Insurance Litigation Law Blog | Regulatory Law | Bad Faith | California | Lawyer | Attorney | Barger & Wolen

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.

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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.

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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.

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During the past two weeks, the California Court of Appeal for the Fifth Appellate District handed down two decisions on the forfeiture of bail bonds.

On March 21, 2012, the court in People v. International Fidelity Insurance Company directed the trial court to vacate the forfeiture of a surety’s $65,000 bail bond. The Court of Appeal characterized bail bonds as a contract between the government and the surety. In this case, the government failed to provide the additional security on which the surety relied when the surety posted the $65,000 bail bond. As a result, the bond was void and the trial court was in error when it ordered the forfeiture of the bond. The Court of Appeal noted that voiding the bond was consistent with the policy disfavoring forfeitures in general and forfeiture of bail in particular.

On April 2, 2012, the court refused to vacate the forfeiture of the bail bond at issue in People v. Western Insurance Company. Western posted a $50,000 bond to secure the release of a criminal defendant. The trial court declared the bond forfeited when the defendant did not appear at a hearing. Western’s bail agent found the defendant in India. The prosecuting agency advised Western that the government was seeking extradition. Based on these developments, Western filed a motion to vacate the forfeiture of the bond.

Penal Code section 1305(g) provides that where a defendant is not in custody and is beyond the jurisdiction of the state, the court is to vacate the forfeiture of a bond when the prosecuting agency does not seek extradition. The facts of this case did not fit within section 1305(g) because the prosecuting agency was seeking extradition, even though the extradition process was not complete and the defendant was not in custody within the appearance period called for in the bond.

Western argued that, under the doctrine of equitable tolling, the trial court should have tolled the appearance period to allow the extradition process to run its course. The Court of Appeal ruled that equitable tolling was inappropriate because equitable tolling is inconsistent with explicit provision of section 1305(g).

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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.

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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.

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

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

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

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

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By Sam Sorich and Larry Golub

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

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

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

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

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

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

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

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

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

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By Sam Sorich and Larry Golub

In a unanimous opinion handed down on December 29, 2011, the California Supreme Court ruled in Harris v. Superior Court that the Court of Appeal used an erroneous analysis when it decided that claims adjusters are not exempt from California’s overtime pay requirement. 

The California Labor Code sets forth a general requirement that employees are entitled to overtime pay for work in excess of eight hours in one workday or 40 hours in one week. However, the Code exempts administrative employees from the overtime pay requirement.

Claims adjusters employed by Liberty Mutual Insurance Company and Golden Eagle Insurance Corporation sued the companies for damages based on the failure to pay them for overtime work. The companies argued that the adjusters were administrative employees and thus were not entitled to overtime pay.

The California Court of Appeal rejected the insurance companies’ argument, primarily relying on a prior Court of Appeal decision in Bell v. Farmers Insurance Exchange, 87 Cal. App. 4th 805 (2001). The companies asked the California Supreme Court to review the Court of Appeal’s decision.

The Supreme Court’s ruling concluded that the Court of Appeal used an incorrect analysis when it rejected the argument that the adjusters were administrative employees. According to the Supreme Court, the Court of Appeal relied too heavily on the administrative/production worker dichotomy used in the Bell decision and failed to consider more recent regulations issued by the California Industrial Welfare Commission and applicable federal regulations which are supposed to guide California in applying the administrative employee exemption to the general overtime requirement.

In reversing the Court of Appeal’s decision, the Supreme Court remanded  the case back to the Court of Appeal with directions that it apply the legal standards that are set forth in the Supreme Court’s ruling.

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

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

Background

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

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

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

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

October 24, 2011, Notice

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

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

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

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

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

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