BILL NUMBER: AB 1183 CHAPTERED 10/07/05 CHAPTER 717 FILED WITH SECRETARY OF STATE OCTOBER 7, 2005 APPROVED BY GOVERNOR OCTOBER 7, 2005 PASSED THE ASSEMBLY SEPTEMBER 7, 2005 PASSED THE SENATE SEPTEMBER 6, 2005 AMENDED IN SENATE AUGUST 31, 2005 AMENDED IN SENATE JULY 6, 2005 AMENDED IN ASSEMBLY MAY 3, 2005 INTRODUCED BY Assembly Member Vargas FEBRUARY 22, 2005 An act to amend Sections 1872, 1872.1, 1872.3, 1872.4, 1872.7, 1872.8, 1872.81, 1872.83, 1872.85, 1872.9, 1872.95, 1872.96, 1873.4, 1874.8, 1875.20, 1877.3, 1879.4, 11629.85, and 12964 of the Insurance Code, relating to insurance. LEGISLATIVE COUNSEL'S DIGEST AB 1183, Vargas Insurance. Under existing law, there is within the Department of Insurance a division empowered to enforce laws and regulations related to workers' compensation fraud. The name of that division has changed from the Bureau of Fraudulent Claims to the Fraud Division. This bill would make the relevant changes to update the name of the division in statute. Existing law requires each insurer doing business in the state to pay an annual fee, in addition to other fees, of 30 for each vehicle it insures to fund certain consumer operations of the Department of Insurance related to automobile insurance, and an annual fee of 50 for each vehicle it insures, to fund the Fraud Division and an Organized Automobile Fraud Activity Interdiction Program. With respect to the 30 fee, existing law requires that 20 be used for consumer service functions of the department related to auto insurance, and that 10 be used for improving consumer functions of the department. The provisions authorizing the 50 and 30 fees are repealed as of January 1, 2007. f This bill would extend the operation of these provisions until January 1, 2010. The bill would allow the Department of Insurance and the Department of Motor Vehicles to propose to the budget committees of the Legislature that the allocation of the 10 portion of the above 30 fee be changed, as specified. The bill would require that part of the 10 portion of the 30 fee described above be used for consumer service functions of the department, as specified. d Existing law establishes a low-cost automobile insurance pilot program, as specified. Existing law requires the Insurance Commissioner, by February 1 of each year, to propose a plan to the Senate and Assembly Committees on Insurance setting forth the methods the commissioner intends to implement to inform households eligible for the pilot program about the availability of low-cost automobile insurance. Existing law specifies various elements that must be included in the plan. This bill would change the deadline for submitting this plan to March 1 of each year, and would make specified changes to the elements that must be included in the plan. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 1872 of the Insurance Code is amended to read: 1872. There is created within the department the Fraud Division to enforce the provisions of Sections 549, and 550 of the Penal Code, and to administer the provisions of Article 3 (commencing with Section 1873). SEC. 2. Section 1872.1 of the Insurance Code is amended to read: 1872.1. (a) There is created within the Fraud Division an advisory committee on automobile insurance fraud and economic automobile theft prevention, investigation, and prosecution, as provided in this chapter. The committee shall be composed of the Chief of the Fraud Division, a representative from the Department of Justice, the Department of Motor Vehicles, the Division of Investigation of the Department of Consumer Affairs, the Department of the California Highway Patrol, the Bureau of Automotive Repair, the Parole and Community Services Division of the Department of Corrections, the State Bar of California, the Medical Board of California, the State Board of Chiropractic Examiners, two representatives from local law enforcement agencies, one of whom shall be a prosecutor, and representatives of three insurers assessed pursuant to Section 1872.8, and a representative of a labor organization with members in the automotive repair business. (b) The commissioner shall select representatives from local law enforcement agencies from names submitted from local law enforcement agencies. The commissioner shall select one insurer representative from each of the following three categories from nominees submitted by insurers in each category: one representative of insurers with average annual automobile liability premiums in California of less than one hundred million dollars ($100,000,000) in the preceding three years; one representative of insurers with average annual automobile liability premiums in California between one hundred million dollars ($100,000,000) and seven hundred million dollars ($700,000,000) in the preceding three years; and one representative of insurers with average annual automobile liability premiums in California exceeding seven hundred million dollars ($700,000,000) in the preceding three years. At least one insurer representative shall be employed by an insurer having its principal headquarters in California. Members appointed by the commissioner shall serve at the pleasure of the commissioner. Representatives from other agencies shall be selected by the agencies represented. (c) The advisory committee shall elect one of its members annually to chair its meetings. The chair shall conduct quarterly meetings of the committee in California and at such other times as he or she deems appropriate. Members of the committee shall serve without compensation except for expenses incidental to attendance at meetings called by the chair. A report of the committee's activities shall be included in the report required under Section 1872.9. (d) The purpose and goals of the advisory committee are as follows: (1) Recommend to the Fraud Division and other appropriate public agencies and private sector entities ways to coordinate the investigation, prosecution, and prevention of automobile insurance claims fraud, including economic automobile theft. (2) Provide assistance to the Fraud Division towards implementing the goal of reducing the frequency and severity of fraudulent automobile insurance claims (adjusted for population growth and inflation) of 20 percent in urban areas and 10 percent in rural areas of the state within a 24-month period from the effective date of this chapter by utilizing resources set forth in Section 1872.8. (3) Assure that preventive, investigative, prosecutive, and data collection efforts undertaken by the Fraud Division pursuant to this chapter are efficient, cost-effective, and complement similar efforts undertaken by law enforcement agencies and insurers. (4) Make recommendations for inclusion in the Fraud Division's annual report required by Section 1872.9. SEC. 3. Section 1872.3 of the Insurance Code is amended to read: 1872.3. (a) If, by its own inquiries or as a result of complaints, the Fraud Division has reason to believe that a person has engaged in, or is engaging in, an act or practice that violates Section 1871.4 of this code, or Section 