BILL NUMBER: AB 378 CHAPTERED 09/05/03 CHAPTER 304 FILED WITH SECRETARY OF STATE SEPTEMBER 5, 2003 APPROVED BY GOVERNOR SEPTEMBER 4, 2003 PASSED THE ASSEMBLY AUGUST 21, 2003 PASSED THE SENATE JULY 24, 2003 AMENDED IN SENATE JULY 15, 2003 AMENDED IN SENATE JUNE 17, 2003 AMENDED IN ASSEMBLY JUNE 2, 2003 AMENDED IN ASSEMBLY MARCH 24, 2003 INTRODUCED BY Assembly Members Steinberg and Levine FEBRUARY 14, 2003 An act to amend Sections 1513, 1520, 1530, and 1577 of, and to add Section 1515.5 to, the Code of Civil Procedure, relating to escheat. LEGISLATIVE COUNSEL'S DIGEST AB 378, Steinberg. Escheat: insurance. (1) Under the Unclaimed Property Law, specified intangible property that is held or owing in the ordinary course of the holder's business, and that has remained unclaimed by the owner for more than 3 years after it became payable or distributable, escheats to the state. This bill would establish a presumption that unclaimed intangible property payable or distributable in the course of the demutualization of an insurance corporation is abandoned 3 years after either the date of last contact with the policyholder or the date the property became payable or distributable, whichever is earlier. (2) Under existing law, among other intangible personal property, sums payable directly by a bank or financial institution on a certified check or similar written instrument for more than 5 years, as specified, escheat to the state. This bill would shorten that time period to 3 years and would specify that any wages or salaries that have remained unclaimed by the owners for more than one year after payable escheat to the state. (3) Existing law requires every person holding funds or other property escheated to the state to file an annual report, but establishes a separate reporting period for life insurance corporations. This bill would expand the latter provision to apply to the report of all insurance corporation demutualization or reorganization proceeds subject to specified time periods, and would require the initial report under this provision to be filed on or before May 1, 2004. (4) Under existing law, persons who fail to report or to pay or deliver unclaimed property to the Controller within the time prescribed are liable for interest at 12% per annum on the value of the property involved. This bill would exempt these persons from liability for 12% interest if the failure was due to reasonable cause. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 1513 of the Code of Civil Procedure is amended to read: 1513. Subject to Sections 1510 and 1511, the following property held or owing by a business association escheats to this state: (a) Except as provided in subdivision (f), any demand, savings, or matured time deposit, or account subject to a negotiable order of withdrawal, made with a banking organization, together with any interest or dividends thereon, excluding, from demand deposits and accounts subject to a negotiable order of withdrawal only, any reasonable service charges that may lawfully be withheld and that do not (where made in this state) exceed those set forth in schedules filed by the banking organization from time to time with the Controller, when the owner, for more than three years, has not done any of the following: (1) Increased or decreased the amount of the deposit, cashed an interest check, or presented the passbook or other similar evidence of the deposit for the crediting of interest. (2) Corresponded electronically or in writing with the banking organization concerning the deposit. (3) Otherwise indicated an interest in the deposit as evidenced by a memorandum or other record on file with the banking organization. A deposit or account shall not, however, escheat to the state if, during the previous three years, the owner has owned another deposit or account with the banking organization and, with respect to that deposit or account, the owner has done any of the acts described in paragraph (1), (2), or (3), and the banking organization has communicated electronically or in writing with the owner, at the address to which communications regarding that deposit or account are regularly sent, with regard to the deposit or account that would otherwise escheat under this subdivision. For purposes of this subdivision, "communications" means account statements or statements of interest paid for federal and state income tax purposes. No banking organization may discontinue any interest or dividends on any savings deposit because of the inactivity contemplated by this section. (b) Except as provided in subdivision (f), any demand, savings, or matured time deposit, or matured investment certificate, or account subject to a negotiable order of withdrawal, or other interest in a financial organization or any deposit made therewith, and any interest or dividends thereon, excluding, from demand deposits and accounts subject to a negotiable order of withdrawal only, any reasonable service charges that may lawfully be withheld and that do not (where made in this state) exceed those set forth in schedules filed by the financial organization from time to time with the Controller, when the owner, for more than three years, has not done any of the following: (1) Increased or decreased the amount of the funds or deposit, cashed an interest check, or presented an appropriate record for the crediting of interest or dividends. (2) Corresponded electronically or in writing with the financial organization concerning the funds or deposit. (3) Otherwise indicated an interest in the funds or deposit as evidenced by a memorandum or other record on file with the financial organization. A deposit or account shall not, however, escheat to the state if, during the previous three years, the owner has owned another deposit or account with the financial organization and, with respect to that deposit or account, the owner has done any of the acts described in paragraph (1), (2), or (3), and the financial organization