Appropriations Committee on August 12.

AB 1236 would authorize a licensed contractor organized as a limited liability company to obtain statutorily required liability insurance coverage from an eligible surplus line insurer. AB 1236 has passed the Assembly and the Senate; the bill is back on the Assembly floor, waiting for concurrence in amendments which were adopted in the Senate.

AB 1309 would limit access to the California workers’ compensation system for professional athletes who are employed by out-of-state teams. AB 1309 also would establish a special statute of limitations for workers’ compensation cumulative injury claims involving professional athletes. AB 1309 has passed the Assembly and is pending before the Senate Rules Committee.

AB 1371 would require the driver of a vehicle to provide a three-feet distance between the vehicle and a bicycle when passing. AB 1371 has passed the Assembly and is scheduled to be heard by the Senate Appropriations Committee on August 12.   

AB 1391 is the Department of Insurance’s omnibus bill which addresses a number of issues. Among other things, AB 1391 would repeal Insurance Code provisions which exempt risk retention groups from the Business Transacted with Producer Controlled Insurer Act, would modify statutory provisions relating to insurer risk-based capital reports to conform to NAIC model language, would amend statutory provisions relating to the exam waiver for licensees moving to California to conform to the NAIC Producer Licensing Model Act, and would specify in statute a three-hour ethics component for inclusion in the 24-hours of continuing education which agents and brokers must complete every two years. AB 1391 has passed the Assembly and is scheduled to be heard by the Senate Appropriations Committee on August 12.

Senate Bills

SB 36 would require the Department of Insurance to include on its website a dedicated web page that includes workers’ compensation data, statistics, and reports covering both insurers and self-insurers, including, but not limited to, claims loss data, expenses and financial reports. SB 36 has passed the Senate and is scheduled to be heard by the Assembly Insurance Committee on August 7.

SB 251 would allow an insurer to offer its automobile, homeowners, earthquake, commercial and workers’ compensation insurance policyholders the option to receive renewal notices electronically. SB 251 has passed the Senate and is scheduled to be heard by the Assembly Judiciary Committee on August 13.

SB 476 would eliminate the sunset dates for the Auto Consumer Assessment, the Organized Automobile Fraud Activity Interdiction Assessment, and the Life and Annuity Consumer Protection Fund. The bill also would lower the maximum assessment for the Auto Consumer Assessment from $0.30 per vehicle to $0.25 per vehicle and would expand the application of Life and Annuity Consumer Protection Fund to include life insurance and annuity products valued at less than $15,000. SB 476 has passed the Senate and is pending before the Assembly Appropriations Committee.

 

California Insurance-Related Bills Meet Deadline for Passage in 2013

The deadline for Assembly bills to be passed by the California State Assembly and for Senate bills to be passed by the California State Senate was last Friday, May 31. 

Bills that met the deadline are eligible for enactment this year.  Bills that failed to meet the deadline remain alive and may be considered in 2014.

Assembly bills that met the May 31 deadline are now being considered by the Senate. Senate bills that met the deadline are now being considered by the Assembly.

This year’s regular legislative session will end on September 13.

Here are summaries of noteworthy insurance-related bills that met the May 31 deadline.

Assembly Bills

AB 32 would increase the annual aggregate amount of qualified investments eligible for the Community Development Financial Institution tax credit from $10 million to $50 million. Insurers are able to obtain a credit against the insurance gross premium tax for qualifying investments.

AB 584 would require domestic insurance companies to regularly conduct an Own Risk and Solvency Assessment (ORSA) consistent with the NAIC’s ORSA Guidance Manual. Insurers would be required to submit annually an ORSA Summary Report to the Insurance Commissioner. An insurer that has an annual direct written premium of less than $500 million would be exempt from the bill’s requirements, however the Insurance Commissioner would have the authority to require an exempt insurer to conduct an ORSA based on specified criteria.

AB 715 would authorize an appellate court to review a trial court’s ruling on the admissibility of evidence in a summary judgment proceeding using a de novo standard of review.

AB 802 would require a private arbitration company to collect additional information related to a consumer arbitration case and to make the information available in a single cumulative report.

AB 1236 would authorize a licensed contractor organized as a limited liability company to obtain limited liability insurance coverage from an eligible surplus line insurer.

