Insurance Commissioner Pushes FAIR Plan to Increase Coverage
As wildfire risk drives more non-renewals of homeowner insurance across the state, Insurance Commissioner Ricardo Lara is taking action to help homeowners find adequate coverage to protect their homes by ordering the FAIR Plan to offer a comprehensive policy in addition to its current dwelling fire-only coverage by June 1, 2020, with traditional homeowner features, such as coverage for water damage and personal liability. He also ordered the FAIR Plan to increase coverage limits and to offer a no-fee monthly payment plan as well as allow for policyholders to pay by credit card or electronic funds transfer without any fees.
The growing unavailability of homeowners and fire insurance has touched virtually every county in the state and threatens home values, real estate transactions, tax revenues, emergency services, and the integrity of California communities.
While the FAIR Plan did not have a response to the Commissioner’s order, they did announce this week that they will increase the combined dwelling coverage limit from $1.5 million to $3 million effective April 1, 2020. Increasing the FAIR Plan’s dwelling coverage limit makes sense in today’s real estate market in California. In many areas where people are forced to turn to the FAIR Plan for coverage, they find the $1.5 million coverage limit is not enough and need to find additional coverage, often through the surplus lines market.
Earlier this year, Commissioner Lara was able to convince the FAIR Plan to undertake additional changes, including providing more transparency in their meetings and allowing the Department of Insurance to participate in those meetings and mandating the FAIR Plan obtain the Department’s approval prior to disbursing operating profits back to participating insurers.
The FAIR Plan is established under California law as the homeowners’ “insurer of last resort,” and requiring the FAIR Plan to offer a comprehensive homeowners’ policy, known as HO-3 coverage, will save consumers from having to purchase a second companion policy to cover other hazards such as liability, water damage, and theft. While the FAIR Plan is intended as a temporary solution, it is important that its product mirrors traditional coverage as much as possible. Many of the affected California homeowners have already been inconvenienced by planned power outages by utilities, mandatory evacuations, and repeated wildfire threats year after year. Requiring these same homeowners to have to piece together multiple policies to achieve full coverage is needlessly burdensome.
Truckers File Suit Challenging Worker Status Law
In response to Assembly Bill 5 being signed into law this year to codify the Dynamex decision to become effective January 2020, the California Trucking Association filed a federal lawsuit. The complaint was filed in the U.S. Southern District Court, challenging both provisions, AB 5 and the underlying Dynamex decision by the California Supreme Court.
As reported by The Sacramento Bee, “The association argues the law will deny many truckers the ability to work as independent drivers in California who can profit from their own vehicles while setting their own schedules…[and] threatens more than 70,000 truckers’ ability to make a living and violates federal law.”
The association also notes this would force many to abandon investments into clean trucks, worth up to $150,000, to be able to comply with the law, which they claim violates interstate commerce regulations that are constitutionally provided to Congress and the federal government.
As the lawsuit was filed, the University of California, Berkeley, Labor Center released findings that the law would apply to two-thirds of independent contractors. Those contractors include not just truck drivers but also taxi drivers, janitors, housekeepers, retail workers, ground maintenance workers, and childcare professionals. The study also found that the exemptions included in AB 5 account for only nine percent of contractors and are typically high-wage jobs.
Additionally, Uber, Lyft, and DoorDash have committed $90 million toward a 2020 ballot measure opposing the law, unless they can negotiate other rules or exemptions for their drivers. In response to the enactment of AB 5, Uber declared it will continue to classify their drivers as independent contractors, defending that decision in court if needed.
In Other News
Edison Settlement. Southern California Edison announced it has reached a comprehensive settlement with various public agencies for costs and damages arising from the 2017 Thomas fire, the Montecito mudslide, and the 2018 Woolsey fire. The amount of the settlement is $360 million.
SB 826 Lawsuit. Pacific Legal Foundation is the second organization to sue the State of California over Senate Bill 826 (Jackson), 2018 legislation requiring at least one female on the board of directors of publicly held corporations doing business in California by the end of 2019. The bill increases membership to two or three females in 2021 depending on the size of the board. The suit will likely not affect the 2019 filing requirements.
