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

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

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

Senate Bills

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

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

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

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

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

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

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

Assembly Bills

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

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

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

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

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

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

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

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

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

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