549 or 550 of the Penal Code, the commissioner in his or her discretion may do either or both of the following: (1) Make those public or private investigations within or outside of this state that he or she deems necessary to determine whether any person has violated or is about to violate any provision of Section 1871.4 of this code, or Section 549 or 550 of the Penal Code, or to aid in the enforcement of this chapter. (2) Publish information concerning any violation of this chapter or Section 550 of the Penal Code. (b) For purposes of any investigation under this section, the commissioner or any officer designated by the commissioner may administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, agreements, or other documents or records that the commissioner deems relevant or material to the inquiry, as provided by Section 12924. (c) If any matter that the commissioner seeks to obtain by request is located outside the state, the person so requested may make it available to the commissioner or his or her representative to be examined at the place where it is located. The commissioner may designate representatives, including officials of the state in which the matter is located, to inspect the matter on his or her behalf, and he or she may respond to similar requests from officials of other states. (d) Except as provided in subdivision (e), the department's papers, documents, reports, or evidence relative to the subject of an investigation under this section shall not be subject to public inspection for so long a period as the commissioner deems reasonably necessary to complete the investigation, to protect the person investigated from unwarranted injury, or to serve the public interest. Furthermore, those papers, documents, reports, or evidence shall not be subject to subpoena or subpoena duces tecum until opened for public inspection by the commissioner, unless the commissioner otherwise consents or, after notice to the commissioner and a hearing, the superior court determines that the public interest and any ongoing investigation by the commissioner would not be unnecessarily jeopardized by compliance with the subpoena duces tecum. (e) The Fraud Division shall furnish all papers, documents, reports, complaints, or other facts or evidence to any police, sheriff, or other law enforcement agency, when so requested, and shall assist and cooperate with those law enforcement agencies. SEC. 4. Section 1872.4 of the Insurance Code is amended to read: 1872.4. (a) Any company licensed to write insurance in this state that reasonably believes or knows that a fraudulent claim is being made shall, within 60 days after determination by the insurer that the claim appears to be a fraudulent claim, send to the Fraud Division, on a form prescribed by the department, the information requested by the form and any additional information relative to the factual circumstances of the claim and the parties claiming loss or damages that the commissioner may require. The Fraud Division shall review each report and undertake further investigation it deems necessary and proper to determine the validity of the allegations. Whenever the commissioner is satisfied that fraud, deceit, or intentional misrepresentation of any kind has been committed in the submission of the claim, he or she shall report the violations of law to the insurer, to the appropriate licensing agency, and to the district attorney of the county in which the offenses were committed, as provided by Sections 12928 and 12930. If the commissioner is satisfied that fraud, deceit, or intentional misrepresentation has not been committed, he or she shall report that determination to the insurer. If prosecution by the district attorney concerned is not begun within 60 days of the receipt of the commissioner's report, the district attorney shall inform the commissioner and the insurer as to the reasons for the lack of prosecution regarding the reported violations. (b) This section shall not require an insurer to submit to the Fraud Division the information specified in subdivision (a) in either of the following instances: (1) The insurer's initial investigation indicated a potentially fraudulent claim but further investigation revealed that it was not fraudulent. (2) The insurer and the claimant have reached agreement as to the amount of the claim and the insurer does not have reasonable grounds to believe that claim to be fraudulent. (c) Nothing contained in this article shall relieve an insurer of its existing obligations to also report suspected violations of law to appropriate local law enforcement agencies. (d) Any police, sheriff, disciplinary body governed by the provisions of the Business and Professions Code, or other law enforcement agency shall furnish all papers, documents, reports, complaints, or other facts or evidence to the Fraud Division, when so requested, and shall otherwise assist and cooperate with the division. (e) If an insurer, at the time the insurer, pursuant to subdivision (a) forwards to the Fraud Division information on a claim that appears to be fraudulent, has no evidence to believe the insured on that claim is involved with the fraud or the fraudulent collision, the insurer shall take all necessary steps to assure that no surcharge is added to the insured's premium because of the claim. SEC. 5. Section 1872.7 of the Insurance Code is amended to read: 1872.7. The costs of administration and operation of the Fraud Division shall be borne by all of the insurers admitted to transact insurance in this state. The commissioner shall divide those costs among all of those insurers, assessing each company an identical amount adequate to provide the funds for each fiscal year of operation of the division. However, the assessment for each company shall not exceed one thousand three hundred dollars ($1,300) in each fiscal year. All moneys received by the commissioner from insurers pursuant to this section shall be transmitted to the Treasurer to be deposited in the State Treasury to the credit of the Insurance Fund. All moneys that are deposited in the fund after receipt by the commissioner from insurers pursuant to this section are to be exclusively used for the support of the Fraud Division. To the extent the assessments against insurers made pursuant to this section are not sufficient to fund the entire operations of the division, other moneys appropriated to the department, if available, may be used, at the commissioner's discretion, to fund those operations not covered by the assessments. The total budget of the Fraud Division shall be as determined annually in the Budget Act. SEC. 6. Section 1872.8 of the Insurance Code is amended to read: 1872.8. (a) Each insurer doing business in this state shall pay an annual fee to be determined by the commissioner, but not to exceed one dollar ($1) annually for each vehicle insured under an insurance policy it issues in this state, in order to fund increased investigation and prosecution of fraudulent automobile insurance claims and economic automobile theft. Thirty-four percent of those