AM Best on California Insurance Company (CIC). On November 13, AM Best issued another statement regarding California Insurance Company. The company retains an “a” rating, but it is under review with negative implications. Best indicated it would complete its review once the regulatory issues involving the California and New Mexico authorities are resolved.
AB 1832 (Salas) and Upcoming Legislative Environment. In regard to the overall environment regarding qualified medical evaluators (QMEs), there is continued frustration with the inability to get a revised fee schedule adopted – a position shared by all stakeholders. Adding to this, the State Auditor has signaled that her audit of the QME process should be released on November 19, which may or may not prompt action on a number of fronts, including accelerating the appointment of a Director of Industrial Relations.
AB 1832 was introduced late as a message regarding the fee schedule. It did not get a hearing in the Assembly Insurance Committee, but may be brought up first thing next year, and could be a vehicle, much like AB 1107 (Chu) sponsored by the California Applicants’ Attorneys Association (CAAA).
CAAA’s other bill, on apportionment, SB 731 (Bradford), is parked in the Assembly Insurance Committee. Given the relative positions of the business and applicant advocates on the apportionment issue, there is a compromise to be made. Whether that will happen is certainly another story.
As part of the discussions over SB 542 (Stern), there will be a study on rebuttable presumption for specified peace officers with post-traumatic stress disorder by the Commission on Health & Safety & Workers’ Compensation. It is suspected legislation will be introduced on rebuttable presumptions again soon, if not next year, since there is a sunset of January 1, 2025 in SB 542.
Privacy. January 1, 2020 will be the go-live date for the California Consumer Privacy Act (CCPA). There are still negotiations between the business community and Mactaggart over his new initiative, in the hopes that action can be taken legislatively. There has been some movement and likely some gains for insurers in what Mactaggart is willing to do. The so-called “employer” exception, which is critical for insurers and brokers, is set to sunset next year and will be the topic of 2020 legislative efforts. Any negotiations would need to lead to compromise for legislation prior to ballot measures qualifying for the November 2020 ballot, since the measure could not be withdrawn after that and, should the initiative pass, it would essentially chapter out any 2020 legislation. Regulatory policy on current CCPA provisions is still underway and likely will not be guidance on implementation until after January 1, 2020.
IIABCal Legislative Year-End Report
In this week's issue, IIABCal focuses on the “Business of Insurance.”
BUSINESS OF INSURANCE
AB 207 (Daly) Insurance licensing
This bill is part of the author’s ongoing effort to combat fraud and abuses in the insurance industry. AB 207 would increase criminal penalties, from up to $50,000 per violation to up to $70,000 per violation, associated with transacting insurance without a license
As noted by the Assembly Insurance Committee, “Licensed insurance entities are in support of the bill because those who attempt to evade the insurance laws are engaging in unfair competition, even aside from the risks posed to consumers. Insurance is one of the most heavily regulated industries in the state...it is an industry that accepts money upfront on the promise to pay claims, defend against lawsuits, and provide services.”
Status: Two-year bill at the direction of the author prior to the Senate Insurance Committee hearing. May be taken up in January 2020.
AB 233 (Cooley) Insurance: licensees
As introduced, this bill addressed the recent Supreme Court decision in Dynamex v. Superior Court, which adopted a new test for determining whether a worker is an employee or independent contractor, but AB 5 became the bill to address that issue. AB 233 was amended to require licensed insurance agents to post the agent’s license in each of the agent’s places of business.
Status: The author pulled the bill prior to hearing in the Senate Insurance Committee. May be taken up in January 2020.
AB 1065 (Berman) Insurance transactions: notice: electronic transmission
An issue dating back to 1999, when the National Conference of Commissioners on Uniform State Laws adopted the model Uniform Electronic Transactions Act (UETA) to establish consistent interstate rules for electronic transactions, AB 1065 ensures stability in the approval and compliance of electronic transactions.
This bill repeals the sunset on provisions authorizing insurers to deliver certain types of documents electronically and provisions granting life insurers general authority to conduct insurance transactions electronically. Additionally, this creates new disciplinary procedures for non-compliance, enforceable by the Insurance Commission, and subject to penalties of up to $10,000 per violation, not to exceed $250,000.
Assembly Vote: 76-0
Senate Vote: 40-0
Status: Approved by the Governor. Chaptered by the Secretary of State - Chapter 235, Statutes of 2019.
