BILL NUMBER: SB 618 CHAPTERED 09/29/03 CHAPTER 546 FILED WITH SECRETARY OF STATE SEPTEMBER 29, 2003 APPROVED BY GOVERNOR SEPTEMBER 27, 2003 PASSED THE SENATE SEPTEMBER 9, 2003 PASSED THE ASSEMBLY AUGUST 25, 2003 AMENDED IN ASSEMBLY JUNE 10, 2003 AMENDED IN SENATE APRIL 9, 2003 INTRODUCED BY Senator Scott FEBRUARY 20, 2003 An act to amend Sections 782, 786, 789.3, and 10509.9 of, and to add Sections 1668.1 and 1738.5 to, the Insurance Code, relating to unfair acts. LEGISLATIVE COUNSEL'S DIGEST SB 618, Scott. Insurance: unfair acts: licenses. (1) Existing law provides that any person violating specified prohibitions against misrepresenting information relating to insurance is punishable by a fine not exceeding $200 or by imprisonment not exceeding 6 months. This bill would raise the fine for a violation of these provisions to $1,500. (2) Existing law requires that every policy of life insurance and every annuity contract delivered on and after January 1, 1995, to an individual age 60 or older contain a notice stating that the policy may be returned for cancellation, and provides that the period for return of the policy shall not be less than 30 days. Existing law requires all disability insurance policies offered for sale to individuals age 65 or older in California to provide an examination period of 30 days after the receipt of the policy for purposes of review of the contract. Existing law allows the individual to void the policy and receive a refund by returning the contract. This bill would extend to individuals age 65 or older who purchase life insurance the protections described above that apply to those individuals who purchase disability policies. The bill would declare that it would apply to the purchase of life insurance only to the extent that it does not conflict with the provisions of law regarding cancellation of life insurance policies and annuities. (3) Existing law sets forth specified monetary penalties for violating certain provisions relating to the sale and marketing of insurance to seniors. This bill would increase the amounts of these monetary penalties, as specified. The bill would provide that, if the commissioner brings an action against a licensee under these provisions and determines that the licensee may reasonably be expected to cause significant harm to seniors, the commissioner may suspend the license pending the outcome of the action. It would allow the commissioner to require the rescission of any contract marketed, offered, or issued in violation of these provisions. (4) Existing law prohibits a person from soliciting, negotiating, or effecting contracts of insurance, or acting in the capacity of various types of insurance agents, unless the person holds a valid license from the Insurance Commissioner authorizing the person to act in that capacity. Existing law authorizes the commissioner to deny an application for a license for various reasons. This bill would, in addition, authorize the commissioner to suspend or revoke any permanent license issued if the licensee induces the client to make a loan or gift to or investment with the licensee, or to otherwise act in other specified ways that benefit the licensee or other people acquainted with or related to the licensee. (5) Existing law allows the commissioner to take certain disciplinary actions, including suspension, revocation, or denial of a license to transact insurance, for specified reasons, and requires that hearings be conducted for these disciplinary actions, with certain exceptions. Existing caselaw requires that proof by clear and convincing evidence be established to revoke or suspend a professional license. This bill would require that, if a disciplinary hearing of this type involves allegations of misconduct directed against a person age 65 or over, the hearing be held within 90 days after the Department of Insurance receives the notice of defense, unless a continuance is granted. The bill would set forth the grounds for granting a continuance, and would provide that the burden of proof in a hearing shall be by a preponderance of the evidence. (6) Existing law sets forth specified monetary penalties for violating certain provisions relating to the replacement of life insurance policies and annuities. This bill would increase the amounts of these monetary penalties, as specified, and would allow the commissioner to suspend or revoke the license of any person who violates these provisions. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 782 of the Insurance Code is amended to read: 782. Any person violating the provisions of Sections 780 or 781 is guilty of a misdemeanor and punishable by a fine not exceeding one thousand five hundred dollars ($1,500) or by imprisonment not exceeding six months. SEC. 2. Section 786 of the Insurance Code is amended to read: 786. All disability insurance and life insurance policies and certificates offered for sale to individuals age 65 or older in California shall provide an examination period of 30 days after the receipt of the policy or certificate for purposes of review of the contract, at which time the applicant may return the contract. The return shall void the policy or certificate from the beginning, and the parties shall be in the same position as if no contract had been issued. All premiums paid and any policy or membership fee shall be fully refunded to the applicant by the insurer or entity in a timely manner. (a) For the purposes of this section a timely manner shall be no later than 30 days after the insurer or entity issuing the policy or certificate receives the returned policy or certificate. (b) If the insurer or entity issuing the policy or certificate fails to refund all of the premiums paid, in a timely manner, then the applicant shall receive interest on the paid premium at the legal rate of interest on judgments as provided in Section 685.010 of the Code of Civil Procedure. The interest shall be paid from the date the insurer or entity received the returned policy or certificate. (c) Each policy or certificate shall have a notice prominently printed in no less than 10-point uppercase type, on the cover page of the policy or certificate and the outline of coverage, stating that the applicant has the right to return the policy or certificate within 30 days after its receipt via regular mail, and to have the full premium refunded. (d) In the event of any conflict between this section and Section 10127.10 with respect to life insurance, the provisions of Section 10127.10 shall prevail. SEC. 3. Section 789.3 of the Insurance Code is amended to read: 789.3. (a) Any broker, agent, or other person or other entity engaged in the transactions of insurance, other than an insurer, who violates this article is liable for an administrative penalty of no less than one thousand dollars ($1,000) for the first violation. (b) Any broker, agent, other person, or other entity engaged in the business of insurance, other than an insurer, who engages in practices prohibited by this article a second or subsequent time or who commits a knowing violation of this article, is liable for an administrative penalty of no less than