BILL ANALYSIS
SENATE COMMITTEE ON BANKING, FINANCE,
AND INSURANCE
Senator Ronald Calderon, Chair
AB 328 (Calderon) Hearing Date: July 1, 2009
As Amended: May 12, 2009
Fiscal: No
Urgency: No
SUMMARY Authorizes insurance companies to send various notices,
required by the California Insurance Code, electronically by
agreement with the recipient using procedures that conform to
the Uniform Electronic Transactions Act and applicable
substantive law and authorizes insurance companies to pay claims
by electronic funds transfers.
DIGEST
Existing law: Uniform Electronic Transaction Act (UETA)
1. Preservation of Choice & Requirement for Agreement:
States that UETA applies only to a transaction between
parties each of which has agreed to conduct the transaction
by electronic means and provides that a party who agrees to
conduct a transaction by electronic means may refuse to
conduct other transactions by electronic means.
2. Key Provisions Cannot Be Varied By Agreement: UETA
provides that its provisions regarding the necessity for
agreement between the parties transacting matters
electronically and the power of either party to refuse to
continue transacting matters electronically cannot be
varied by agreement.
3. No Requirement to Conduct Transactions Electronically:
Provides that nothing requires that a record or signature
be created, generated, sent, communicated, received,
stored, or otherwise processed or used by electronic means
or in electronic form.
4. UETA Offers Framework for Agreed Electronic
Transactions: Provides that where the parties have agreed
AB
328 (Calderon) Page 2
to conduct a transaction electronically they may do so
under the rules set forth in UETA.
5. UETA is Procedural, Not Substantive, Other Law Remains
Applicable : States that transactions subject to UETA are
also subject to other applicable substantive law.
6. UETA Favors Being Construed/Applied to Facilitate
E-Commerce: States UETA should be construed and applied to,
among other things, facilitate electronic transactions
consistent with other applicable law and to be consistent
with reasonable practices concerning electronic
transactions and with the continued expansion of those
practices.
7. Showing of E-Commerce Intent via Standard Form Contract
Prohibited : Provides that agreements to conduct a
transaction electronically may not be in a standard form
contract that is not an electronic record, and an agreement
in such a standard form contract can't be conditioned upon
an agreement to conduct transactions electronically. UETA
also provides agreement to conduct a transaction
electronically cannot be inferred solely from the fact that
one party has used electronic means to pay an account or
similar matters and states a party who agrees to conduct
one party by electronic means can refuse to conduct other
transactions by electronic means. UETA states these
provisions may not be varied by agreement
8. Electronic Writings and Signatures Validated: States a
record or signature can't be denied legal effect or
enforceability because it is in electronic form and states
when a law requires a record to be in writing, an
electronic record satisfies the law and when a law requires
a signature, an electronic signature satisfies the law.
9. Establishes Send/Receipt Rules Appropriate for
E-Commerce: Specifies the means by which an electronic
record would be determined to have been sent and received.
10. UETA Rule for Substantive Laws Requiring a Writing:
States that if a law requires a person to provide
information in writing to another, that requirement is
satisfied if the information is provided in an electronic
record capable of retention by the recipient at the time of
receipt and states an electronic record is not capable of
AB
328 (Calderon) Page 3
retention by the recipient if the sender or its information
processing system inhibits the ability of the recipient to
print or store the electronic record.
11. Requirement for Storage & Printing of Sent Records:
States that if a sender inhibits the ability of a recipient
to store or print an electronic record, the electronic
record is not enforceable against the recipient.
12. Other Substantive Law Applies if Sender Knows Record not
Sent/Received: States that if a person is aware that an
electronic record purportedly sent or received in as
provided by UETA was not actually sent or received, the
legal effect of the sending or receipt is determined by
other applicable law and provides except to the extent
permitted by the other law, this rule may not be varied by
agreement.
13. UETA Special Record Handling Rules: Specifies that for
purposes of e-commerce rules, if a law other than UETA
requires special mailing or special formatting rules for
the document, then:
a. The record shall be sent, communicated, or
transmitted by the method specified in the other law,
except that a requirement for first-class mailing may
be varied by agreement to the extent permitted by the
other law.
b. The record shall contain the information
formatted in the manner specified in the other law.
14. Validity of Electronic Records/Signatures in Legal
Proceedings: Specifies that in a legal proceeding, evidence
of an electronic record or electronic signature may not be
excluded because it is an electronic record or signature or
it is not in its original form.
