BILL NUMBER: AB 1227	CHAPTERED  09/20/04

	CHAPTER  596
	FILED WITH SECRETARY OF STATE  SEPTEMBER 20, 2004
	APPROVED BY GOVERNOR  SEPTEMBER 20, 2004
	PASSED THE ASSEMBLY  AUGUST 27, 2004
	PASSED THE SENATE  AUGUST 26, 2004
	AMENDED IN SENATE  AUGUST 19, 2004
	AMENDED IN SENATE  JULY 21, 2003

INTRODUCED BY   Assembly Member McCarthy

                        FEBRUARY 21, 2003

   An act to add Section 1875.24 to the Insurance Code, relating to
insurance fraud.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 1227, McCarthy.  Insurance fraud:  investigative units.
   Existing law requires every insurer admitted in this state to
maintain a unit or division to investigate possible fraudulent claims
by insureds or by persons making claims against policies held by
insureds.
   This bill would require the Insurance Commissioner, upon good
cause, to notify an insurer of its noncompliance with these
provisions.  The bill would specify the contents of the notice and
would require an insurer to take certain actions after receiving such
a notice.  It would establish monetary penalties in specified
amounts for violations of these provisions based upon whether a
violation was willful, and would require the imposition of further
monetary penalties if an insurer fails to comply with an order issued
pursuant to these provisions.
   The bill would require the commissioner to adopt regulations to
implement these provisions.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Section 1875.24 is added to the Insurance Code, to
read:
   1875.24.  (a) If after examination, or upon the basis of other
information, the commissioner has good cause to believe that an
insurer to whom the provisions of this article apply does not comply
with the requirements of this article, or with the regulations set
forth in Article 2 (commencing with Section 2698.30) of Subchapter 9
of Chapter 5 of Title 10 of the California Code of Regulations, the
commissioner shall notify the insurer of its noncompliance.  The
notice shall state in what manner and to what extent the
noncompliance is alleged to exist, shall specify a reasonable time,
not less than 10 days thereafter, in which the noncompliance may be
corrected, and shall set forth the amount of any penalty that may be
due under subdivision (b).
   (b) Any insurer that fails to comply with the provisions of this
article or with the regulations described in subdivision (a) shall be
liable to the state for a civil penalty not to exceed five thousand
dollars ($5,000) for each act, or, if the act was willful, a civil
penalty not to exceed ten thousand dollars ($10,000) for each act.
The commissioner shall have the discretion to determine what
constitutes an act.  However, when violations relative to the
maintenance and operation of the unit or division are inadvertent,
the violations shall be considered a single act for the purpose of
this section.  Any penalty imposed by the commissioner pursuant to
this section shall be determined as provided in subdivision (d) of
this section and Article 19 (commencing with Section 2591) of
Subchapter 3 of Chapter 5 of Title 10 of the California Code of
Regulations.  Notwithstanding subdivision (c) of Section 2591.1 of
Title 10 of the California Code of Regulations, enforcement of any
provision of this section shall be deemed an enforcement action
pursuant to Article 19 (commencing with Section 2591) of Subchapter 3
of Chapter 5 of that title.
   (c) An insurer served with a notice of noncompliance described
herein shall, within the time specified therein, do one or more of
the following:
   (1) Establish to the satisfaction of the commissioner that the
noncompliance does not exist.
   (2) Request a hearing, notice of which must be given at least 30
days prior to the date set for a hearing.
   (3) Enter into a consent order with the commissioner to correct
the specified noncompliance within the time period specified in the
consent order.
   (d) If, after hearing, the commissioner finds that the facts
alleged in the notice of noncompliance are true, he or she shall
issue an order requiring compliance with the provisions of this
article within a reasonable time.  An insurer that fails to comply
with an order issued by the commissioner, including a consent order,
shall be liable to the state for a civil penalty not to exceed ten
thousand dollars ($10,000) for each day the insurer fails to comply
with the provisions of the order.  Any order, including any consent
order, issued pursuant to this section shall specify the amount of
the penalty due under subdivision (b), and shall indicate that an
additional penalty shall be imposed for each day the insurer fails to
comply with the order within the time specified therein.  In
addition to any other remedy provided by statute, regulation, or
otherwise, the commissioner may direct the insurer to take any other
corrective action that he or she may deem necessary and proper.
   (e) The commissioner shall adopt regulations necessary to
implement this section in accordance with the rulemaking provisions
of the Administrative Procedure Act (Chapter 3.5 (commencing with
Section 11340) of Part 1 of Division 3 of Title 2 of the Government
Code).