BILL NUMBER: AB 2557 CHAPTERED 08/23/04 CHAPTER 279 FILED WITH SECRETARY OF STATE AUGUST 23, 2004 APPROVED BY GOVERNOR AUGUST 23, 2004 PASSED THE ASSEMBLY AUGUST 12, 2004 PASSED THE SENATE JULY 12, 2004 AMENDED IN SENATE JUNE 29, 2004 AMENDED IN SENATE JUNE 8, 2004 AMENDED IN ASSEMBLY APRIL 12, 2004 INTRODUCED BY Assembly Member Koretz FEBRUARY 20, 2004 An act to amend Sections 1633 and 1749.1 of, and to add Section 1729.2 to, the Insurance Code, relating to insurance licensing. LEGISLATIVE COUNSEL'S DIGEST AB 2557, Koretz. Insurance: licensing. Existing law makes it a misdemeanor to act, offer to act, or assume to act in a capacity for which a license as an insurance agent, broker, solicitor, or life agent is required without being properly licensed to do so. This misdemeanor is punishable by imprisonment of not more than 6 months in a county jail, a fine of not more than $1,000, or both that imprisonment and fine. This bill would make the transaction of insurance without a valid license punishable as a misdemeanor by imprisonment in a county jail for not more than one year, a fine of not more than $50,000, or both that fine and imprisonment. By increasing the time that could be served for the offense as a misdemeanor, this bill would impose new local incarceration costs, thereby imposing a state-mandated local program. Existing law generally regulates the issuance of insurance licenses and the conduct of licensees. Existing law allows the Insurance Commissioner to deny an application for an insurance license, or to suspend or revoke an existing license, for specified reasons. Existing law requires licensees to notify the commissioner of certain changes in the information provided on an application. This bill would require an applicant or licensee to notify the commissioner in writing, within a specified period, when certain background information changes after the application has been filed or the license has been issued, and would require certain licensees to provide this notice to other specified persons. It would also require a business entity licensee, upon learning of a change in background information pertaining to any unlicensed person listed on its business entity license or application therefor, to notify the commissioner of that change. The bill would allow the commissioner to adopt regulations with respect to these requirements. Existing law requires that the Department of Insurance require all new applicants for a license as a fire and casualty broker-agent, personal lines broker-agent, or life agent to meet specified prelicensing education standards. Existing law requires the Insurance Commissioner to appoint a curriculum board consisting of representatives of insurance agents, brokers, and life agents trade associations and representatives of insurance companies and consumer groups to develop the prelicensing and continuing education curriculum, including a list of preapproved courses of study, and to develop standards for providers and instructors of prelicensing and continuing education courses, programs, and seminars. The curriculum developed, the courses of study, and the standards for providers and instructors approved by the board are required to be submitted to the commissioner for final approval. In addition, existing law provides that whenever the commissioner has reasonable cause to believe, and determines after public hearing, that any approved course, program of instruction, or seminar is being conducted so as to fail to meet the commissioner's prelicensing or continuing education curriculum, or any provider or instructor for any course, program, or seminar has failed to comply with the commissioner's standards, the commissioner may make and serve upon the provider or instructor of that course, program, or seminar an order or orders rescinding approval for that course, program, or seminar. This bill would, in addition, authorize the commissioner to make and serve an order rescinding approval for a provider who fails to comply with the commissioner's standards. The bill would also authorize the commissioner to impose fines and penalties, as specified, for failure to comply with the commissioner's standards. The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement. This bill would provide that no reimbursement is required by this act for a specified reason. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 1633 of the Insurance Code is amended to read: 1633. Any person who transacts insurance without a valid license so to act is guilty of a misdemeanor punishable by a fine not exceeding fifty thousand dollars ($50,000) or by imprisonment in a county jail for a period not exceeding one year, or by both that fine and imprisonment. SEC. 2. Section 1729.2 is added to the Insurance Code, to read: 1729.2. (a) An applicant or licensee shall notify the commissioner when any of the background information set forth in this section changes after the application has been submitted or the license has been issued. If the licensee is listed as an endorsee on any business entity license, the licensee shall also provide this notice to any officer, director, or partner listed on that business entity license. (b) A business entity licensee, upon learning of a change in background information pertaining to any unlicensed person listed on its business