15. Satisfaction of Record Retention Rules and
Evidentiary/Audit Requirements: UETA specifies if a law
requires that a record be retained, the requirement is
satisfied by retaining an electronic record of the
information in the record, if the electronic record
reflects accurately the information set forth in the record
at the time it was first generated in its final form as an
electronic record or otherwise, and the electronic record
remains accessible for later reference. UETA allows a party
to satisfy record retention requirements by using the
AB
328 (Calderon) Page 4
services of another person if the basic UETA record
retention requirement is met. If the law requires a record
to be retained in its original form, or imposes
consequences if the record is not retained in its original
form, UETA states such law is satisfied by an electronic
record retained as provided above. It also states that a
record retained as an electronic record as provided above
satisfies a law requiring a person to retain a record for
evidentiary, audit, or like purposes unless a later enacted
law enacted specifically prohibits its use for a specified
purpose.
16. General UETA Exclusions: UETA Excludes from the bill
numerous classes of transactions, including, but not
limited to:
a. Wills, codicils or testamentary trusts;
b. Specified transactions in the Uniform
Commercial Code (which were drafted in consideration
of electronic records);
c. Those records where a law requires that
specifically identifiable text or disclosures in a
record or a portion of a record be separately signed
from the record (such as real estate transactions);
17. Specific UETA Insurance Code Exclusions: Specific
Notices Required by the Insurance Code and excluded from
being conducted under UETA are:
a. Section 658 - Notice of Reasons: Refusal to
Issue Good Driver Policy
b. Section 662 - Notice of Policy Cancellation to
Insured & Lienholder
c. Section 663 - Written Offers to Renew a Policy
or to Nonrenew
d. Section 664 - Proof of mailing: Cancellation,
Nonrenewal & Reasons
e. Section 666 - Written notices of reason for
cancellation
f. Section 667.5 - Notice: policy
change/cancellation requested by insured
g. Section 673 - Lender notice: exercising right
to cancel insurance policy
h. Section 677 - Notices of cancellation
i. Section 678 - renewal offers and notices of
nonrenewal
j. Section 678.1 - Commercial policy
AB
328 (Calderon) Page 5
nonrenewal/conditional renewal notice
aa. Section 786 - Disability & Life Insurance
policy notices
bb. Section 10083 - Require EQ coverage offer to
H/O insureds
cc. Section 10086 - Notice of Modified EQ Coverage
at Renewal
dd. Section 10087 - Proof of Mailing of EQ Offer
ee. Section 10102 - Calif. Residential Property
Insurance Disclosure
ff. Section 10113.7 - Notice of Life & Disability
Premium Increase
gg. Section 10127.7 - Small Value Life Insurance
Notice: Right to Cancel
hh. Section 10127.9 - High Value Life Insurance
Notice: Right to Cancel
ii. Section 10127.10 - Life Insurance Variable
Annuities Premium Notice
jj. Section 10197 - Repealed, successor provision
now 10192.18
aaa. Section 10199.44 - Health Coverage Contract
Notice Proof of Mailing
bbb. Section 10199.46 - Notice of Nonprofit
Hospital Service Plan cancellation
ccc. Section 10235.16 - Notice: Replacement: Long
Term Care & Accident/Sickness Ins.
ddd. Section 10235.40 - Long Term Care policy lapse
nonpayment notice
eee. Section 10509.4 - Notice of Replacement Life
Insurance
fff. Section 10509.7 - Life & Annuity Policy
Replacement Notice
ggg. Section 11624.09 - CAARP Plan Notice of defect
in Eligibility Certificate
hhh. Section 11624.1 - CAARP Notice of Application
Defect
Existing Law: Insurance Code
1. Requires the Insurance Commissioner to perform all
duties imposed on him or her by the Insurance Code and
other laws regulating the business of insurance in this
state and requires him or her to enforce the execution of
those provisions and laws.
2. Authorizes the commissioner to accept documents
AB
328 (Calderon) Page 6
submitted for filing or approval, process transactions, and
maintain records in electronic form or as paper documents,
and to adopt regulations to further this subdivision.
3. Requires that every insurer and its officers, directors,
employees, and agents, shall provide to the Commissioner's
examiners timely, convenient, and free access at all
reasonable hours at its offices to all books, records,
accounts, papers, documents, and any or all computer or
other recordings relating to the property, assets,
business, and affairs of the company being examined
4. Summary of Notices this bill will allow to be given
Electronically By Agreement
a. Notice of Reasons for Good Driver Declination:
Insurance Code Section 658 requires any admitted motor
vehicle insurer who refuses to accept an applicant for a
good driver discount policy, as defined, when written
application has been made and the applicant meets the
criteria for purchase of such policy, to furnish the
applicant for insurance a written statement within 10
days of the refusal explaining the reason or reasons
relied upon for denying insurance coverage.
b. Requested Notice of Reasons for Auto Policy
Cancellation: Insurance Code Section 666 requires an
insurer, where the notice of cancellation does not state
the reasons, and upon written request of the named
insured, specify in writing the reason for such
cancellation, which shall be mailed or delivered to the
named insured within five days after receipt of such
request.
c. Mandatory Earthquake (EQ) Offer: Insurance Code
Section 10083 requires an offer of the availability
earthquake coverage to be made, formatted in a specific
way, prior to, concurrent with or within 60 days of the
issuance or delivery of a policy of residential property
insurance. Delivery of this offer by mail is authorized
but not required, but if mailed a specific address is
required to be used.