AB 1113 would make changes to the provisional driver’s licensing program. AB 1113 would require a person to hold an instructional driver’s permit for a minimum of nine months prior to applying for a provisional driver’s license (current law sets a minimum of six months), would prohibit a provisional licensee from driving between the hours of 10 p.m. and 5 a.m., with exceptions (current law sets the hours at 11 p.m. to 5 a.m.), and would prohibit a provisional licensee from transporting passengers who are under 21 years of age, with exceptions (current law applies the prohibition to passengers under 20 years of the age).

AB 1309 would limit access to the California workers’ compensation system for professional athletes who are employed by out-of-state teams. AB 1309 also would establish a special statute of limitations for workers’ compensation cumulative injury claims involving professional athletes. 

AB 1371 would require a driver to provide a three-feet distance between the vehicle and a bicycle when passing.    

Senate Bills

SB 146 would enact a provision stating that a copy of a prescription for workers’ compensation pharmaceutical services is not necessary unless a copy is required under a written contract between an employer, insurer, or third-party administrator and a pharmacy.

SB 251 would allow an insurer to offer to its policyholders the option of receiving notices, offers, renewals, and disclosures electronically.    

SB 476 would eliminate the sunset dates for the Auto Consumer Assessment, the Organized Automobile Fraud Activity Interdiction Assessment, and the Life and Annuity Consumer Protection Fund. The bill also would lower the maximum assessment for the Auto Consumer Assessment from $0.30 per vehicle to $0.25 per vehicle and would expand the application of the Life and Annuity Consumer Protection Fund to include life insurance and annuity products valued at less than $15,000.

 

California Legislative Committees Considering Insurance Bills

Numerous insurance-related bills have been introduced in the California Legislature this year. Legislative committees are now conducting hearings on the various measures. This year’s regular legislative session will end on September 13.

Here are summaries of a dozen noteworthy insurance-related bills.

AB 32 would increase the annual aggregate amount of qualified investments eligible for the Community Development Financial Institution tax credit from $10 million to $50 million. Insurers are able to obtain a credit against the insurance gross premium tax for qualifying investments. AB 32 is pending before the Assembly Revenue and Taxation Committee.

AB 231 would impose strict civil liability on a person who owns a firearm for each incidence of property damage, bodily injury, or death resulting from the use of his or her firearm; the owner would be able to avoid liability if he or she reports the firearm to local law enforcement as stolen prior to the damage, injury, or death. AB 231 is pending before the Assembly Appropriations Committee.

AB 584 would enact the NAIC Own Risk Solvency Assessment Model Law. AB 584 is pending before the Assembly Appropriations Committee.

AB 710 would require the governing board of the California Health Benefit Exchange to facilitate the purchase of qualified health plans through the Exchange by multi-employer plans. AB 710 is pending before the Assembly Health Committee.  

AB 724 would extend the provisional drivers licensing program to licensees who are 18 or 19 years old. AB 724 is pending before the Assembly Transportation Committee.

AB 862 would authorize an insurer to offer a separately rated, non-offset underinsured motorist policy for which the insurer’s maximum liability would be the insured’s underinsured motorist coverage limit without subtracting the amount paid to the insured by or for any person or organization that may be held legally liable for the injury. AB 862 is pending before the Assembly Insurance Committee.

AB 1236 would authorize a licensed contractor organized as a limited liability company to obtain limited liability insurance from an eligible surplus line insurer. AB 1236 is pending before the Assembly Insurance Committee.

AB 1309 would exclude specified professional athletes from California’s workers’ compensation laws. AB 1309 is pending before the Assembly Insurance Committee.

ABX 12 would require an insurer to offer, market and sell all of the insurer’s health benefit plans that are sold in the individual market to all individuals and dependents in each service area in which the insurer provides or arranges for the provision of health care services. The bill also would prohibit the use of preexisting condition exclusions in the individual insurance market. ABX 12 was passed by the Assembly and is waiting for a vote on the Senate floor.  

SB 146 would enact a provision stating that a copy of a prescription for workers’ compensation pharmaceutical services is not necessary unless a copy is required under a written contract between an employer, insurer, or third-party administrator and a pharmacy. SB 146 was passed by the Senate and is waiting for an assignment to an Assembly committee.

SB 251 would allow an insurer to offer to its policyholders the option of receiving notices, offers, renewals, and disclosures electronically. SB 251 is pending before the Senate Insurance Committee.

