BILL NUMBER: SB 64 CHAPTERED 08/30/04 CHAPTER 357 FILED WITH SECRETARY OF STATE AUGUST 30, 2004 APPROVED BY GOVERNOR AUGUST 27, 2004 PASSED THE SENATE AUGUST 17, 2004 PASSED THE ASSEMBLY AUGUST 9, 2004 AMENDED IN ASSEMBLY AUGUST 4, 2004 AMENDED IN ASSEMBLY JUNE 21, 2004 AMENDED IN ASSEMBLY JUNE 1, 2004 AMENDED IN ASSEMBLY MAY 24, 2004 AMENDED IN ASSEMBLY JUNE 18, 2003 AMENDED IN SENATE APRIL 9, 2003 AMENDED IN SENATE MARCH 24, 2003 AMENDED IN SENATE MARCH 4, 2003 INTRODUCED BY Senator Speier (Coauthors: Assembly Members Benoit, Bogh, Calderon, Cohn, Diaz, Dutra, Koretz, Nakano, Vargas, and Wyland) JANUARY 16, 2003 An act to amend the heading of Chapter 8.9 (commencing with Section 10089.70) of Part 1 of Division 2 of, and to amend Sections 10089.70, 10089.71, 10089.72, 10089.79, 10089.80, 10089.82, and 10089.84 of, the Insurance Code, relating to homeowners' insurance, and declaring the urgency thereof, to take effect immediately. LEGISLATIVE COUNSEL'S DIGEST SB 64, Speier. Homeowners' insurance. Existing law requires the Department of Insurance, until January 1, 2006, to establish a program for the mediation of disputes between insured complainants and insurers involving certain earthquake and auto insurance claims, except as specified. Existing law sets forth specified procedural requirements relating to the mediation of these disputes. This bill would extend the operation of these provisions to January 1, 2008. In addition, it would require the department, until that date, to establish a program for the mediation of disputes arising from claims under policies between insured complainants and insurers regarding residential property insurance losses, other than earthquake losses, occurring after September 30, 2003, and for which the Governor has declared a state of emergency, except as specified. It would allow the department to refer to mediation any of these disputes in which the parties to the contract wish to discuss possible payments beyond policy limits. The bill would set forth specified procedural requirements relating to the mediation of these disputes, and would impose certain limits on the fees that may be set by the Insurance Commissioner for mediations pursuant to these provisions. The bill would prohibit the department from referring to mediation any earthquake or auto insurance claim made on or after January 1, 2006. It would require the commissioner, by October 1, 2004, to report to the Governor and the Legislature on the mediation program, as specified. The bill would declare that it is to take effect immediately as an urgency statute. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. The heading of Chapter 8.9 (commencing with Section 10089.70) of Part 1 of Division 2 of the Insurance Code is amended to read: CHAPTER 8.9. INSURANCE MEDIATION SEC. 2. Section 10089.70 of the Insurance Code is amended to read: 10089.70. (a) The department shall establish a program for the mediation of the disputes between insured complainants and insurers arising out of the Northridge earthquake of 1994 or any subsequent earthquake, and disputes arising under automobile collision coverage or automobile physical damage coverage, in a policy as defined in Section 660. The program, with respect to the mediation of earthquake insurance claims, shall only apply to personal lines of insurance related to residential coverage. The goal of the program shall be to favorably resolve a statistically significant number of disputes sent to mediation under the program. This subdivision shall not apply to any dispute that turns on a question of major insurance coverage or a purely legal interpretation, or any dispute involving the actions of an agent or broker in which the insurer is not alleged to have been responsible for the conduct, or any complaint the commissioner finds to be frivolous, or any dispute in which a party is alleged to have committed fraud. (b) The department shall also establish a program for the mediation of disputes arising from claims under policies between insured complainants and insurers regarding residential property insurance losses, other than earthquake losses, occurring after September 30, 2003, and for which the Governor has declared a state of emergency pursuant to Section 8558 of the Government Code. This subdivision shall not apply to any complaint that the commissioner finds to be frivolous, or any dispute that turns on a question of major insurance coverage or a purely legal interpretation, or any dispute involving the actions of an agent or broker in which the insurer is not alleged to have been responsible for the conduct, or any complaint the commissioner finds to be frivolous, or any dispute in which a party is alleged to have committed fraud. The department may refer to mediation any dispute covered by this subdivision in which the parties to the contract wish to discuss possible