BILL NUMBER: AB 1946 CHAPTERED 08/22/06 CHAPTER 137 FILED WITH SECRETARY OF STATE AUGUST 22, 2006 APPROVED BY GOVERNOR AUGUST 22, 2006 PASSED THE ASSEMBLY AUGUST 7, 2006 PASSED THE SENATE JUNE 29, 2006 AMENDED IN SENATE JUNE 27, 2006 AMENDED IN SENATE JUNE 20, 2006 AMENDED IN SENATE JUNE 5, 2006 AMENDED IN SENATE MAY 15, 2006 AMENDED IN ASSEMBLY MARCH 16, 2006 INTRODUCED BY Assembly Member Nava FEBRUARY 1, 2006 An act to amend Sections 10102 and 10103 of the Insurance Code, relating to residential property insurance. LEGISLATIVE COUNSEL'S DIGEST AB 1946, Nava Residential property insurance. Existing law requires that residential property insurance policies do not become effective unless the named insured is provided with a copy of the California Residential Property Disclosure, as specified. Existing law further requires that this disclosure be provided prior to, or concurrent with, the application for or initial renewal of the policy. This bill would revise that disclosure procedure. Existing law specifies the required content of the declarations page of a residential property insurance policy. This bill would provide that the declarations page of residential property insurance purchased by tenants or unit owners that do not provide coverage for the structure of the insured premises need not contain statements regarding the limits of liability for that structure, and specified information regarding cost estimates to rebuild the structure. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 10102 of the Insurance Code is amended to read: 10102. (a) The disclosure required by Section 10101 shall be in no less than 10-point typeface and shall be provided prior to or concurrent with, the application for a policy of residential property insurance. In the event that an application is made by telephone, an insurer that mails a copy of the disclosure within three business days shall be in compliance with this section. For policies issued on or after July 1, 1993, the agent or insurer shall obtain the applicant's signature acknowledging receipt of the disclosure form within 60 days of the date of the application. When the insurer or agent establishes delivery of the disclosure form by obtaining the signature of the applicant or insured, or when an insurer or agent provides the applicant with the disclosure form and the applicant does not return a signed acknowledgment of receipt within 60 days of the date it was provided, there shall be a conclusive presumption that the insurer or agent has complied with the disclosure requirement of this chapter. The insurer or agent shall have the burden of demonstrating in accordance with California Rules of Evidence that the disclosure was provided to the applicant or insured. A signature shall not be required at the time of renewal. If the disclosure is mailed to the named insured or applicant, it shall be mailed to the mailing address shown on the policy of residential property insurance or to the address requested by the applicant. First-class mail shall be deemed adequate for proof of mailing. The insurer shall have the burden of demonstrating in accordance with California Rules of Evidence that the disclosure was mailed to the applicant or insured. The disclosure shall contain the following language: CALIFORNIA RESIDENTIAL PROPERTY INSURANCE DISCLOSURE This disclosure is required by California law (Section 10102 of the Insurance Code). It describes the principal forms of insurance coverage in California for residential dwellings. It also identifies the form of dwelling coverage you have purchased or selected. This disclosure form contains only a general description of coverages and is not part of your residential property insurance policy. Only the specific provisions of your policy will determine whether a particular loss is covered and, if so, the amount payable. Regardless of which type of coverage you purchase, your policy may exclude or limit certain risks. READ YOUR POLICY CAREFULLY. If you do not understand any part of it or have questions about what it covers, contact your insurance agent or company. You may also call the California Department of Insurance consumer information line at: 1-800-927-4357. The cost to rebuild your home may be very different from the market value of your home since reconstruction is based primarily on the cost of labor and materials. Many factors can affect the cost to rebuild your home, including the size of your home, the type of construction, and any unique features. Please review the following coverages carefully. If you have questions regarding the level of coverage in your policy, please contact your insurance agent or company. Additional coverage may be available for an additional premium. (b) The agent or insurer shall indicate on the disclosure form which category of coverage the applicant or insured has selected or purchased. (c) The disclosure statement may contain additional provisions not in conflict with or in derogation of the foregoing. (d) Following the issuance of the policy of residential property