SB 626 would revise provisions relating to workers’ compensation independent medical reviews which were enacted as part of last year’s SB 863. SB 626 also would delete the provision that sets a limit on a chiropractor’s authority to serve as a treating physician. SB 626 is pending before the Senate Labor and Industrial Relations Committee.

 

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.

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...

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.   

 

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.

Bill That Could Nullify Howell Moves Forward

California trial lawyers have made no secret of their intent to nullify the Howell v. Hamilton Meats & Provisions, Inc. decision with new legislation this year. Please see our previous blog posts on the Howell decision here and here.

If Howell is nullified or restricted by legislation this year, the changes will be achieved with Senate Bill 1528

SB 1528 is authored by Senate president pro tem Darrell Steinberg and is sponsored by the Consumer Attorneys of California. When the Senate passed SB 1528 on May 30, the bill contained just intent language. It provided, “It is the intent of the Legislature to establish a framework for compensating persons with injuries due to the fault of third parties.”

When SB 1528 arrived in the Assembly, it was assigned to the Assembly Judiciary Committee. On June 27 the bill was amended. As amended, SB 1528 still includes the intent language and also contains provisions which would give counties lien rights to settlements when counties have provided medical services to injured persons.

The Assembly Judiciary Committee held a hearing on SB 1528 on July 3. Senator Steinberg and a former president of the Consumer Attorneys of California made no mention of Howell in their opening testimony. They testified that SB 1528 simply extends county lien rights to recover medical expenses to cases that settle before going to judgment. 

That testimony was followed by a long line of insurer and business representatives who opposed the bill because they believe that there are plans to amend SB 1528 with Howell nullification language after the bill leaves the committee. Senator Steinberg responded by acknowledging that there are ongoing discussions about further changes to SB 1528 but he assured the committee that if the bill is amended, it will be brought back to the committee for another hearing. 

The 11-member Assembly Judiciary Committee approved SB 1528 with a 6-2 vote. SB 1528 is now being sent to the Assembly floor but it won’t be voted on any time soon. Legislators will take their summer recess from July 6 to August 6.

It is expected that sometime during August an effort will be made to amend SB 1528 with provisions affecting the Howell decision. This year’s regular legislative session will end on August 31. It is possible that Howell may emerge as a major issue in the last days, or hours, of the session.

 

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.   

 

California Assembly OKs Bill to Curb Insurers' Iran Investments

PUBLISHED BY LAW360 (subscription req.)

May 25, 2012

CALIF. ASSEMBLY OKS BILL TO CURB INSURERS' IRAN INVESTMENTS

Samuel Sorich, of counsel to Barger & Wolen, was quoted in a May 25, 2012, article published by Law360 about controversy surrounding legislation aimed at deterring insurers from investing in companies that have financial ties to Iran's energy sector. 

According to the article, the bill, AB 2160, already approved by the California Assembly, would prevent insurers from counting investments connected to the Iran's energy industry toward meeting their capital requirements. Insurers argue that the proposed legislation is unconstitutional because it conflicts with federal foreign policy.

Sorich told the publication that the Constitution states that the president must establish foreign policy.

“There has been no action taken by the president to outlaw investments in companies that are doing business in Iran,” Sorich said. “The president hasn't gone that far.”

Should the bill become law, there is a strong possibility it will be challenged in court, Sorich said. “Although well-intentioned, the California law was found to be inconsistent with U.S. foreign policy established by the president.”

Iran-Related Investment Bill Clear's California State Assembly

The California Assembly this morning passed a bill that would require the Insurance Commissioner to treat a domestic insurer's investment in a company that does business in Iran as a non-admitted asset. 

The 80-member Assembly passed AB 2160 with a 57-4 vote. 

The bill received support from Democrats and a few Republican members of the Assembly. Republican Assembly Member Jeff Miller, who voted against AB 2160 when the bill was considered by the Assembly Insurance Committee, voted for the bill on the Assembly floor.  

AB 2160 will now be assigned to a Senate committee which will hold a hearing on the bill. 

For a more detailed overview on the issue, please see our previous blog posts here.

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.