funds received from ninety-five cents ($0.95) of the assessment fee per insured vehicle shall be distributed to the Fraud Division for enhanced investigative efforts, 15 percent of that ninety-five cents ($0.95) shall be deposited in the Motor Vehicle Account for appropriation to the Department of the California Highway Patrol for enhanced prevention and investigative efforts to deter economic automobile theft, and 51 percent of the funds shall be distributed to district attorneys for purposes of investigation and prosecution of automobile insurance fraud cases, including fraud involving economic automobile theft. (b) (1) The commissioner shall award funds to district attorneys according to population. The commissioner may alter this distribution formula as necessary to achieve the most effective distribution of funds. Each local district attorney desiring a portion of those funds shall submit to the commissioner an application detailing the proposed use of any moneys that may be provided. The application shall include a detailed accounting of assessment funds received and expended in prior years, including at a minimum, all of the following: (A) The amount of funds received and expended. (B) The uses to which those funds were put, including payment of salaries and expenses, purchase of equipment and supplies, and other expenditures by type. (C) Results achieved as a consequence of expenditures made, including the number of investigations, arrests, complaints filed, convictions, and the amounts originally claimed in cases prosecuted compared to payments actually made in those cases. (D) Other relevant information as the commissioner may reasonably require. Any district attorney who fails to submit an application within 90 days of the commissioner's deadline for applications shall be subject to loss of distribution of the money. The commissioner may consider recommendations and advice of the Fraud Division and the Commissioner of the California Highway Patrol in allocating moneys to local district attorneys. Any district attorney that receives funds shall submit an annual report to the commissioner, which may be made public, as to the success of the program administered. The report shall provide information and statistics on the number of active investigations, arrests, indictments, and convictions. Both the application for moneys and the distribution of moneys shall be public documents. The commissioner shall conduct a fiscal audit of the programs administered under this subdivision at least once every three years. The cost of a fiscal audit shall be shared equally between the department and the district attorney. Information submitted to the commissioner pursuant to this section concerning criminal investigations, whether active or inactive, shall be confidential. If the commissioner determines that a district attorney is unable or unwilling to investigate and prosecute automobile insurance fraud claims as provided by this subdivision or Section 1874.8, the commissioner may discontinue the distribution of funds allocated for that county and may redistribute those funds to other eligible district attorneys. (2) The Department of the California Highway Patrol shall submit to the commissioner, for informational purposes only, a report detailing the department's proposed use of funds under this section and an annual report in the same format as required of district attorneys under paragraph (1). (c) The remaining five cents ($0.05) shall be spent for enhanced automobile insurance fraud investigation by the Fraud Division. (d) Except for funds to be deposited in the Motor Vehicle Account for allocation to the Department of the California Highway Patrol for purposes of the Motor Vehicle Prevention Act, (Chapter 5 (commencing with Section 10900) of Division 4 of the Vehicle Code), the funds received under this section shall be deposited in the Insurance Fund and be expended and distributed when appropriated by the Legislature. (e) In the course of its investigations, the Fraud Division shall aggressively pursue all reported incidents of probable fraud and, in addition, shall forward to the appropriate disciplinary body the names of any individuals licensed under the Business and Professions Code who are suspected of actively engaging in fraudulent activity along with all relevant supporting evidence. (f) As used in this section "economic automobile theft" means automobile theft perpetrated for financial gain, including, but not limited to, the following: (1) Theft of a motor vehicle for financial gain. (2) Reporting that a motor vehicle has been stolen for the purpose of filing a false insurance claim. (3) Engaging in any act prohibited by Chapter 3.5 (commencing with Section 10801) of Division 4 of the Vehicle Code. (4) Switching of vehicle identification numbers to obtain title to a stolen motor vehicle. SEC. 7. Section 1872.81 of the Insurance Code is amended to read: 1872.81. In addition to the fee imposed pursuant to Section 1872.8, each insurer doing business in this state shall pay to the commissioner an annual fee of thirty cents ($0.30) for each vehicle insured under an insurance policy it issues in this state, for expenditure as follows: (a) An amount equivalent to twenty cents ($0.20) of the fee imposed per insured vehicle by this section shall be used for the purpose of paying for consumer service functions of the department that are related to automobile insurance. The revenues under this subdivision shall be used to improve service to consumers through the rating and underwriting services bureau, the claims services bureau, the investigations bureau, or any successor bureaus of the department that may assume the consumer service functions of these bureaus, and legal services in support of these bureaus. The department shall develop a plan for the use of the revenues available under this subdivision for the purposes authorized, and shall submit the plan to the Assembly and Senate Committees on Insurance. (b) An amount equivalent to ten cents ($0.10) of the fee imposed per insured vehicle by this section shall be used for the purpose of improving consumer functions of the department related to automobile insurance. Revenues available under this subdivision shall be used to improve consumer functions through one or more of the following: (1) The rating and underwriting services bureau. (2) The claims services bureau. (3) The investigations bureau. (4) Any successor bureau of the department that may assume automobile insurance consumer functions of these bureaus, and legal services in support of these bureaus. These revenues may also be used for improving the ability of the department to respond to consumer complaints and information requests through the department's toll-free telephone number, and for improving the ability of the department to offer information about automobile insurance rates to the public. The department shall develop a plan for the use of the revenues available under this subdivision for the purpose authorized, and shall submit the plan to the Assembly and