AB 1099 (Calderon) Insurance: California Organized Investment Network
The California Organized Investment Network (COIN) Program was created in 1996 as a public/private partnership between California Department of Insurance, the insurance industry, state government leaders, and community development organizations to support investments in economic development and affordable housing in low-income urban and rural communities.
AB 1099 extends the sunset date on the COIN program advisory board to January 1, 2029, authorizes the board to elect a vice-chair, and adds a new member to the board with experience in investments that provide environmental benefits. This bill also renews the data call for qualifying insurer by July 1, 2021, for calendar years 2016, 2017, 2018, 2019, and 2020. Amended in the process only one, this bill moved through the Legislature on unanimous votes each step of the way.
Assembly Vote: 75-0
Senate Vote: 40-0
Status: Approved by the Governor. Chaptered by the Secretary of State - Chapter 186, Statutes of 2019.
AB 1104 (Calderon) California Life and Health Insurance Guarantee Association
Guarantee associations are an important market failsafe as they cover claims, up to a limit, that California residents make to insolvent insurers. State law requires insurers in the same or similar lines to be members of the guarantee associations and contribute funds, also known as an assessment, to pay for those claims when necessary. This failsafe is integral to maintaining consumer confidence in the larger insurance market.
This bill adds two public, non-insurance members to the board of the California Life and Health Insurance Guarantee Association (CLHIGA) and creates an assessment to fund financial surveillance of long-term care insurance carriers. AB 1104 also prohibits an officer, director, or employee of an insurance company or health maintenance organization, or any person engaged in the business of insurance, from serving on the board as a public representative. According to the author, this is to ensure that the public’s interests are taken into account in regular discussions and decisions of CLHIGA.
Assembly Vote: 77-0
Senate Vote: 39-0
Status: Approved by the Governor. Chaptered by the Secretary of State - Chapter 236, Statutes of 2019.
AB 1535 (Carrillo) Pet insurance: disclosures
AB 1535 requires pet insurers to disclose the contact information for the underwriting insurer, the agent or broker, and the California Department of Insurance (CDI) to consumers that hold pet insurance policies. This new law will provide consumers with greater transparency and help streamline the line of communication between pet owners and their pet insurance carriers so that insurers cannot hide behind confusing brand names anymore to avoid claims or complaints.
Assembly Vote: 74-0
Senate Vote: 39-0
Status: Approved by the Governor. Chaptered by the Secretary of State - Chapter 166, Statutes of 2019.
AB 1538 (Weber) Automobile collision coverage: payment for repairs
Current law requires an insurer issuing an automobile collision policy or a policy for comprehensive coverage for a motor vehicle to make the payment in a specified manner if the covered automobile is damaged and the insurer elects to have the automobile repaired.
This bill will make that requirement apply to a policy for automobile physical damage coverage, instead of comprehensive coverage, if a covered automobile is damaged by a collision or otherwise, and the insurer knows that the automobile will be repaired. It will also specify that these provisions do not limit the right of an insured to select the auto body repair shop or other repair facility to repair the damaged vehicle or to decide not to have the vehicle repaired.
Assembly Vote: 77-0
Senate Vote: 39-0
Status: Approved by the Governor. Chaptered by the Secretary of State - Chapter 132, Statutes of 2019.
AB 1591 (Cooley) Insurance Commissioner: legislative reporting
This bill would have required the Insurance Commissioner to provide a regular presentation on the National Association of Insurance Commissioners’ (NAIC) accreditation process to the committees of the Senate and the Assembly with jurisdiction over insurance and would require the presentation to meet specified criteria. It also would have required the Department of Insurance to include the information presented in a written report provided to relevant legislative committees and posted to the department’s internet website, and authorize NAIC to make a presentation at its national meeting in lieu of the commissioner’s presentation.
Assembly Vote: 78-0
Senate Vote: 39-0
Status: Vetoed by Governor. Veto message found in Appendix C.