No Attorney Fees Can Be Awarded for Non-Payment of Rest Breaks, California Supreme Court Rules

In Kirby v. Immoos Fire Protection, Inc., the California Supreme Court held that neither California Labor Code section 1194 nor section 218.5 authorize the payment of attorney fees in an action seeking recovery for denial of required rest breaks under section 226.7.

Section 1194 authorizes recovery of attorney fees by a prevailing employee on a claim for unpaid minimum or overtime wages. It provides for one-way fee-shifting to plaintiffs.

Section 218.5, by contrast, provides for attorney fees to be paid to the prevailing party in any action brought for the nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions. It is thus a two-way fee-shifting statute. However, it is also limited, since it does not apply to any action for which attorney’s fees are recoverable under section 1194.

Section 226.7 imposes an obligation upon employers to provide mandated meal and rest breaks.

Plaintiffs, employees of Defendant (“IFP”), sued the employer for nonpayment of mandated rest breaks, but subsequently dismissed this claim. IFP sought roughly $50,000 of attorney fees for successfully defending this claim.

The first question the Supreme Court had to address was whether attorney fees would have been recoverable under 1194. The Supreme Court found that fees would not have been recoverable under 1194, since rest breaks do not constitute a type of “minimum wage,” as Plaintiffs had argued.

The second question was whether, in that case, attorney fees were recoverable under the two-way fee-shifting of section 218.5. Here, it was IFP that argued that non-payment of rest breaks constituted a “wage,” and therefore qualified under section 218.5. Again, the Supreme Court disagreed. Rest breaks do not constitute wages of any kind.

Thus, the Court held, attorney fees were not recoverable in actions seeking mandated rest breaks under section 226.7.

What makes this case interesting (and a little ironic) from a procedural standpoint is that it was the defendant employer seeking the attorney fees, and the employee plaintiffs who resisted. Thus, in losing their claim for attorney fees, the employer ended by establishing law generally advantageous to employers. And in winning this battle over the payment of roughly $50,000 in fees, the employees essentially nullified the ability of future plaintiffs to seek attorney fees in actions based on the denial of required rest breaks.

Originally posted on Barger & Wolen's Employment Law Observer blog.

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.

California Workers' Compensation Looms as a Major 2012 Legislative Issue

On March 28, two California legislative committees met to hear concerns about the California workers’ compensation system. The chairs of the committees declared that the hearing was the Legislature’s first-step in this year’s effort to solve problems that plague the system.

During the joint hearing of the Assembly Insurance Committee and the Senate Labor & Industrial Relations Committee, stakeholders in the California workers’ compensation system identified problems and gave their perspectives on how those problems should be addressed.

Representatives of the California Workers’ Compensation Institute outlined the increase in workers’ compensation costs. In the years immediately after the enactment of the 2003 and 2004 reform laws, the total loss per indemnity claim decreased. However, in recent years, workers’ compensation claim costs have been increasing. The total loss for an indemnity claim is higher today than prior to the enactment of the 2003-2004 reforms. Institute data show that escalating medical costs are driving the increase in claim costs. Increasing costs are affecting insurers. The most current accident year combined loss and expense ratios are at 130.

Insurance Commissioner Dave Jones observed that the high combined ratios will probably result in a rise in workers’ compensation insurance rates. The commissioner expressed concern about the higher premiums that may be charged to employers. In wrestling with workers’’ compensation issues, the Legislature has operated under the theory that a dollar increase in benefits should be accompanied by a dollar in savings in the workers’ compensation system. Commissioner Jones explained that because of the sharp increase in costs, that theory is no longer useful. It appears that it will take more than one dollar in savings to offset a dollar in benefit increase.

Christine Baker, director of the Department of Industrial Relations, testified that her department is seeking comprehensive workers’ compensation reforms that achieve both cost savings and benefit increases. Baker explained that such comprehensive reforms will require both legislative and regulatory changes. The Division of Workers’ Compensation is conducting public forums throughout the state aimed at reaching a consensus on the changes that should be made.

Frank Neuhauser, professor at the University of California at Berkeley argued that the 2003-2004 reforms have reduced compensation paid to injured workers. Neuhauser said the reforms resulted in a 61% decrease in overall compensation. He stated that workers who are not represented by attorneys have been especially affected by the decline in compensation paid.

A representative of the California Federation of Labor accused insurers of undermining the workers’ compensation administrative process and delaying medical treatment for injured workers. The Federation called for the prior approval of workers’ compensation insurance rates and significant adjustments to the permanent disability rating schedule.