Senate Committees on Insurance. (c) Notwithstanding subdivision (b), the Department of Insurance, after January 1, 2006, and the Department of Motor Vehicles, after that date, may propose to the budget committees of the Legislature a proposed use of up to five cents ($0.05) of the 10-cent fee levied pursuant to subdivision (b) related to informing consumers about the existence of any low cost automobile insurance program authorized in law pursuant to Section 11629.7 or other statutes that also establish a program of the type identified in Section 11629.7. No funds for this purpose may be expended without prior budget approval. The total amount of funds authorized to both departments in total, or to one department in total, for this purpose shall not exceed five cents ($0.05). The departments shall explain, with as much specificity as is reasonably possible, the objectives for the use of the funds and quantitative criteria by which the Legislature may evaluate the effectiveness of the department's use of funds. (d) At least five cents ($0.05) of the 10-cent fee shall be directed to the purpose set forth in subdivision (a) until January 1, 2009, and to the degree that funding for low cost auto insurance is not fully appropriated up to five cents ($0.05), the difference thereof shall be additionally allocated to purposes set forth in subdivision (a). (e) This section shall remain in effect only until January 1, 2010, and as of that date is repealed, unless a later enacted statute, that is enacted before January 1, 2010, deletes or extends that date. SEC. 8. Section 1872.83 of the Insurance Code is amended to read: 1872.83. (a) The commissioner shall ensure that the Fraud Division aggressively pursues all reported incidents of probable workers' compensation fraud, as defined in Sections 11760 and 11880, in subdivision (a) of Section 1871.4, and in Section 549 of the Penal Code, and forwards to the appropriate disciplinary body the names, along with all supporting evidence, of any individuals licensed under the Business and Professions Code who are suspected of actively engaging in fraudulent activity. The Fraud Division shall forward to the Insurance Commissioner or the Director of Industrial Relations, as appropriate, the name, along with all supporting evidence, of any insurer, as defined in subdivision (c) of Section 1877.1, suspected of actively engaging in the fraudulent denial of claims. (b) To fund increased investigation and prosecution of workers' compensation fraud, and of willful failure to secure payment of workers' compensation, in violation of Section 3700.5 of the Labor Code, there shall be an annual assessment as follows: (1) The aggregate amount of the assessment shall be determined by the Fraud Assessment Commission, which is hereby established. The commission shall be composed of seven members consisting of two representatives of organized labor, two representatives of self-insured employers, one representative of insured employers, one representative of workers' compensation insurers, and the President of the State Compensation Insurance Fund, or his or her designee. The Governor shall appoint members representing organized labor, self-insured employers, insured employers, and insurers. The term of office of members of the commission shall be four years, and a member shall hold office until the appointment of a successor. The President of the State Compensation Insurance Fund shall be an ex officio, voting member of the commission. Members of the commission shall receive one hundred dollars ($100) for each day of actual attendance at commission meetings and other official commission business, and shall also receive their actual and necessary traveling expenses incurred in the performance of commission duties. Payment of per diem and travel expenses shall be made from the Workers' Compensation Fraud Account in the Insurance Fund, established in paragraph (4), upon appropriation by the Legislature. (2) In determining the aggregate amount of the assessment, the Fraud Assessment Commission shall consider the advice and recommendations of the Fraud Division and the commissioner. (3) The aggregate amount of the assessment shall be collected by the Director of Industrial Relations pursuant to Section 62.6 of the Labor Code. The Fraud Assessment Commission shall annually advise the Director of Industrial Relations, not later than March 15, of the aggregate amount to be assessed for the next fiscal year. (4) The amount collected, together with the fines collected for violations of the unlawful acts specified in Sections 1871.4, 11760, and 11880, Section 3700.5 of the Labor Code, and Section 549 of the Penal Code, shall be deposited in the Workers' Compensation Fraud Account in the Insurance Fund, which is hereby created, and may be used, upon appropriation by the Legislature, only for enhanced investigation and prosecution of workers' compensation fraud and of willful failure to secure payment of workers' compensation as provided in this section. (c) For each fiscal year, the total amount of revenues derived from the assessment pursuant to subdivision (b) shall, together with amounts collected pursuant to fines imposed for unlawful acts described in Sections 1871.4, 11760, and 11880, Section 3700.5 of the Labor Code, and Section 549 of the Penal Code, not be less than three million dollars ($3,000,000). Any funds appropriated by the Legislature pursuant to subdivision (b) that are not expended in the fiscal year for which they have been appropriated, and that have not been allocated under subdivision (f), shall be applied to satisfy for the immediately following fiscal year the minimum total amount required by this subdivision. In no case may that money be transferred to the General Fund. (d) After incidental expenses, at least 40 percent of the funds to be used for the purposes of this section shall be provided to the Fraud Division of the Department of Insurance for enhanced investigative efforts, and at least 40 percent of the funds shall be distributed to district attorneys, pursuant to a determination by the commissioner with the advice and consent of the division and the Fraud Assessment Commission, as to the most effective distribution of moneys for purposes of the investigation and prosecution of workers' compensation fraud cases and cases relating to the willful failure to secure the payment of workers' compensation. Each district attorney seeking a portion of the funds shall submit to the commissioner an application setting forth in detail the proposed use of any funds provided. A district attorney receiving funds pursuant to this subdivision shall submit an annual report to the commissioner with respect to the success of his or her efforts. Upon receipt, the commissioner shall provide copies to the Fraud Division and the Fraud Assessment Commission of any application, annual report, or other documents with respect to the allocation of money pursuant to this subdivision. Both the application for moneys and the distribution of moneys shall be public documents. Information