EQ Offer - Conclusive Presumption of Delivery: This law
authorizes the insurer, agent or broker to establish
delivery of the offer disclosure by obtaining the
AB
328 (Calderon) Page 7
signature of the applicant or insured. This law provides
that if the disclosure form is provided to the insured
and they do not return a signed acknowledgement within 60
days, there shall be a conclusive presumption that the
insurer has complied with the disclosure requirement.
EQ Offer - Option of Delivery by Mail: Delivery of this
offer by mail is authorized but not required, but if
mailed a specific address is required to be used.
d. Proof of First Class Mailing of EQ Offer for
Purposes of Conclusive Presumption: Insurance Code
Section 10087 related to the mandatory EQ offer law
allows reliance upon proof of mailing of the offer to
create a conclusive presumption that the offer was made
as required if, within 60 days following the delivery of
the offer to a residential property insured at the
address shown on the policy, the insurer or their agent
or broker have not received a signed acknowledgement of
the offer disclosure.
e. California Residential Property Insurance Disclosure
(CRPID): California law provides no policy of residential
property insurance may be first issued unless the named
insured receives a copy of the California Residential
Property Insurance Disclosure Statement as specified.
CRPID Requires Specific Formatting: Specific language
formatted in a specific way is required by Insurance Code
Section 10102. The disclosure is required to be provided
prior to or concurrent with an application for insurance
or within 3 business days of a telephonic application.
CRPID - Conclusive Presumption of Delivery & Proof of
Receipt: The insurer or agent shall obtain the
applicant's signature acknowledging receipt within 60
days of the date of application. If delivery is
established by obtaining a signature or proof of mailing
is offered that the form was provided and the applicant
did not return a signed acknowledgement of receipt within
60 days of the date it was provided, there is a
conclusive presumption that the disclosure requirement
has been complied with.
CRPID - Delivery by Mail is Optional: This also permits,
but does not require, mailing of the disclosure form to
AB
328 (Calderon) Page 8
the mailing address shown on the policy or to an address
requested by the applicant and first class mail is deemed
adequate for proof of mailing. The insurer or agent has
the burden of demonstrating in accordance with the
California Rules of Evidence that the disclosure was
provided, or was mailed, to the applicant or insured.
5. Various provisions of law impose a duty on an insurer to
make payments via check or draft; these can be to various
individuals, including insureds and service providers for
covered repairs, including payments for covered repairs
made to an auto or to various classes of real property.
6. When an insurer uses the services of an administrator on
contract to adjust and settle claims in connection with
life or health insurance coverage, current law requires
such administrator to pay funds only as authorized by the
insurer and only by checks or drafts.
This bill
1. Authorizes 5 specific insurance notices in common use in
California which are now specifically excluded from being
provided electronically under the Uniform Electronic
Transactions Act (UETA) to be provided electronically with
the prior agreement of the recipient and otherwise as
required by UETA:
a. Notice of Reasons for Refusal to Issue Good Driver
Policy (Sec. 658)
b. Notice of Reasons for Auto Policy Cancellation (Sec.
666)
c. Mandatory EQ coverage offer to H/O insureds (Sec.
10083)
d. Proof of Mailing of EQ Offer (Sec. 10087)
e. Mandatory California Residential Property Insurance
Disclosure (Sec. 10102)
2. Amends the Insurance Code to expressly authorize, if each
party has so agreed, any written notice that must be given
or mailed to any person by specified insurers to be provided
by electronic transmission pursuant to the Uniform
Electronic Transactions Act (UETA). Insurers subject to the
provisions of this bill are those casualty insurers subject
to Proposition 103 rate-making and prior approval oversight.
AB
328 (Calderon) Page 9
3. States that the affidavit of the person who initiated the
electronic transmission, stating the facts of that
transmission, is prima facie evidence that the notice was
transmitted and shall be sufficient proof of notice. Any
notice provided by electronic transmission shall be treated
as if mailed or given for the purposes of any provision of
the Insurance Code.
4. Revises various provisions governing the duty of payment by
or on the behalf of insurers to authorize, to authorize
payment by electronic funds transfer, with the consent of
the insured, repair vendor or other recipient, in addition
to payment by check or draft and specifies that an insurer
may not require an insured to consent to payment by an
electronic funds transfer.
5. Prohibits the Notice of Reasons for Refusal to Issue Good
Driver Policy to be transmitted electronically unless the
application for the good driver discount was transmitted
electronically to the insurer.