AB 1602 (Low) Use of firearm insurance
AB 1602 would prohibit an insurance policy from covering a loss related to the use of a firearm, except for the loss of, or damage to, property related to the use of a firearm, and exclude an automobile insurance policy, a homeowners’ insurance policy, or a commercial insurance policy from that prohibition. Additionally, the bill would authorize an insurer to issue or renew a commercial policy that insures a licensed firearms dealer against liability for injury to or death of a person as a result of the theft, sale, lease, or transfer of a firearm or ammunition. Surplus line brokers would be prohibited from issuing evidence of insurance for a loss related to the use of a firearm for a home state insured, or causing or purporting to cause a non-admitted insurer to insure a loss related to the use of a firearm.
Status: The author pulled the bill prior to hearing in the Senate Insurance Committee. May be taken up in January 2020.
AB 1679 (Daly) Motor vehicle insurance: fraud
Current law requires an insurer doing business in California to pay an annual special-purpose assessment, in an amount to be determined by the commissioner, but not to exceed $1, for each vehicle insured under a policy it issues in this state, which is used to fund increased investigation and prosecution of fraudulent automobile insurance claims and economic automobile theft. Under current law, $0.05 of that assessment is required to be spent for enhanced automobile insurance fraud investigation by the department’s Fraud Division.
This bill would have increased those maximum special purpose assessments to $1.36 annually per insured vehicle to fund increased investigation and prosecution of fraudulent automobile insurance claims and economic automobile theft. It also would have assessed $0.74 annually per insured vehicle to fund the Organized Automobile Fraud Activity Interdiction Program.
Status: This bill was held in the Assembly Appropriations Committee on the Suspense File, therefore dead.
AB 1812 (Committee on Insurance) Unemployment insurance: penalties
Current law provides that any person who fails to file any return or report required by the Unemployment Insurance Code, or supplies any false or fraudulent information, is liable for a civil penalty. A violation of that provision is a misdemeanor that is punishable by a fine, imprisonment, or both. Current law also provides that all penalties collected under specified provisions of the Unemployment Insurance Code are deposited into the Employment Development Department Contingent Fund, which is a continuously appropriated fund.
This bill would increase the penalty for failing to report or reporting fraudulent information to the Employment Development Department (EDD), from $1,000 to $1,100.
Status: Bill progress stalled in the Senate Insurance Committee prior to hearing. May be taken up in January 2020.
AB 1813 (Committee on Insurance) Insurance
Current law requires a notice of cancellation or notice of nonrenewal of a policy of property insurance to include specified information about the reasons for the cancellation or nonrenewal. Current law requires an insurer that does not offer at least 50 percent above the residential dwelling coverage limit to an applicant for a policy of residential property insurance to provide disclosure regarding the department’s Homeowners Coverage Comparison Tool.
This measure resolves issues identified by the California Department of Insurance (CDI) to clarify and clean up obsolete and superseded code sections and ensures the California Insurance Code is in line with technical aspects of the National Association of Insurance Commissioners (NAIC) model laws.
Assembly Vote: 77-0
Senate Vote: 37-0
Status: Approved by the Governor. Chaptered by the Secretary of State - Chapter 201, Statutes of 2019.
AB 1814 (Committee on Insurance) Long-term care insurance
Introduced as nursing home insurance in the 1970s, it has undergone a series of evolutionary jumps over the last forty years accompanied by substantial regulatory and tax law changes, including the Health Insurance Portability and Accountability Act of 1996 (HIPAA) which gives long-term care insurance (LTCI) policies the same tax treatment as health insurance under specified requirements. After HIPAA, consumer advocates were worried that consumers would only have access to options with slimmer benefits and legislation was enacted requiring insurers to continue filing non-tax qualified policies.
Noncodified provisions rendered that requirement inoperative but still appears in the Insurance Code without clarification. AB 1814 would delete obsolete provisions regarding this type of insurance.
Status: Moved to the Inactive File on the Senate Floor. May be taken up in January 2020.
AB 1816 (Daly) Insurance
Current law requires an insurer, at least 45 days prior to the expiration of an insurance policy, except for specified insurance policies, to deliver or mail to the named insured, an offer of renewal or notice of non-renewal of the policy, as specified. If the insurer fails to do so, current law requires the existing policy, with no change in its terms and conditions, to remain in effect for 45 days from the date that either the offer to renew or the notice of non-renewal is delivered or mailed to the named insured.