submitted to the commissioner pursuant to this section concerning criminal investigations, whether active or inactive, shall be confidential. (e) If a district attorney is determined by the commissioner to be unable or unwilling to investigate and prosecute workers' compensation fraud claims or claims relating to the willful failure to secure the payment of workers' compensation, the commissioner shall discontinue distribution of funds allocated for that county and may redistribute those funds according to this subdivision. (1) The commissioner shall promptly determine whether any other county could assert jurisdiction to prosecute the fraud claims or claims relating to the willful failure to secure the payment of workers' compensation that would have been brought in the nonparticipating county, and if so, the commissioner may award funds to conduct the prosecutions redirected pursuant to this subdivision. These funds may be in addition to any other fraud prosecution funds or claims relating to the willful failure to secure the payment of workers' compensation prosecution otherwise awarded under this section. Any district attorney receiving funds pursuant to this subdivision shall first agree that the funds shall be used solely for investigating and prosecuting those cases of workers' compensation fraud or claims relating to the willful failure to secure the payment of workers' compensation that are redirected pursuant to this subdivision and submit an annual report to the commissioner with respect to the success of the district attorney's efforts. The commissioner shall keep the Fraud Assessment Commission fully informed of all reallocations of funds under this paragraph. (2) If the commissioner determines that no district attorney is willing or able to investigate and prosecute the workers' compensation fraud claims or claims relating to the willful failure to secure the payment of workers' compensation arising in the nonparticipating county, the commissioner, with the advice and consent of the Fraud Assessment Commission, may award to the Attorney General some or all of the funds previously awarded to the nonparticipating county. Before the commissioner may award any funds, the Attorney General shall submit to the commissioner an application setting forth in detail his or her proposed use of any funds provided and agreeing that any funds awarded shall be used solely for investigating and prosecuting those cases of workers' compensation fraud or claims relating to the willful failure to secure the payment of workers' compensation that are redirected pursuant to this subdivision. The Attorney General shall submit an annual report to the commissioner with respect to the success of the fraud prosecution efforts of his or her office. (3) Neither the Attorney General nor any district attorney shall be required to relinquish control of any investigation or prosecution undertaken pursuant to this subdivision unless the commissioner determines that satisfactory progress is no longer being made on the case or the case has been abandoned. (4) A county that has become a nonparticipating county due to the inability or unwillingness of its district attorney to investigate and prosecute workers' compensation fraud or the willful failure to secure the payment of workers' compensation shall not become eligible to receive funding under this section until it has submitted a new application that meets the requirements of subdivision (d) and the applicable regulations. (f) If in any fiscal year the Fraud Division does not use all of the funds made available to it under subdivision (d), any remaining funds may be distributed to district attorneys pursuant to a determination by the commissioner in accordance with the same procedures set forth in subdivision (d). (g) The commissioner shall adopt rules and regulations 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). Included in the rules and regulations shall be the criteria for redistributing funds to district attorneys and the Attorney General. The adoption of the rules and regulations shall be deemed to be an emergency and necessary for the immediate preservation of the public peace, health, and safety, or general welfare. (h) The department shall report on an annual basis to the Legislature and the Fraud Assessment Commission on the activities of the Fraud Division and district attorneys supported by the funds provided by this section. The annual report shall include, but is not limited to, all of the following information for the department and each district attorney' s office: (1) All allocations, distributions, and expenditures of funds. (2) The number of search warrants issued. (3) The number of arrests and prosecutions, and the aggregate number of parties involved in each. (4) The number of convictions and the names of all convicted fraud perpetrators. (5) The estimated value of all assets frozen, penalties assessed, and restitutions made for each conviction. (6) Any additional items necessary to fully inform the Fraud Assessment Commission and the Legislature of the fraud-fighting efforts financed through this section. (i) In order to meet the requirements of subdivision (g), the department shall submit a biannual information request to those district attorneys who have applied for and received funding through the annual assessment process under this section. (j) Assessments levied or collected to fight workers' compensation fraud and insurance fraud are not taxes. Those funds are entrusted to the state to fight fraud and the willful failure to secure the payment of workers' compensation by funding state and local investigation and prosecution efforts. Accordingly, any funds resulting from assessments, fees, penalties, fines, restitution, or recovery of costs of investigation and prosecution deposited in the Insurance Fund shall not be deemed "unexpended" funds for any purpose and, if remaining in that account at the end of any fiscal year, shall be applied as provided in subdivision (f) and to offset or augment subsequent years' program funding. (k) The Bureau of State Audits shall evaluate the effectiveness of the efforts of the Fraud Assessment Commission, the Fraud Division, the Department of Insurance, and the Department of Industrial Relations, as well as local law enforcement agencies, including district attorneys, in identifying, investigating, and prosecuting workers' compensation fraud and the willful failure to secure payment of workers' compensation. The report shall specifically identify areas of deficiencies. Included in this report shall be recommendations on whether the current program provides the appropriate levels of accountability for those responsible for the allocation and expenditure of funds raised from the assessment provided in this section. The Bureau of State Audits shall submit a report to the Chairperson of the Senate Committee on Labor and Industrial Relations and the Chairperson of the Assembly Committee on Insurance on or before May 1, 2004. SEC. 9. Section 1872.85 of the Insurance Code is amended to