has communicated electronically or in writing with the owner, at the address to which communications regarding that deposit or account are regularly sent, with regard to the deposit or account that would otherwise escheat under this subdivision. For purposes of this subdivision, "communications" means account statements or statements of interest paid for federal and state income tax purposes. No financial organization may discontinue any interest or dividends on any funds paid toward purchase of shares or other interest, or on any deposit, because of the inactivity contemplated by this section. (c) Any sum payable on a traveler's check issued by a business association that has been outstanding for more than 15 years from the date of its issuance, when the owner, for more than 15 years, has not corresponded in writing with the business association concerning it, or otherwise indicated an interest as evidenced by a memorandum or other record on file with the association. (d) Any sum payable on any other written instrument on which a banking or financial organization is directly liable, including, by way of illustration but not of limitation, any draft or certified check, that has been outstanding for more than three years from the date it was payable, or from the date of its issuance if payable on demand, when the owner, for more than three years, has not corresponded electronically or in writing with the banking or financial organization concerning it, or otherwise indicated an interest as evidenced by a memorandum or other record on file with the banking or financial organization. (e) Any sum payable on a money order issued by a business association (including a banking or financial organization), that has been outstanding for more than seven years from the date it was payable, or from the date of its issuance if payable on demand, excluding any reasonable service charges that may lawfully be withheld and that do not, when made in this state, exceed those set forth in schedules filed by the business association from time to time with the Controller, when the owner, for more than seven years, has not corresponded electronically or in writing with the business association, banking, or financial organization concerning it, or otherwise indicated an interest as evidenced by a memorandum or other record on file with the business association. For the purposes of this subdivision, "reasonable service charge" means a service charge that meets all of the following requirements: (1) It is uniformly applied to all of the issuer's money orders. (2) It is clearly disclosed to the purchaser at the time of purchase and to the recipient of the money order. (3) It does not begin to accrue until three years after the purchase date, and it stops accruing after the value of the money order escheats. (4) It is permitted by contract between the issuer and the purchaser. (5) It does not exceed 25 cents ($0.25) per month or the aggregate amount of twenty-one dollars ($21). (f) Any funds held by a business association in an individual retirement account or under a retirement plan for self-employed individuals or similar account or plan established pursuant to the internal revenue laws of the United States or of this state, when the owner, for more than three years after the funds become payable or distributable, has not done any of the following: (1) Increased or decreased the principal. (2) Accepted payment of principal or income. (3) Corresponded electronically or in writing concerning the property or otherwise indicated an interest. These funds are not payable or distributable within the meaning of this subdivision unless, under the terms of the account or plan, distribution of all or a part of the funds would then be mandatory. (g) Any wages or salaries that have remained unclaimed by the owner for more than one year after the wages or salaries become payable. (h) For purposes of this section "service charges" means service charges imposed because of the inactivity contemplated by this section. SEC. 2. Section 1515.5 is added to the Code of Civil Procedure, to read: 1515.5. Property distributable in the course of a demutualization or related reorganization of an insurance company is deemed abandoned as follows: (a) On the date of the demutualization or reorganization, if the instruments or statements reflecting the distribution are not mailed to the owner because the address on the books and records for the holder is known to be incorrect. (b) Two years after the date of the demutualization or reorganization, if instruments or statements reflecting the distribution are mailed to the owner and returned by the post office as undeliverable and the owner has done neither of the following: (1) Communicated in writing with the holder or its agent regarding the property. (2) Otherwise communicated with the holder or its agent regarding the property as evidenced by a memorandum or other record on file with the holder or its agent. (c) Three years after the date of the demutualization or reorganization, if instruments or statements reflecting the distribution are mailed to the owner and not returned by the post office as undeliverable and the owner has done neither of the following: (1) Communicated in writing with the holder or its agent regarding the property. (2) Otherwise communicated with the holder or its agent regarding the property as evidenced by a memorandum or other record on file with the holder or its agent. SEC. 3. Section 1520 of the Code of Civil Procedure, as amended by Section 3 of Chapter 813 of the Statutes of 2002, is amended to read: 1520. (a) All tangible personal property located in this state and, subject to Section 1510, all intangible personal property, except property of the classes mentioned in Sections 1511, 1513, 1514, 1515, 1515.5, 1516, 1517, 1518, 1519, and 1521, including any income or increment thereon and deducting any lawful charges, that is held or owing in the ordinary course of