A representative of Grimway Farms, which is self-insured for workers’ compensation, challenged the allegation that high costs can be solved by stricter insurance regulation. As a self-insurer, Grimway is facing the same increase in workers’ compensation costs as insurers. The Grimway representative complained that there are too many lawyers in the workers’ compensation system.  A representative of public schools urged the adoption of measures to reduce the number of workers’ compensation liens.

A representative of the California Medical Association asserted that further restrictions on fees that may be charged for workers’ compensation medical treatment would lead to a reduction in access to care. A representative of the California Society of Industrial Medicine and Surgery complained about delays in utilization reviews and the administration of medical provider networks.

At the close of the hearing, Senator Ted Lieu, chair of the Senate Labor & Industrial Relations Committee, and Assembly Member Jose Solorio, chair of the Assembly Insurance Committee, said that they are committed to achieving both workers’ compensation savings and workers’ compensation benefit increases. The committee chairs said that they will proceed in an honest, cautious and transparent manner.

 

Significant Insurance Bills Being Considered by California Legislature

California legislators will consider a variety of insurance-related issues before the 2012 legislative session ends on August 31, 2012.

Hundreds of bills were introduced prior to last month’s deadline for bill introduction. Many of the newly introduced bills would affect insurers doing business in California. 

Most bills propose specific statutory changes. However, as is typical at this point in the legislative process, a number of  bills merely contain general language. These so-called “spot bills” will be amended to include specific statutory changes later during the legislative session. 

Here are seven newly introduced bills that merit insurers’ attention. These bills are not yet scheduled for hearings.

SB 1172 is a spot bill. It is expected that the bill will be amended to include provisions which would give the insurance commissioner the power to order an insurer or agent to pay restitution for Insurance Code violations and would grant the insurance commissioner authority to force the insurer or agent to pay the Department of Insurance’s attorney’s fees and costs related to the restitution order. These provisions were contained in SB 631, which failed to pass last year.

SB 1448 would make numerous changes to California’s insurance holding company statutes. Among other things, SB 1448 would require an insurer that is a member of a holding company to file with the insurance commissioner statements affirming the maintenance of corporate governance and internal control procedures. SB 1448 also would require an insurer’s ultimate controlling person to file an annual enterprise risk report that identifies material risks within the holding company that could pose risk for the insurer.

SB 1449 would enact the Interstate Insurance Product Regulation Compact. Enactment of the Compact would result in California’s membership in the commission that establishes uniform standards for the review and approval of products relating to life insurance, annuities, disability insurance and long-term care insurance. 

SB 1460 would enact new statutes relating to the use of replacement crash parts that are not manufactured by the original equipment manufacturer (non-OEM crash parts). The bill would give statutory recognition to certified new non-OEM crash parts.

SB 1528 would allow a plaintiff in a liability lawsuit to recover the reasonable cost of the medical services provided to the plaintiff without regard to the amount that was actually paid for the services. The bill 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 this blog’s recent discussion of the Howell decision here.

AB 1687 would authorize the Workers’ Compensation Appeals Board to award attorney’s fees to a workers’ compensation applicant who is involved in a dispute over the appropriateness of medical treatment.

AB 2160 would require the insurance commissioner to treat a domestic insurer’s indirect investments in Iran as non-admitted assets on the financial statements the insurer files with the commissioner. See this blog's recent update here.

Many bills introduced last year are still pending before the Legislature. Two measures are especially noteworthy for insurers. 

AB 52 would require health service plans and health insurers to obtain the insurance commissioner’s prior approval of rate changes. AB 52 was passed by the Assembly. The bill is now in the Senate Inactive File.

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 53 was passed by the Assembly. The bill is now pending before the Senate Rules Committee.

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.

Ninth Circuit Strikes Down California "Armenian Genocide" Insurance Claims Statute

By John C. Holmes and Richard B. Hopkins

In an 11-0 en banc published decision, the Ninth Circuit Court of Appeals struck down California Code of Civil Procedure section 354.4 which purported to recognize the Armenian Genocide.

Section 354.4 revived the statute of limitations for claims made by “Armenian Genocide victims” or their heirs, voided contractual forum-selection clauses, and vested California courts with jurisdiction to hear disputes regarding such claims.