read: 1872.85. (a) Every admitted disability insurer or other entity liable for any loss due to health insurance fraud doing business in this state shall pay an annual fee to be determined by the commissioner, but not to exceed ten cents ($0.10) annually for each insured under an individual or group insurance policy it issues in this state, in order to fund increased investigation and prosecution of fraudulent disability insurance claims. After incidental expenses, 50 percent of those funds received from the assessment fee per insured shall be distributed to the Fraud Division of the Department of Insurance for enhanced investigative efforts, and 50 percent of the funds shall be distributed to local district attorneys, pursuant to subdivisions (b) and (c), for investigation and prosecution of disability insurance fraud cases. The funds received under this section shall be deposited into the Disability Insurance Fraud Account, which is hereby created in the Insurance Fund, and shall be expended and distributed, when appropriated by the Legislature, only for enhanced investigation and prosecution of disability insurance fraud. In the course of its investigation, the Fraud Division shall aggressively pursue all reported incidents of probable fraud and, in addition, shall forward to the appropriate disciplinary body the names of any individuals licensed under the Business and Professions Code who are convicted of engaging in fraudulent activity along with all relevant supporting evidence. (b) The commissioner shall distribute funds pursuant to subdivision (a) to district attorneys who are able to show a likely positive outcome that will enhance the prosecution of disability insurance fraud in their jurisdiction based on specific criteria promulgated by the commissioner. A district attorney desiring funds pursuant to subdivision (a) shall submit to the commissioner an application that includes, but is not limited to, all of the following: (1) The proposed use of the moneys and the anticipated outcome. (2) A list of all prior cases or projects in the district attorney' s jurisdiction that have been funded under the provisions of this section, and a copy of the final accounting for each case or project. If a case or project is ongoing, the most recent accounting shall be provided. (3) A detailed budget for the moneys, including salaries and general expenses, that specifically identifies the purchase or rental cost of equipment or supplies. (c) (1) A district attorney who receives moneys pursuant to this section shall submit a final detailed accounting at the conclusion of each case or project funded. For a case or project that continues for longer than six months, an interim accounting shall be submitted every six months, or as otherwise directed by the commissioner. (2) A district attorney who receives moneys pursuant to this section shall submit a final report to the commissioner, which may be made public, as to the success of each case or project funded by this section. The report shall provide information and statistics on the number of active investigations, arrests, indictments, and convictions associated with a case or project. The applications for moneys, the distribution of moneys, and the annual report required by Section 1872.9 shall be public documents. (3) Notwithstanding any other provision of this section, information submitted to the commissioner pursuant to this section concerning criminal investigations, whether active or inactive, shall be confidential. (4) The commissioner may conduct a fiscal audit of the programs administered under this subdivision. The fiscal audit shall be conducted by an internal audit unit of the department. The cost of fiscal audits shall be paid from the Disability Insurance Fraud Fund, upon appropriation by the Legislature. (5) If the commissioner determines that a district attorney is unable or unwilling to investigate or prosecute a relevant disability insurance fraud case, the commissioner may discontinue distribution of moneys allocated for that matter pursuant to this section, and may redistribute moneys to other eligible district attorneys. (d) Activities of the Fraud Division with regard to investigating and prosecuting fraudulent disability insurance claims pursuant to this section shall be included in the report required by Section 1872.9. (e) This section shall not apply to policies issued by a reciprocal or interinsurance exchange, as defined by Sections 1303 and 1350, or coverage provided by or through a motor club, as defined by Section 12142, affiliated with a reciprocal or interinsurance exchange, if the annual premium charged for the coverage or the annual cost to the insurer for providing that coverage does not exceed one dollar ($1) per insured. SEC. 10. Section 1872.9 of the Insurance Code is amended to read: 1872.9. The Fraud Division shall annually compile and report, as a part of the commissioner's annual report as required by Section 12922, the following information: (a) The number of cases reported to the division pursuant to this chapter. (b) The number of cases rejected for which an investigation was not initiated by the division due to insufficient evidence to proceed and the number of cases rejected for which an investigation was not initiated by the division due to any other reason. (c) The number of cases that were prosecuted in cooperation with licensing agencies governed by the Business and Professions Code. (d) The number and kind of cases prosecuted as a result of moneys received under Section 1872.7. (e) An estimate of the economic value of insurance fraud by type of insurance fraud. (f) Recommendations on ways insurance fraud may be reduced. (g) A summary of the division's activities with respect to pursuing a reduction of fraud with all of the following: (1) Insurance companies. (2) The Department of Motor Vehicles. (3) The Department of the California Highway Patrol. (4) Licensing agencies governed by the Business and Professions Code. (5) The Department of Insurance. (6) Local and state law enforcement agencies. (7) Employers, as defined in Section 3300 of the Labor Code, who are self-insured for workers' compensation and doing business in the state. (h) Basic claims information including trends of payments by type of claim and other claim information that is generally provided in a closed claim study. (i) A summary of the division's activities with respect to the reduction, pursuant to Section 1871.4, of fraudulent denials and payments of compensation. (j) The number and types of cases investigated and prosecuted with funds specified in Section 1872.83. SEC. 11. Section 1872.95 of the Insurance Code is amended to read: 1872.95. (a) Within existing resources, the Medical Board of California, the Board of Chiropractic Examiners, and the State Bar shall each designate employees to investigate and report on possible fraudulent activities relating to workers' compensation, motor vehicle insurance, or disability insurance by licensees of the board or the bar. Those employees shall actively cooperate with the Fraud