BILL NUMBER: SB 1323 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY JUNE 30, 2004
AMENDED IN SENATE MAY 12, 2004
INTRODUCED BY Senator Ortiz
FEBRUARY 17, 2004
An act to add Chapter 11.2 (commencing with Section 679.8) to Part
1 of Division 1 of the Insurance Code, relating to homeowners'
insurance.
LEGISLATIVE COUNSEL'S DIGEST
SB 1323, as amended, Ortiz. Homeowners' insurance: prohibited
actions.
Existing law generally regulates homeowners' insurance. Existing
law imposes various obligations on insurers with respect to the
determination of insurance rates.
This bill would prohibit an insurer from using credit
ratings, credit reports, credit scoring models, or credit information
to underwrite, classify, or rate homeowners' insurance policies. It
would also prohibit an insurer from refusing to issue, or
nonrenewing or canceling, a homeowners' policy based upon these types
of credit information impose various requirements on
an insurer that uses credit information in underwriting or rating a
consumer of homeowners' insurance, including requirements relating to
denials of applications, cancellation or nonrenewal of policies,
setting of rates, discrimination, prohibited credit factors, updated
credit reports, and notification of adverse actions .
Existing law prohibits an insurer from basing an adverse
underwriting decision, as defined, on the fact that an individual has
previously inquired and received information about the scope or
nature of coverage under a residential fire or property insurance
policy, if the information is received from an insurance-support
organization whose primary source of information is insurance
institutions and the inquiry did not result in the filing of a claim.
This bill would prohibit an insurer from reporting the fact that
an insured has inquired about the nature or scope of coverage under a
homeowners' policy to a database or other record maintained by any
of these insurance-support organizations if the inquiry did not
result in the filing of a claim.
Vote: majority. Appropriation: no. Fiscal committee:
no yes . State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Chapter 11.2 (commencing with Section 679.8) is added
to Part 1 of Division 1 of the Insurance Code, to read:
CHAPTER 11.2. HOMEOWNERS' BILL OF RIGHTS
679.8. (a) An insurer shall not use credit ratings, credit
reports, credit scoring models, or credit information to underwrite,
classify, or rate insurance policies that are subject to Section 675.
An insurer shall not refuse to issue, or nonrenew or cancel, an
insurance policy of this type based upon credit ratings, credit
reports, credit scoring models, or credit information.
(b)
679.8. (a) This section shall apply to policies that are subject
to Section 675.
(b) (1) If an insurer uses credit information in underwriting or
rating a consumer, the insurer or its agent shall disclose, either on
the insurance application or at the time the insurance application
is taken, that it may obtain credit information in connection with
the application. This disclosure shall be either written or provided
to an applicant in the same medium as the application for insurance.
The insurer need not provide the disclosure statement required
under this section to any insured on a renewal policy if the insured
has previously been provided a disclosure statement.
(2) Use of the following sample disclosure statement shall
constitute compliance with this subdivision: "In connection with
this application for insurance, we may review your credit report or
obtain or use a credit-based insurance score based on the information
contained in that credit report. We may use a third party in
connection with the development of your insurance score."
(c) An insurer may not deny an application for insurance solely on
the basis of credit information without consideration of any other
applicable underwriting factor independent of credit information.
(d) After a policy has been in effect for 60 days, an insurer may
not cancel or nonrenew the policy based, in whole or in part, on a
consumer's credit information or insurance score.
(e) An insurer may not base a rate solely upon credit information,
without consideration of any other applicable factor independent of
credit information.
(f) An insurer may not use an insurance score that is calculated
using the income, age, sex, address, ZIP Code, census block, ethnic
group, religion, marital status, or nationality of the consumer as a
factor.
(g) An insurer may not give any underwriting or rating
consideration to the absence of credit information or the inability
to calculate an insurance score for a consumer.
(h) The following factors may not be used for the development of
an insurance score or in reviewing credit information for the purpose
of underwriting or rating:
(1) Credit inquiries not initiated by the consumer or inquiries
requested by the consumer for his or her own credit information.
(2) Inquiries relating to insurance coverage, if so identified on
a consumer's credit report.
(3) Collection accounts with a medical industry code, if so
identified on the consumer's credit report.
(4) Multiple lender inquiries, if coded by the consumer reporting
agency on the consumer's credit report as being from the home
mortgage industry and made within 30 days of one another, unless only
one inquiry is considered.
(5) Multiple lender inquiries, if coded by the consumer reporting
agency on the consumer's credit report as being from the automobile
lending industry and made within 30 days of one another, unless only
one inquiry is considered.
(6) The consumer's total available line of credit. However, the
consumer's ratio of debt to total available line of credit may be
considered.
(i) An insurer shall, upon request of the applicant or insured,
provide reasonable underwriting exceptions for persons whose credit
information is unduly influenced by expenses related to a
catastrophic injury or illness, temporary loss of employment, the
death of an immediate family member, divorce, or other extraordinary
circumstance. The insurer may require reasonable documentation of
these events prior to granting an exception.
(j) An insurer may not take an adverse action against a consumer
based on credit information, unless the insurer obtains and uses a
credit report issued, or an insurance score calculated, within 90
days from the date the policy is first written or renewal is issued.
(k) An insurer may not use credit information unless, not later
than every 36 months following the last time that the insurer
obtained current credit information for the insured, the insurer
recalculates the insurance score or obtains an updated credit report.