Overturning contrary rulings in the same case by the District Court and a 3-judge Ninth Circuit panel, the en banc panel in Movsesian v. Versicherung AG, Case No. 07-56722, held that because section 354.4 does not concern an area of traditional state responsibility and intrudes on the field of foreign affairs entrusted exclusively to the federal government, section 354.4 is preempted under the foreign affairs doctrine.

The Court found that section 354.4 “expresses a distinct point of view on a specific matter of foreign policy.” 

The Court also noted that the phrase “Armenian Genocide” is a "hotly contested matter of foreign policy” and that:

President Obama was careful to avoid using the word ‘genocide’ during a commemorative speech in an attempt to avoid alienating Turkey, a NATO ally, which adamantly rejects the genocide label.” 

Emphasizing the highly political nature of the statute, the Court noted that the California Legislature:

intended to send a political message on an issue of foreign affairs by providing relief and a friendly forum to a perceived class of foreign victims.” 

The Court distinguished the law from merely “expressive” government proclamations, such as commemorations of the Armenian Genocide, on the ground that section 354.4 imposes a concrete policy of redress for “Armenian Genocide victim[s],” subjecting foreign insurance companies to suit in California by overriding forum-selection provisions and greatly extending the statute of limitations for a narrowly defined class of claims. 

Moreover, the Court held that section 354.4:

has a direct impact upon foreign relations and may well adversely affect the power of the central government to deal with those problems.” 

Therefore, the Court concluded that section 354.4 intrudes on the federal government’s exclusive power to conduct and regulate foreign affairs.

Barger & Wolen has represented and currently represents life insurers in matters involving litigation brought by “Armenian Genocide victims” and similarly situated parties.

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.

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.

Continue Reading...

Next Up in the 'Tort War': Discounted Medical Expenses?

We recently blogged here about the California Supreme Court’s decision in Howell v. Hamilton Meats.

In a long-awaited, and nearly unanimous decision, the California Supreme Court has held that an injured plaintiff whose medical expenses are paid through private health insurance may recover as economic damages no more than the amounts paid by the plaintiff’s insurer for those medical services, and that this discounted amount does not fall within the collateral source rule.

Dan Walters in a recent Sacramento Bee post, 'Tort war' could hit the California Capitol is wondering if the trial attorneys will take this loss lying down:

The issue in the case (Howell v. Hamilton Meats) was whether the injured party could collect the full medical bills imposed by doctors, hospitals and other medical care providers, or would be limited to the amounts actually paid by insurers, which are often pennies on the dollar.

The case, stemming from a 2005 collision in San Diego County, involved $200,000 in medical bills that were whittled down to $60,000 before payment.

The trial judge decreed that only the smaller amount need be paid, while an appellate court said it should be the full amount, and several other pending cases had conflicting appellate court decisions, so the issue was kicked upstairs to the Supreme Court.

Its widely watched ruling hit personal injury lawyers in their wallets but elated insurers, who had said an adverse outcome would have cost them, and their policyholders, another $3 billion a year. (emphasis added)

The legislature has just returned to Sacramento, and, according to Mr. Walters, the “Consumer Attorneys of California, the lobbying arm of personal injury lawyers, has made no secret that it wants legislation to counteract the Supreme Court decree.”

We’ll keep you posted if and when legislation is introduced.

 

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.

 

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.

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.

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.

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.”

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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.

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.

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).

The California Supreme Court Reiterates Analysis for Determining Whether a Statutory Violation Confers a Private Cause of Action

Yesterday, the California Supreme Court issued its unanimous opinion in Lu v. Hawaiian Gardens Casino, Inc., in which the high court found that a specific Labor Code provision could not be enforced by private litigants. This opinion is important in that it reiterates important cases and analyses that can be used to defeat a plaintiff’s attempt to set forth a private cause of action where no such right was intended by the legislature. Unfortunately, however, the Supreme Court declined to further address the question of whether a statute that cannot independently confer a private cause of action can still be utilized as a predicate for a cause of action under the “unlawful” prong of the Unfair Competition Laws (“UCL”).

Louie Lu (“Lu”) was a card dealer at the Hawaiian Islands Casino in Southern California. As a dealer, he was provided tips. However, not all of the tips were his to keep. Instead, he was required to provide 15% to 20% of his tips to a community fund that was then split among other employees who were offering services to the card players, but were not as routinely tipped as the dealers (i.e., floormen, poker tournament coordinators, concierges, etc.)