Division in the investigation of those activities. (b) The Medical Board of California, the Board of Chiropractic Examiners, and the State Bar shall each report annually, on or before March 1, to the committees of the Senate and Assembly having jurisdiction over insurance on their activities established pursuant to subdivision (a) for the previous year. That report shall specify, at a minimum, the number of cases investigated, the number of cases forwarded to the Fraud Division or other law enforcement agencies, the outcome of all cases listed in the report, and any other relevant information concerning those cases or general activities conducted under subdivision (a) for the previous year. The report shall include information regarding activities conducted in connection with cases of suspected automobile insurance fraud. SEC. 12. Section 1872.96 of the Insurance Code is amended to read: 1872.96. The commissioner shall prepare an annual report, which shall be a public record, with respect to the receipts, expenditures, and activities of the Fraud Division for the year just ended. The report shall be submitted to the Governor and to the Legislature, no later than January 31 of the following year. This report shall not contain any individually identifiable information. SEC. 13. Section 1873.4 of the Insurance Code is amended to read: 1873.4. Any or all information released or received by an authorized governmental entity pursuant to Section 1873 or 1873.1 shall be provided by that agency to the Fraud Division within 10 days of the agency's receipt of the information. SEC. 14. Section 1874.8 of the Insurance Code, as added by Section 7 of Chapter 885 of the Statutes of 1999, is amended to read: 1874.8. (a) Each insurer doing business in this state shall pay an annual fee to be determined by the commissioner, but not to exceed fifty cents ($0.50) annually for each vehicle insured under an insurance policy it issues in this state, in order to fund the Fraud Division and an Organized Automobile Fraud Activity Interdiction Program. The commissioner shall award three to 10 grants for a coordinated program targeted at the successful prosecution and elimination of organized automobile fraud activity. The grants may only be awarded to district attorneys. (b) In determining whether to award a district attorney a grant, the commissioner shall consider factors indicating organized automobile fraud activity in the district attorney's county, including, but not limited to, the county's level of general criminal activity, population density, automobile insurance claims frequency, number of suspected fraudulent claims, and prior and current evidence of organized automobile fraud activity. Funding priority shall be given to those grant applications with the potential to have the greatest impact on organized automobile insurance fraud activity. (c) All participants of a grant referred to in subdivision (a) shall coordinate their efforts and work in conjunction with the bureau, other participating agencies, and all interested insurers in this regard. Of the funds collected pursuant to this section, 42.5 percent shall be distributed to district attorneys, 42.5 percent shall be distributed to the Fraud Division, and 15 percent shall be distributed to the Department of the California Highway Patrol. Funds distributed pursuant to this section to the Fraud Division and to the Department of the California Highway Patrol shall be used to fund bureau and Department of the California Highway Patrol investigators who shall be assigned to work solely in conjunction with district attorneys who are awarded grants. Each grantee shall be notified by the Fraud Division of the investigators assigned to work with the grantee. Nothing shall prohibit the referral of any cases developed by the Fraud Division to any appropriate prosecutorial entity. (d) A grant under this section shall be awarded on the basis of a single application for a period of three years and shall be subject where applicable to the requirements of subdivision (b) of Section 1872.8, except for the requirement that grants be awarded according to population. Continued funding of a grant shall be contingent upon a grantee's successful performance as determined by an annual review by the commissioner. Any redirection of grant funds under this section shall be made only for good cause. The Department of the California Highway Patrol shall submit to the commissioner, for informational purposes only, an annual report on its expenditure of funds under this section in the same format as is required of grantees under this section. (e) There shall be no prohibition against a joint application by two or more district attorneys for a grant award under this section. (f) The Fraud Division shall report, on or before January 1, 2005, to the committees of the Senate and Assembly having jurisdiction over insurance on the results of the grant program established by this section, including funding distributed to the Department of the California Highway Patrol. (g) For purposes of this section "organized automobile fraud activity" means two or more persons who conspire, aid and abet, or in any other manner act together, to engage in economic automobile theft as defined in subdivision (f) of Section 1872.8, or to violate any of the following provisions in relation to an automobile insurance claim: (1) Section 650 or 6152 of the Business and Professions Code. (2) Section 750 of the Insurance Code. (3) Section 549, 550, or 551 of the Penal Code. (h) This section shall remain in effect only until January 1, 2010, and as of that date is repealed, unless a later enacted statute, that is enacted before January 1, 2010, deletes or extends that date. SEC. 15. Section 1875.20 of the Insurance Code is amended to read: 1875.20. Every insurer admitted to do business in this state, except those otherwise exempted in this code, shall provide for the continuous operation of a unit or division to investigate possible fraudulent claims by insureds or by persons making claims for services or repairs against policies held by insureds. SEC. 16. Section 1877.3 of the Insurance Code is amended to read: 1877.3. (a) Upon written request to an insurer or a licensed rating organization by an authorized governmental agency, an insurer, an agent authorized by that insurer, or a licensed rating organization to act on behalf of the insurer, shall release to the requesting authorized governmental agency any or all relevant information deemed important to the authorized governmental agency that the insurer or licensed rating organization may possess relating to any specific workers' compensation insurance fraud investigation. (b) (1) When an insurer or licensed rating organization knows or reasonably believes it knows the identity of a person or entity whom it has reason to believe committed a fraudulent act relating to a workers' compensation insurance claim or a workers' compensation insurance policy, including any policy application, or has knowledge of such a fraudulent act that is reasonably believed