This bill, with respect to a notice of non-renewal for a policy that expires on or after July 1, 2020, will require an insurer to deliver or mail the notice of nonrenewal to the named insured on or before 75 days prior to the policy expiration and, if the insurer fails to do so, will require the existing policy, with no change in its terms and conditions, to remain in effect for 75 days from the date that the notice of nonrenewal is delivered or mailed.
Assembly Vote: 79-0
Senate Vote: 40-0
Status: Approved by the Governor. Chaptered by the Secretary of State - Chapter 833, Statutes of 2019.
SB 240 (Dodd) Insurance Adjuster Act
Current law requires an insurer to provide an insured with a written report if the insurer assigns a 3rd or subsequent adjuster to be primarily responsible for a claim within a six-month period. Current law provides that if a specified licensee, not including an insurance adjuster, enters the military service of the United States and is in the military service at the time of filing a license renewal application, the application filing is waived and the license remains in force during the licensee’s military service and for a specified time afterward.
This bill will require an insurer to establish a primary point of contact for a claim under a policy of residential property insurance and provide the insured with one or more direct means of communication with the primary point of contact if, within a six-month period, the insurer assigns a 3rd or subsequent first-party real or personal property claims adjuster to be primarily responsible for a claim. The bill also requires the primary point of contact to remain assigned to the insured’s claim until the insurer determines that the claim is closed or litigation has been filed.
Assembly Vote: 75-0
Senate Vote: 37-0
Status: Approved by the Governor. Chaptered by the Secretary of State - Chapter 502, Statutes of 2019.
SB 534 (Bradford) Insurers: minority, women, LGBT, veteran, and disabled veteran business enterprises
This measure encourages competitive business procurement and governing board opportunities for all people by continuing the Insurance Supplier Diversity Survey, expanding diverse business categories to include LGBT-owned and veteran-owned businesses in addition to continuing the current minority, women and disabled veteran-owned business categories.
Assembly Vote: 61-4
Senate Vote: 32-0
Status: Approved by the Governor. Chaptered by the Secretary of State - Chapter 249, Statutes of 2019.
SB 570 (Rubio) Insurance: low-cost automobile insurance program
This bill extends the California Low-Cost Automobile Insurance Program to January 1, 2025, thus continuing this important auto liability insurance program for underserved consumers in need of affordable car insurance coverage. SB 570, among other things, also extends eligibility to students if they reside at the same address where they are claimed as a dependent.
Assembly Vote: 76-0
Senate Vote: 39-0
Status: Approved by the Governor. Chaptered by the Secretary of State - Chapter 274, Statutes of 2019.
SB 638 (Allen) Leases: electric vehicle charging stations: insurance coverage
California requires a lessor of a dwelling to approve a written request of a lessee to install an electric vehicle charging station at a parking space allotted for the lessee in accordance with specified requirements, including the lessee maintaining in full force and effect a lessee’s general liability insurance policy in the amount of one million dollars ($1,000,000).
SB 638 will remove the requirement to obtain a general liability insurance policy, and instead require the lessee to obtain personal liability coverage, in an amount not to exceed 10 times the annual rent changed for the dwelling, covering property damage and personal injury proximately caused by the installation or operation of the electric vehicle charging station.
Assembly Vote: 77-1
Senate Vote: 38-0
Status: Approved by the Governor. Chaptered by the Secretary of State - Chapter 855, Statutes of 2019.
SB 740 (Mitchell) Insurance: unclaimed life insurance
Life insurance pays a cash death benefit to named beneficiaries at the death of the insured. The policyholder chooses a beneficiary who will get the death benefit when the insured dies. When the insured dies, the beneficiary may file a claim for the benefits. However, the beneficiary does not always know about the policy. If the policyholder failed to notify the beneficiary or third-party about the policy, or something unexpected happens (such as when the beneficiary dies before the insured) the policy may go unclaimed.
SB 740 mandates insurers to identify deceased individuals whose deaths may require insurers to pay benefits or proceeds to beneficiaries in accordance with the terms of life insurance policies, annuity contracts, or retained asset accounts. Under this new law, insurers are now required to attempt to locate beneficiaries of the deceased individuals and provide appropriate claims forms or instructions to the beneficiaries to make a claim.
Assembly Vote: 75-0
Senate Vote: 37-0
Status: Approved by the Governor. Chaptered by the Secretary of State - Chapter 286, Statutes of 2019