Notwithstanding this requirement, the following provisions apply:
(1) At annual renewal, upon the request of the consumer or the
consumer's agent, the insurer shall reunderwrite and rerate the
policy based upon a current credit report or insurance score. An
insurer shall not be required to recalculate the insurance score or
obtain the updated credit report of a consumer more frequently than
once in a 12-month period.
(2) The insurer may obtain current credit information upon any
renewal before the 36-month period expires if consistent with its
underwriting guidelines.
(l) Notwithstanding any other provision of this section, an
insurer is not required to obtain current credit information for an
insured if any of the following applies:
(1) The insurer is acting toward the consumer in a manner that has
been approved by the commissioner.
(2) The insured is in the most favorably priced tier of the rate
structure used by the insurer and any affiliated insurers. However,
the insurer may order a credit report if consistent with its
underwriting guidelines.
(3) Credit was not used for underwriting or rating the insured
when the policy was initially written. However, the insurer may use
credit for underwriting or rating the insured upon renewal if
consistent with its underwriting guidelines and the requirements of
this section.
(4) The insurer reevaluates the insured beginning no later than 36
months after inception and thereafter based upon other underwriting
or rating factors, excluding credit information.
(m) An insurer may not use an insurance score derived from an
insurance scoring model to determine eligibility for an insurance
payment plan.
(n) If an insurer takes an adverse action based upon credit
information, the insurer shall do each of the following:
(1) Provide notification to the consumer that an adverse action
has been taken, in accordance with the requirements of Section 1681m
(a) of Title 15 of the United States Code.
(2) Provide notification to the consumer explaining the reason for
the adverse action. The reasons shall be provided in sufficiently
clear and specific language so that a person can identify the basis
for the insurer's decision to take the adverse action. The
notification shall include a description of up to four factors that
were the primary reasons for the adverse action. The use of
generalized terms such as "poor credit history," "poor credit rating,"
or "poor insurance score" does not meet the explanation requirements
of this paragraph. Standardized credit explanations provided by
consumer reporting agencies or other third-party vendors shall be
deemed to comply with this section.
(o) If it is determined through the dispute resolution process set
forth in Section 1681i(a)(5) of Title 15 of the United States Code
that the credit information of an applicant or a current insured was
incorrect or incomplete, and if the insurer receives notice of that
determination from either the consumer reporting agency or from the
applicant or insured, the insurer shall reunderwrite and rerate the
consumer within 30 days of receiving the notice. After reunderwriting
or rerating the applicant or insured, the insurer shall make any
adjustments necessary, consistent with its underwriting and rating
guidelines. If an insurer determines that the insured has overpaid
premium, the insurer shall refund to the insured the amount of
overpayment calculated back to the shorter of either the last 12
months of coverage or the actual policy period.
(p) An insurer shall indemnify, defend, and hold harmless an agent
from and against all liability, fees, and costs arising out of or
relating to the actions, errors, or omissions of the agent in
connection with obtaining or using credit information or insurance
scores for the insurer, provided the agent follows the instructions
of or procedures established by the insurer and complies with any
applicable law or regulation. Nothing in this subdivision shall be
construed to provide a consumer or other insured with a cause of
action that does not exist in the absence of this subdivision.
(q) (1) An insurance score may not be used to determine rates or
premiums, or to make underwriting decisions, unless the insurance
scoring model on which the insurance score is based is filed with the
commissioner. Insurance scoring models include all attributes and
factors used in the calculation of an insurance score, statistical
validation, documentation, appropriate loss information, and any
other relevant factors.
(2) Information filed under paragraph (1) is confidential and
shall be considered a trade secret pursuant to the California Public
Records Act (Chapter 3.5 (commencing with Section 6250) of Division 7
of Title 1 of the Government Code).
(r) For the purposes of this section, the following words have the
following meanings:
(1) "Adverse action" means a denial or cancellation of, an
increase in any charge for, or a reduction or other adverse or
unfavorable change in the terms of coverage or amount of, any
insurance, existing or applied for, in connection with the
underwriting of personal insurance.
(2) "Affiliate" means any company that controls, is controlled by,
or is under common control with another company.
(3) "Applicant" means an individual who has applied to be covered
by a personal insurance policy with an insurer.
(4) "Consumer" means an insured whose credit information is used
or whose insurance score is calculated in the underwriting or rating
of a personal insurance policy or an applicant for such a policy.
(5) "Consumer reporting agency" means any person who, for monetary
fees, dues, or on a cooperative nonprofit basis, regularly engages
in whole or in part in the practice of assembling or evaluating
consumer credit information or other information on consumers for the
purpose of furnishing consumer reports to third parties.
(6) "Credit information" means any credit-related information
derived from a credit report, found on a credit report itself, or
provided on an application for personal insurance. Information that
is not credit-related shall not be considered "credit information,"
regardless of whether it is contained in a credit report or in an
application, or is used to calculate an insurance score.
(7) "Credit report" means any written, oral, or other
communication of information by a consumer reporting agency bearing
on a consumer's credit worthiness, credit standing, or credit
capacity that is used or expected to be used, or collected in whole
or in part, for the purpose of serving as a factor to determine
personal insurance premiums, eligibility for coverage, or tier
placement.
(8) "Insurance score" means a number or rating that is derived
from an algorithm, computer application, model, or other process that
is based in whole or in part on credit information for the purposes
of predicting the future insurance loss exposure of an individual
applicant or insured.
679.82. An insurer shall not report the fact that an
insured has inquired about the nature or scope of coverage under a
policy specified in Section 675 to a database or other record
maintained by an insurance-support organization whose primary source
of information is insurance institutions if the inquiry did not
result in the filing of a claim.