not to have been reported to an authorized governmental agency, then, for the purpose of notification and investigation, the insurer, or agent authorized by an insurer to act on its behalf, or licensed rating organization shall notify the local district attorney's office and the Fraud Division of the Department of Insurance, and may notify any other authorized governmental agency of that suspected fraud and provide any additional information in accordance with subdivision (a). The insurer or licensed rating organization shall state in its notice the basis of the suspected fraud. (2) Insurers shall use a form prescribed by the department for the purposes of reporting suspected fraudulent workers' compensation acts pursuant to this subdivision. (3) Nothing in this subdivision shall abrogate or impair the rights or powers created under subdivision (a). (c) The authorized governmental agency provided with information pursuant to subdivision (a), (b), or (e) may release or provide that information in a confidential manner to any other authorized governmental agency for purposes of investigation, prosecution, or prevention of insurance fraud or workers' compensation fraud. (d) An insurer or licensed rating organization providing information to an authorized governmental agency pursuant to this section shall provide the information within a reasonable time, but not exceeding 60 days from the day on which the duty arose. (e) Upon written request by an authorized governmental agency, as specified in subdivision (o) of Section 1095 of the Unemployment Insurance Code, the Employment Development Department shall release to the requesting agency any or all relevant information that the Employment Development Department may possess relating to any specific workers' compensation insurance fraud investigation. Relevant information may include, but is not limited to, all of the following: (1) Copies of unemployment and disability insurance application and claim forms and copies of any supporting medical records, documentation, and records pertaining thereto. (2) Copies of returns filed by an employer pursuant to Section 1088 of the Unemployment Insurance Code and copies of supporting documentation. (3) Copies of benefit payment checks issued to claimants. (4) Copies of any documentation that specifically identifies the claimant by social security number, residence address, or telephone number. SEC. 17. Section 1879.4 of the Insurance Code is amended to read: 1879.4. (a) The Chief of the Fraud Division and those investigators designated by him or her may expend funds to conduct undercover activities, employ civilian operatives, or in any other manner not prohibited by law to investigate insurance fraud or workers' compensation fraud. (b) The money expended pursuant to subdivision (a) shall be paid out of the funds appropriated or made available by law for the support or use of the department. SEC. 18. Section 11629.85 of the Insurance Code is amended to read: 11629.85. (a) On or before March 1 of each year, the commissioner shall prepare and propose a plan to the Senate Committee on Banking, Finance, and Insurance and the Assembly Committee on Insurance setting forth the methods the commissioner intends to implement to inform households eligible for the pilot program about the availability of low-cost automobile insurance. To be eligible for funding through the budget process, the plan shall be reviewed by the Senate Committee on Banking, Finance, and Insurance and the Assembly Committee on Insurance. The information required under subdivision (c) shall also be provided to the Senate Committee on Transportation and Housing and the Assembly Committee on Transportation. (b) The plan shall include, at a minimum, a brief description of methods proposed to be used, anticipated costs, sources of revenue, goals, targets, objectives, and a justification of the proposed methods. The plan shall also explain how the department proposes to work in cooperation with the California Automobile Assigned Risk Plan, the social service departments of the Counties of Los Angeles and San Francisco, the Department of Motor Vehicles, and community-based organizations in order to inform eligible households of the existence of the pilot program. (c) The plan shall also include all of the following: (1) The commissioner's determination regarding whether the plan has been successful, based on the criteria specified in subdivision (d), and an explanation regarding that success or lack thereof. (2) In cooperation with the California Automobile Assigned Risk Plan, structural characteristics of the plan that may require statutory revision in order for the plan to succeed or to improve upon existing success. (3) Impediments to success of the plan that can reasonably be overcome by revision to the strategies adopted by the department and others. (4) A detailed explanation of the department's use for the program of funds assessed pursuant to Section 1872.81. (5) For the previous calendar year, a list of the total low-cost auto premium for each county in which the program was available. (6) The most recent annual report to the Legislature on the status of the low-cost automobile insurance program from the California Automobile Assigned Risk Plan. (d) The pilot program is successful if the following occur: (1) The plan generated sufficient premiums to pay for the costs of medical care and property losses covered under the policy during the year, as calculated pursuant to subdivision (c) of Section 11629.72. (2) The plan served the public purpose of offering access to automobile insurance to otherwise underserved communities in the pilot program areas. (3) The plan offered access to automobile insurance to previously uninsured motorists seeking affordable coverage in the pilot program areas. (e) Any written or oral advertisements, including, but not limited to, paid or unpaid commercial or noncommercial advertising, by the department with reference to the low-cost automobile insurance pilot program shall reference the department and shall not reference the commissioner by name or office, or include the commissioner's voice, image, or likeness. The department shall not participate with any nongovernmental entity that produces or intends to produce advertisements or educational material that include the name of the commissioner or his or her voice, image or likeness, and that are intended to make eligible households aware of the existence of low-cost automobile insurance. SEC. 19. Section 12964 of the Insurance Code is amended to read: 12964. The Fraud Division shall annually compile and report, as a part of the commissioner's annual report required by Section 12960, the following information: (a) The number of cases reported to the division pursuant to Article 6 (commencing with Section 13000). (b) The number of cases rejected wherein an investigation was not initiated by the division due to insufficient evidence to proceed and the number of cases rejected wherein an investigation was not initiated by the division due to any other reason.