The tip pool policy specifically prohibited managers and supervisors from receiving any money from the pool. This exclusion of managerial persons from sharing in the tips is important, as Labor Code Section 351 prohibits an employer from taking, collecting or receiving employees’ tips. However, California courts have long-held that the pooling of tips to be split amongst like-situated employees, such as waiters and waitresses on the same shift, is not a violation of Section 351. Similarly, courts have held that the pooling of tips in the casino setting when those tips are spread among the non-managerial staff is perfectly acceptable and not a violation of Section 351. Lu contended that “agents” of the casino (presumably managerial employees) were improperly sharing in the pooled tips, and set forth causes of action for violation of Section 351 and Section 17200 of the UCL. 

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Legislation to Cap Punitive Damages in California Defeated; Plaintiff's Lawyers Rejoice

Efforts in Sacramento to put a cap on the recovery of punitive damages were stomped out on May 4, 2010, as a party-line vote killed pending tort reform legislation in the Assembly’s Judiciary Committee.

As reported previously, Assembly Bill 2740, authored by Assemblyman Roger Niello (R-Fair Oaks) sought to limit punitive damages to three times the amount of compensatory damages. Because plaintiff’s attorneys routinely work on a contingency basis, this legislation was strongly opposed by plaintiff’s attorneys – arguing it was unnecessary. The bill would have also capped “pain and suffering” awards to $250,000.

Kim Stone, Vice President of the Civil Justice Association of California, testified that these “common-sense reforms would go a really long way towards making California more friendly to business while at the same time protecting the truly injured to make sure they receive their just compensation.”

Niello, a strong-backer of business interests in California, argued that tort reform is necessary to reinvigorate the state as a place for businesses to make their home.

“It's been stated by (the trial lawyers) that there’s no need, there isn’t a problem. There is a need, there is a problem. The problem is the reputation of California as a place to do business in is in the tank, and part of the reason for that is our civil justice system,” Niello told the committee.

Unfortunately, these justifications were not persuasive – or perhaps more pessimistically, not considered – as the bill was defeated on a party-line vote. Democrats unanimously voted against the reform, Republicans unanimously voted for reform. Given the toxicity and divisiveness of California state politics, perhaps little less should have been expected.

Legislation Seeks to Cap Punitive Damages in California; Defendants Hopeful, Plaintiff Lawyers Fearful?

Typically, tort reform efforts are premised on the belief that the court systems are overly filled with unworthy cases and the awards in those cases are unnecessarily excessive. Surely, many insurers and other defendants would agree with that presupposition. Many plaintiff attorneys would vehemently disagree. If you are the former, Assembly Bill 2740, authored by Assemblyman Roger Niello (R-Fair Oaks), might be of great interest. Indeed, if it survives the gauntlet of the California legislature, AB 2740 would eliminate what many insurers and other defendants view as unpredictable jackpot awards that only drive up premiums for insureds and the cost of doing business for all companies operating in California.   

Most importantly for insurers, the bill would limit punitive damages to three times the amount of compensatory damages, and would be applicable to claims for breach of the implied covenant of good faith and fair dealing (colloquially known as “bad faith”). While Supreme Court decisions have recently sought to limit the ratio of punitive to compensatory damages, the decisions have not been evenly applied by trial and appellate courts; AB 2740 would effectively resolve and limit the ratio component.  

In addition, the bill also would limit non-economic damages, i.e., damages for pain and suffering, to $250,000 in all civil cases. (This $250,000 cap on non-economic damages has been the law in California for medical malpractice claims since the passage of the Medical Injury Compensation Reform Act of 1975.)

While it is currently unclear if AB 2740 will gain any momentum in the California legislature, insurers can hold hope for – or at least keep watchful eyes on – this promising legislation. We expect that Governor Schwarzenegger would sign the bill if it passed in the legislature.  We will keep you updated on its progress. The next hearing is in the Assembly’s Judiciary Committee on May 4, 2010.

The full text of the proposed legislation can be found here.

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.

2009 California Legislative Update

The California legislature passed a number of new insurance-related bills that Governor Schwarzenegger signed into law. These include new laws regulating the rescission of health insurance coverage (AB 108), life settlement transactions (SB 98) and electronic transactions (AB 328). 