five thousand dollars ($5,000) and no more than fifty thousand dollars ($50,000) for each violation. (c) If the commissioner brings an action against a licensee pursuant to subdivision (a) or (b) and determines that the licensee may reasonably be expected to cause significant harm to seniors, the commissioner may suspend his or her license pending the outcome of the hearing described in subdivision (c) of Section 789. (d) Any insurer who violates this article is liable for an administrative penalty of ten thousand dollars ($10,000) for the first violation. (e) Any insurer who violates this article with a frequency as to indicate a general business practice or commits a knowing violation of this article, is liable for an administrative penalty of no less than thirty thousand dollars ($30,000) and no more than three hundred thousand dollars ($300,000) for each violation. (f) The commissioner may require rescission of any contract found to have been marketed, offered, or issued in violation of this article. SEC. 4. Section 1668.1 is added to the Insurance Code, to read: 1668.1. In addition to the grounds set forth in Section 1668, the following acts shall constitute cause to suspend or revoke any permanent license issued pursuant to this chapter: (a) The licensee has induced a client, whether directly or indirectly, to cosign or make a loan, make an investment, make a gift, including a testamentary gift, or provide any future benefit through a right of survivorship to the licensee, or to any of the persons listed in subdivision (e). (b) The licensee has induced a client, whether directly or indirectly, to make the licensee or any of the persons listed in subdivision (e) a beneficiary under the terms of any intervivos or testamentary trust or the owner or beneficiary of a life insurance policy or an annuity policy. (c) The licensee has induced a client, whether directly or indirectly, to make the licensee, or a person who is registered as a domestic partner of the licensee, or is related to the licensee by birth, marriage, or adoption, a trustee under the terms of any intervivos or testamentary trust. However, if the licensee is also licensed as an attorney in any state, the licensee may be made a trustee under the terms of any intervivos or testamentary trust, provided that the licensee is not a seller of insurance to the trustor of the trust. (d) The licensee, who has a power of attorney for a client has sold to the client or has used the power of attorney to purchase an insurance product on behalf of the client for which the licensee has received a commission. (e) Subdivisions (a) and (b) shall also apply if the licensee induces the client to provide the benefits in those subdivisions to the following people: (1) A person who is related to the licensee by birth, marriage, or adoption. (2) A person who is a friend or business acquaintance of the licensee. (3) A person who is registered as a domestic partner of the licensee. (f) This section shall not apply to situations in which the client is: (1) A person related to the licensee by birth, marriage, or adoption. (2) A person who is registered as a domestic partner of the licensee. SEC. 5. Section 1738.5 is added to the Insurance Code, to read: 1738.5. A proceeding held pursuant to Section 1668, 1668.5, 1738, 1739, or 12921.8 that involves allegations of misconduct perpetrated against a person age 65 or over shall be held within 90 days after receipt by the department of the notice of defense, unless a continuance of the hearing is granted by the department or the administrative law judge. When the matter has been set for hearing, only the administrative law judge may grant a continuance of the hearing. The administrative law judge may, but need not, grant a continuance of the hearing, only upon finding the existence of one or more of the following: (a) The death or incapacitating illness of a party, a representative or attorney of a party, a witness to an essential fact, or of the parent, child, or member of the household of any of these persons, when it is not feasible to substitute another representative, attorney, or witness because of the proximity of the hearing date. (b) Lack of notice of hearing as provided in Section 11509 of the Government Code. (c) A material change in the status of the case where a change in the parties or pleadings requires postponement, or an executed settlement or stipulated findings of fact obviate the need for hearing. A partial amendment of the pleadings shall not be good cause for continuance to the extent that the unamended portion of the pleadings is ready to be heard. (d) A stipulation for continuance signed by all parties, or their authorized representatives, that is communicated with the request for continuance to the administrative law judge no later than 25 business days before the hearing. (e) The substitution of the representative or attorney of a party upon showing that the substitution is required. (f) The unavailability of a party, representative, or attorney of a party, or witness to an essential fact, due to a conflicting and required appearance in a judicial matter if, when the hearing date was set, the person did not know and could neither anticipate nor at any time avoid the conflict, and the conflict, with the request for continuance, is immediately communicated to the administrative law judge. (g) The unavailability of a party, a representative or attorney of a party, or a material witness due to an unavoidable emergency. (h) Failure by a party to comply with a timely discovery request if the continuance request is made by the party who requested the discovery. SEC. 6. Section 10509.9 of the Insurance Code is amended to read: 10509.9. (a) Any agent or other person or entity engaged in the business of insurance, other than an insurer, who violates this article is liable for an administrative penalty of no less than one thousand dollars ($1,000) for the first violation. (b) Any agent or other person or entity engaged in the business of insurance, other than an insurer, who engages in practices prohibited by this chapter a second or subsequent time or who commits a knowing violation of this article, is liable for an administrative penalty of no less than five thousand dollars ($5,000) and no more than fifty thousand dollars ($50,000) for each violation. (c) Any insurer who violates this article is liable for an administrative penalty of ten thousand dollars ($10,000) for the first violation. (d) Any insurer who violates this article with a frequency as to indicate a general business practice or commits a knowing violation of this article, is liable for an administrative penalty of no less than thirty thousand dollars ($30,000) and no more than three hundred thousand dollars ($300,000) for each violation. (e) After a hearing conducted in accordance with Chapter 4.5 (commencing with Section 11400) and Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, the commissioner may suspend or revoke the license of any person or entity that violates this article. (f) Nothing in this section shall be deemed to affect any other authority provided by law to the commissioner.