payments beyond policy limits. SEC. 3. Section 10089.71 of the Insurance Code is amended to read: 10089.71. Any insured having a dispute with an insurer under a policy that qualifies for this program may file a written complaint with the department. The complaint shall indicate that the complainant has not been able to reach a satisfactory settlement of a claim with the insurer. The department shall, if deemed appropriate, notify the insurer against whom the complaint is made of the nature of the complaint, may request appropriate relief for the complainant, and may meet and confer with the complainant and the insurer in order to attempt resolution of the dispute. SEC. 4. Section 10089.72 of the Insurance Code is amended to read: 10089.72. (a) If, after the department's intervention, the insurer and the insured do not reach agreement, the department may notify the insurer that in order to avoid referral to mediation, the insurer shall have 28 calendar days to resolve the dispute, unless the department, for good cause, extends the period by an additional 7 calendar days. (b) The department may not refer a claim or dispute to mediation unless the amount claimed by the insured exceeds seven thousand five hundred dollars ($7,500) and the amount in dispute exceeds two thousand dollars ($2,000). SEC. 5. Section 10089.79 of the Insurance Code is amended to read: 10089.79. (a) The costs of mediation shall be reasonable, and shall be borne by the insurer, except as provided in Section 10089.81. The commissioner may set a fee not to exceed seven hundred dollars ($700) for each dispute mediated pursuant to subdivision (a) of Section 10089.70, and one thousand five hundred dollars ($1,500) for each dispute mediated pursuant to subdivision (b) of that section. (b) The administrative expenses for the mediation program shall be paid from existing resources available to the department. If additional resources are required by the department, those resources shall be made available by an annual appropriation in the Budget Act. SEC. 6. Section 10089.80 of the Insurance Code is amended to read: 10089.80. (a) The representatives of the insurer shall know the facts of the case and be familiar with the allegations of the complainant. The insurer or the insurer's representative shall produce at the settlement conference a copy of the policy and all documents from the claims file relevant to the degree of loss, value of the claim, and the fact or extent of damage. For disputes mediated pursuant to subdivision (b) of Section 10089.70, the department shall refer to mediation issues related to the settlement of the claim. The insured and insurer shall produce, to the extent available, documents relevant to the successful mediation of the claim, including documents related to the degree of loss, the value of the claim, and the fact or extent of damage. The mediator may also order production of other documents that the mediator determines to be relevant to the issues under mediation. If a party declines to comply with that order, the mediator may appeal to the commissioner for a determination of whether the documents requested should be produced. The commissioner shall make a determination within 21 days. However, the party ordered to produce the documents shall not be required to produce while the issue is before the commissioner in this 21-day period. If the ruling is in favor of production, any insurer that is subject to an order to participate in mediation issued under subdivision (a) of Section 10089.75 shall comply with the order to produce. Insureds, and those insurers that are not subject to an order to participate in mediation, shall produce the documents or decline to participate further in the mediation after a ruling by the commissioner requiring the production of those other documents. Declination of mediation by the insurer under this section may be considered by the commissioner in exercising authority under subdivision (a) of Section 10089.75. The mediator shall have the authority to protect from disclosure information that the mediator determines to be privileged, including, but not limited to, information protected by the attorney-client or work-product privileges, or to be otherwise confidential. (b) The mediator shall determine prior to the mediation conference whether the insured will be represented by counsel at the mediation. The mediator shall inform the insurer whether the insured will be represented by counsel at the mediation conference. If the insured is represented by counsel at the mediation conference, the insurer's counsel may be present. If the insured is not represented by counsel at the mediation conference, then no counsel may be present. (c) Section 703.5 and Chapter 2 (commencing with Section 1115) of Division 9 of the Evidence Code apply to a mediation conducted under this chapter. (d) The