insurance, the insurer shall provide the disclosure statement to the insured on an every-other-year basis at the time of renewal. The disclosure required by this section may be transmitted with the material required by Section 10086.1. (e) No policy of residential property insurance may be initially issued on and after January 1, 1993, as guaranteed replacement cost coverage if it contains any maximum limitation of coverage based on any set dollar limits, percentage amounts, construction cost limits, indexing, or any other preset maximum limitation for covered damage to the insured dwelling. The limitations referred to in this section are solely applicable to dwelling structure coverages. Endorsements covering additional risks to the insurer's dwelling structure coverage may have internal limits as long as those endorsements are not called guaranteed replacement cost coverage. (f) On and after July 1, 1993, no policy of residential property insurance may be renewed as guaranteed replacement cost coverage if it contains any maximum limitation of coverage based on any set dollar limits, percentage amounts, construction cost limits, indexing, or any other preset maximum limitation for covered damage to the insured dwelling. The limitations referred to in this section are solely applicable to dwelling structure coverages. Endorsements covering additional risks to the insurer's dwelling structure coverage may have internal limits as long as those endorsements are not called guaranteed replacement cost coverage. (g) Coverage provided for building code upgrades by a policy of residential property insurance shall be applicable to building codes, ordinances, standards, or laws only to the extent that those codes, ordinances, standards, or laws do not impose stricter standards on the property on the basis of the level of insurance coverage applicable to the property. (h) The disclosure required by Section 10101 shall also be provided to the mortgagor in the event that a policy is forced placed by an insurer at the request of a mortgagee. In such cases, neither the insurer nor the mortgagee shall be required to obtain a signature from the mortgagor. No disclosure shall be required to be provided with respect to blanket policies issued to a mortgagee, and designed to provide interim coverage for losses occurring prior to the mortgagee obtaining knowledge of the lapse of the policy and prior to placement of a policy on behalf of the mortgagor. (i) On and after July 1, 1994, insurers shall add to the disclosure, in no less than 10-point type the following statement: This disclosure form does not explain the types of contents coverage (furniture, clothing, etc.) provided by your policy. Some policies do not replace contents with new items, but instead, only pay for the current market value of an item. If you have any questions, contact your insurer or agent. (j) No later than December 1, 2005, the commissioner shall report to the Governor and the Legislature on the status of the issues regarding residential property insurance and the effectiveness of the California Residential Property Insurance Disclosure. SEC. 2. Section 10103 of the Insurance Code is amended to read: 10103. (a) No policy of residential property insurance may be issued or renewed in this state unless it provides the following information on the declarations page of the policy: (1) The limits of liability for the structure. (2) The following statement regarding the valuation of the structure: "The limit of liability for this structure (Coverage A) is based on an estimate of the cost to rebuild your home, including an approximate cost for labor and materials in your area, and specific information that you have provided about your home." (3) Limits of liability for personal property. (4) Deductibles. (5) Whether the policy provides coverage for the increased costs of repairing or replacing damage to the insured dwelling caused by a covered loss because of building ordinances or laws regulating the repair. In the event that no coverage is provided for repairs that result from new building ordinances or laws, the insurer shall include in no less than 10-point typeface the following statement: "THIS POLICY DOES NOT INCLUDE BUILDING CODE UPGRADE COVERAGE." (b) In the event that the policy does include code upgrade coverage, it shall either: (1) State this on the declaration page, and denote any applicable limits. (2) State this on a separate disclosure form attached to the declarations page, if the separate disclosure form meets the following standards: (A) It is printed in not less than 10-point typeface. (B) It denotes any applicable limits on the amount of coverage. (C) It denotes restrictions, if any, on coverage for compliance with applicable building codes which take effect after the date of loss but prior to the issuance of required building permits. (c) The provisions of paragraphs (1) and (2) of subdivision (a) are not required for policies purchased by tenants or unit owners that do not cover the structure of the premises.