Several of the laws are summarized briefly below. Our summary is intended to give you a broad overview only and does not include all new provisions enacted by the legislation. These summaries should not be relied upon as a substitute for legal advice.

LIFE, HEALTH AND DISABILITY INSURANCE

1. AB 23: Cal-COBRA Premium Assistance

  • Establishes notice requirements that must be provided to eligible qualified beneficiaries regarding the availability of premium assistance under the American Recovery and Reinvestment Act of 2009 (ARRA).
  • Qualified beneficiaries eligible for federal assistance may elect coverage under Cal-COBRA, and those enrolled in Cal-COBRA as of February 17, 2009 may request the federal premium assistance.

2. AB 76: Life and Annuity Consumer Protection Fund

  • Extends the provision creating the Life and Annuity Consumer Protection Fund to January 1, 2015.
  • Requires the California Insurance Commissioner (“Commissioner”) to publish an annual report on its Web site detailing certain protections for consumers of insurance products.
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More on Harvey Rosenfield's Initiative to Prohibit Broker and Installment Fees

By Robert W. Hogeboom

This Alert follows our Client Alert of September 4, 2009, Harvey Rosenfield Seeks Initiative to Prohibit Broker and Installment Fees.

Harvey Rosenfield’s proposed initiative, Stop Insurance Overcharges Act (pdf), of September 4, 2009, is intended to counter the July 2009 initiative, The Continuous Coverage Auto Insurance Discount Act, sponsored by CalFair and Mercury General Corp.

The historical background is as follows:

In 2004, Mercury sponsored SB 841, which codified the right to offer portable persistency discounts. In 2005, the Court of Appeal overturned SB 841, reasoning that the legislation did not further the purposes of Proposition 103. In July 2009, Mercury and CalFair sponsored an initiative for the 2010 ballot to permit insurers to offer portable persistency discounts, arguing that consumers benefit by this discount and that it encourages consumers to shop for the lowest rates.

Harvey Rosenfield argues that portable persistency punishes the uninsured. Smart’s California Insurance Report of July 15, 2009 refers to Michael Hiltzik’s July 2nd Los Angeles Times article, Mercury General using guise of benevolence to assault Prop. 103, that criticizes Mercury’s attempt to undermine Proposition 103’s ban on insurers from using the absence of prior coverage as a factor in rate setting. The article also asserts that previously uninsured motorists were charged higher premiums because they do not qualify for a discount, which, in turn, discourages them from purchasing insurance. 

The Stop Insurance Overcharges Act would also add other provisions to the Insurance Code that deal with installment fees, broker fees, the absence of prior insurance and precluding the use of claims experience. 

Proposed Section 1861.25 deals with installment fees and mandates that installment fees, including a fee for the time value of money, are premium. It further limits fees to the direct cost of collecting the installment payments. Comment: This would eliminate the ability to estimate a specific amount as the installment fee.

Proposed Section 1861.26(a) precludes the charging of a broker fee if the broker receives a commission from the insurer on the transaction.  It further requires that broker fees be fair and reasonable and not unfairly discriminatory. It requires the Commissioner to adopt regulations to establish broker fee limits. Comment: This section attempts to regulate broker fees that are not part of the rate and nullify AB 2956. AB 2956, which was unanimously passed by the legislature last year, clarifies the difference between agents and brokers by using the “totality of the circumstances” test coupled with the addition of disclosures to the consumer. 

Proposed Section 1861.27 establishes that any other amount that is billed to and paid by a policyholder constitutes premium and is subject to review and approval by the Commissioner. Comment: Harvey Rosenfield is expanding Proposition 103, which covers insurance rates, to cover all amounts paid by a policyholder. This would include all broker fees and fees charged when the broker does not receive a commission.

Proposed Section 1861.28 clarifies that the absence of prior insurance is not a criteria for auto and homeowners rates. Comment: This deals directly with the Mercury/CalFair initiative.

Finally, proposed Section 1861.29 maintains that except pursuant to Section 1861.02, an insurer may not include claims experience in determining rates, discounts or insurability. Comment: This is meant to address rating and insurability in homeowners insurance.

Contact Robert Hogeboom at (213) 614-7304 for more information.

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.