entity license or application therefor, shall notify the commissioner of that change. The changes subject to this requirement include changes pertaining to any unlicensed officer, director, partner, member, or controlling person, or any other natural person named under the business entity license or in an application therefor. (c) The following definitions apply for the purposes of this section: (1) "License" includes all types of licenses issued by the commissioner pursuant to Chapter 5 (commencing with Section 1621), Chapter 5A (commencing with Section 1759), Chapter 6 (commencing with Section 1760), Chapter 6.5 (commencing with Section 1781.1), Chapter 7 (commencing with Section 1800), and Chapter 8 (commencing with Section 1831) of Part 2 of Division 1, Chapter 4 (commencing with Section 12280) of Part 5 of Division 2, and Chapter 1 (commencing with Section 14000) and Chapter 2 (commencing with Section 15000) of Division 5. (2) "Background information" means any of the following: a misdemeanor or felony conviction; a filing of felony criminal charges in state or federal court; an administrative action regarding a professional or occupational license; any licensee's discharge or attempt to discharge, in a personal or organizational bankruptcy proceeding, an obligation regarding any insurance premiums or fiduciary funds owed to any company, including a premium finance company, or managing general agent; and any admission, or judicial finding or determination, of fraud, misappropriation or conversion of funds, misrepresentation, or breach of fiduciary duty. (3) "Applicant" and "licensee" include individual and organization applicants and licensees, and officers, directors, partners, members, and controlling persons (as defined in subdivision (b) of Section 1668.5) of an organization. (d) Notification to the commissioner shall be in writing and shall be sent within 30 days of the date the applicant or licensee learns of the change in background information. (e) The commissioner may adopt regulations necessary or desirable to implement this section. SEC. 3. Section 1749.1 of the Insurance Code is amended to read: 1749.1. (a) The commissioner shall appoint a curriculum board consisting of representatives of insurance agents, brokers, and life agents trade associations and representatives of insurance companies and consumer groups to develop the prelicensing and continuing education curriculum, including a list of preapproved courses of study, including courses of study for professional designations which would satisfy the requirements of this article. The curriculum board shall develop or recommend courses of study covering all lines of insurance to be sold under each license including, but not limited to, any special products such as long-term care insurance, Medi-gap policies, disability insurance products, and course study on ethics and pertinent sections of this code. The curriculum developed and the courses of study approved by the board shall be submitted to the commissioner for final approval. (b) The curriculum board shall also develop standards for providers and instructors of prelicensing and continuing education courses, programs, and seminars, which standards shall be approved by the board and submitted to the commissioner for final approval. (c) Whenever the commissioner has reasonable cause to believe, and determines after public hearing, that any approved course, program of instruction, or seminar is being conducted so as to fail to meet the commissioner's prelicensing or continuing education curriculum, or any provider or instructor for any course, program, or seminar has failed to comply with the commissioner's standards, the commissioner may make and serve upon the provider or instructor of that course, program, or seminar an order or orders rescinding approval for that provider, course, program, or seminar, or imposing fines and penalties on that provider, or both. The amount of any fines and penalties shall not exceed the amounts set forth in Section 1748, and shall be based on the criteria for assessing penalties specified in that section. No credit towards meeting the requirements of this article shall be granted any applicant or licensee for completion of a course, program, or seminar after the effective date of any order rescinding approval for that course, program, or seminar. The commissioner shall serve notice of hearing required by this section upon the provider or instructor of the course, program, or seminar, stating the time and place therefor, and the grounds upon which his or her order is made. The hearing shall occur not less than 30 nor more than 60 days after notice is served. (d) The commissioner may impose monetary penalties for minor instances of noncompliance with the standards established pursuant to this article, such as late course roster submissions and late course presentation schedules. The monetary penalties shall not exceed the amounts of the fees established pursuant to Section 1751.1. The commissioner shall adopt regulations to establish the monetary penalties to be levied against providers for late filings and other minor instances of noncompliance with this article and Article 6.5 of Subchapter 1 of Chapter 5 of Title 10 of the California Code of Regulations. SEC. 4. No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.