the holder's business and has remained unclaimed by the owner for more than three years after it became payable or distributable escheats to this state. (b) Except as provided in subdivision (a) of Section 1513.5 and subdivision (d) of Section 1516, if the holder has in its records an address for the apparent owner of property valued at fifty dollars ($50) or more, which the holder's records do not disclose to be inaccurate, the holder shall make reasonable efforts to notify the owner by mail that the owner's property will escheat to the state pursuant to this chapter. The notice shall be mailed not less than six nor more than 12 months before the time when the owner's property held by the business becomes transferable to the Controller in accordance with this chapter. The notice required by this subdivision shall specify the time when the property will escheat and the effects of escheat, including the need to file a claim in order for the owner's property to be returned to the owner. The notice required by this section shall, in bold or in a font a minimum of two points larger than the rest of the notice, (1) specify that since the date of last activity, or for the last two years, there has been no customer activity on the deposit, account, shares, or other interest; (2) identify the deposit, account, shares, or other interest by number or identifier; (3) indicate that the deposit, account, shares, or other interest is in danger of escheating to the state; and (4) specify that the California Unclaimed Property Law requires banks, banking organizations, and financial organizations to transfer funds of a deposit, account, shares, or other interest if it has been inactive for three years. It shall also include a form, as prescribed by the Controller, by which the owner may confirm the owner's current address. If that form is filled out, signed by the owner, and returned to the holder, it shall be deemed that the account, or other device in which the owner's property is being held, remains currently active and recommences the escheat period. (c) For purposes of this section, "lawful charges" means charges which are specifically authorized by statute, other than the Unclaimed Property Law, or by a valid, enforceable contract. SEC. 4. Section 1530 of the Code of Civil Procedure is amended to read: 1530. (a) Every person holding funds or other property escheated to this state under this chapter shall report to the Controller as provided in this section. (b) The report shall be on a form prescribed or approved by the Controller and shall include: (1) Except with respect to traveler's checks and money orders, the name, if known, and last known address, if any, of each person appearing from the records of the holder to be the owner of any property of value of at least fifty dollars ($50) escheated under this chapter. (2) In the case of escheated funds of life insurance corporations, the full name of the insured or annuitant, and his or her last known address, according to the life insurance corporation's records. (3) In the case of the contents of a safe deposit box or other safekeeping repository or in the case of other tangible property, a description of the property and the place where it is held and may be inspected by the Controller. The report shall set forth any amounts owing to the holder for unpaid rent or storage charges and for the cost of opening the safe deposit box or other safekeeping repository, if any, in which the property was contained. (4) The nature and identifying number, if any, or description of any intangible property and the amount appearing from the records to be due, except that items of value under fifty dollars ($50) each may be reported in aggregate. (5) Except for any property reported in the aggregate, the date when the property became payable, demandable, or returnable, and the date of the last transaction with the owner with respect to the property. (6) Other information which the Controller prescribes by rule as necessary for the administration of this chapter. (c) If the holder is a successor to other persons who previously held the property for the owner, or if the holder has changed his or her name while holding the property, he or she shall file with his or her report all prior known names and addresses of each holder of the property. (d) The report shall be filed before November 1 of each year as of June 30 or fiscal yearend next preceding, but the report of life insurance corporations, and the report of all insurance corporation demutualization proceeds subject to Section 1515.5, shall be filed before May 1 of each year as of December 31 next preceding. The initial report for property subject to Section 1515.5 shall be filed on or before May 1, 2004, with respect to conditions in effect on December 31, 2003, and all property shall be determined to be reportable under Section 1515.5 as if that section were in effect on the date of the insurance company demutualization or related reorganization. The Controller may postpone the reporting date upon his or her own motion or upon written request by any person required to file a report. (e) The report, if made by an individual, shall be verified by the individual; if made by a partnership, by a partner; if made by an unincorporated association or private corporation, by an officer; and if made by a public corporation, by its chief fiscal officer or other employee authorized by the holder. SEC. 5. Section 1577 of the Code of Civil Procedure is amended to read: 1577. In addition to any damages, penalties, or fines for which a person may be liable under other provisions of law, any person who fails to report or pay or deliver unclaimed property within the time prescribed by this chapter, unless that failure is due to reasonable cause, shall pay to the State Controller interest at the rate of 12 percent per annum on that property or value thereof from the date the property should have been reported or paid or delivered.