statements made by the parties, negotiations between the parties, and documents produced at the mediation are confidential. However, this confidentiality shall not restrict the access of the department to documents or other information the department seeks in order to evaluate the mediation program or to comply with reporting requirements. This subdivision does not affect the discoverability or admissibility of documents that are otherwise discoverable or admissible. SEC. 7. Section 10089.82 of the Insurance Code is amended to read: 10089.82. (a) An insured may not be required to use the department's mediation process. An insurer may not be required to use the department's mediation process, except as provided in Section 10089.75. (b) Neither the insurer nor the insured is required to accept an agreement proposed during the mediation. (c) If the parties agree to a settlement agreement, the insured will have three business days to rescind the agreement. Notwithstanding Chapter 2 (commencing with Section 1115) of Division 9 of the Evidence Code, if the insured rescinds the agreement, it may not be admitted in evidence or disclosed unless the insured and all other parties to the agreement expressly agree to its disclosure. If the agreement is not rescinded by the insured, it is binding on the insured and the insurer, and acts as a release of all specific claims for damages known at the time of the mediation presented and agreed upon in the mediation conference. If counsel for the insured is present at the mediation conference and a settlement is agreed upon that is signed by the insured's counsel, the agreement is immediately binding on the insured and may not be rescinded. (d) This section does not affect rights under existing law for claims for damage that were undetected at the time of the settlement conference. (e) All settlements reached as a result of department-referred mediation shall address only those issues raised for the purpose of resolution. Settlements and any accompanying releases are not effective to settle or resolve any claim or dispute not addressed by the mediator for the purpose of resolution, nor any claim that the insured may have related to the insurer's conduct in handling the claim. However, for mediations conducted pursuant to subdivision (b) of Section 10089.70, the insurer and insured may agree to a complete settlement and release of all disputes related to the claim, including any claim the insured may have related to the insurer's conduct in handling the claim, provided the legal effect of the release is disclosed and fully explained to the claimant by the mediator. Referral to mediation or the pendency of a mediation under this article is not a basis to prevent or stay the filing of civil litigation arising in whole or in part out of the same facts. Any applicable statute of limitations is tolled for the number of days beginning from the notification date to the insurer pursuant to Section 10089.72, until the date on which the mediation is either completed or declined, or the date on which the insured fails to appear for a scheduled mediation for the second time, or, in the event that a settlement is completed, the expiration of any applicable three business day cooling off period. SEC. 8. Section 10089.84 of the Insurance Code is amended to read: 10089.84. This chapter shall remain in effect until January 1, 2008, and as of that date is repealed, unless a later enacted statute, which is enacted before January 1, 2008, deletes or extends that date. The department shall not refer to mediation any case that arises from a claim under earthquake or automobile coverage when that claim is made to an insurer on or after January 1, 2006, unless a later enacted statute, which is enacted before January 1, 2006, deletes or extends that date, but any case arising from a claim for earthquake or automobile coverage received prior to January 1, 2006, may be mediated beyond that date. Any case arising from fire damage and covered under a policy of homeowners' insurance that is referred to mediation by the department prior to January 1, 2008, shall be mediated under this chapter whether or not the mediation has been completed prior to January 1, 2008. No later than October 1, 2004, the commissioner shall report to the Governor and to the Legislature on whether the program of mediating earthquake and auto damage claims should be extended, expanded, terminated, or otherwise modified, and shall include specific findings regarding the use of the program by insureds and insurers. SEC. 9. This act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the Constitution and shall go into immediate effect. The facts constituting the necessity are: In order to allow victims of disasters to resolve disputes over claims and thereby recover from their losses, it is necessary that this act take effect immediately.