6. Prohibits the Notice of Reasons for Auto Policy
Cancellation to be transmitted electronically unless the
insured electronically delivered the request for a statement
of the reasons for the cancellation to the insurer.
COMMENTS
1. Purpose of the bill The Author states this bill is to allow
consumers to agree to receive additional insurance documents
by electronic transmission . The bill will also allow
insurance companies, with the consent of the policyholder or
other recipients, to make payments by electronic funds
transfer.
2. The author states this bill will allow for more insurance
transactions to be conducted electronically while still
providing important consumer protections. AB 328 maintains
the two important consumer protections found in the existing
UETA law -- a consumer must agree to have the transaction
conducted electronically and can not be compelled by the
business to conduct the business electronically.
AB
328 (Calderon) Page 10
3. Finally, the author notes California's Uniform Electronic
Transactions Act (UETA) was passed in 1999 to establish
uniform standards for conducting business, including the
formation of legally enforceable contracts, electronically
in California. Today, 47 states, the District of Columbia
and the U.S. Virgin Islands have all adopted similar laws to
facilitate "E-commerce." Since 1999, consumers have grown
more and more comfortable conducting business on the
Internet and through e-mail and this bill will make UETA
requirements the basis upon which California insurance
companies can conduct electronic commerce in compliance with
California law.
4. Background on California's UETA The enactment of
California's 1999 UETA law was sponsored by the California
Commission on Uniform State Laws. It's intended scope was
all transactions in which records or signatures are
transmitted electronically, but exclusions from its coverage
included transactions involving the laws of wills, codicils
or testamentary trusts and other specified transactions.
Most of the provisions in California's UETA law were drawn
from the model Uniform Electronic Transactions Act prepared
by a Drafting Committee of the National Conference of
Commissioners on Uniform State Laws (NCCUSL). In 1999,
California was the first state in which parts of the UETA
model had been introduced for adoption.
According to information on the NCCUSL's UETA website:
"The need to expand requirements in the law for
writings and manual signatures so that electronic
records and electronic signatures will satisfy those
requirements is the one thing that is reasonably
certain with respect to electronic transactions.
UETA does not attempt to create a whole new system of
legal rules for the electronic marketplace. The
objective of UETA is to make sure that transactions in
the electronic marketplace are as enforceable as
transactions memorialized on paper and with manual
signatures, but without changing any of the
substantive rules of law that apply. This is a very
limited objective--that an electronic record of a
AB
328 (Calderon) Page 11
transaction is the equivalent of a paper record, and
that an electronic signature will be given the same
legal effect, whatever that might be, as a manual
signature. The basic rules in UETA serve this single
purpose.
The basic rules are in Section 7 of UETA. The most
fundamental rule in Section 7 provides that a "record
or signature may not be denied legal effect or
enforceability solely because it is in electronic
form." The second most fundamental rule says that "a
contract may not be denied legal effect or
enforceability solely because an electronic record was
used in its formation." The third most fundamental
rule states that any law that requires a writing will
be satisfied by an electronic record. And the fourth
basic rule provides that any signature requirement in
the law will be met if there is an electronic
signature.
Almost all of the other rules in UETA serve the
fundamental principles set out in Section 7, and tend
to answer basic legal questions about the use of
electronic records and signatures. Thus, Section 15
determines when information is legally sent or
delivered in electronic form. It establishes when
electronic delivery occurs--when an electronic record
capable of retention by the recipient is legally sent
and received. The traditional and statutory rules that
govern mail delivery of the paper memorializing a
transaction can't be applied to electronic
transactions. Electronic rules have to be devised, and
UETA provides the rule."
The NCCUSL UETA website also states:
"UETA is procedural, not substantive. It does not
require anybody to use electronic transactions or to
rely upon electronic records and signatures. It does
not prohibit paper records and manual signatures.
Basic rules of law, like the general and statutory law
of contracts, continue to apply as they have always
AB
328 (Calderon) Page 12
applied."
5. California's UETA law establishes a comprehensive system of
rules and procedures for the sending and receiving of
electronic records and signatures, the formation of
contracts using electronic records, the making and retention
of electronic records and signatures, and the procedures
governing changes and errors in electronically transmitted
records. It also establishes the validity of transactions
formed, transmitted and recorded electronically, and
provides for the admissibility of electronic records in a
legal proceeding. California's UETA reflects the
characteristic orientation of the NCCUSL UETA described
above in that it is strongly procedural, providing a
framework within which electronic commerce can be conducted,
without displacing the application of the "substantive law"
(See, for example, Civil Code Sections 1633.2(a) and
1633.3(e) and Insurance Code Section 12921.
6. Pursuant to UETA, electronic records satisfy requirements
for written materials so that the enforceability of a record
or signature cannot be denied simply because it is
electronic form. Transactions conducted in whole or in part
electronically must nonetheless still satisfy any other
formal requirements of the applicable substantive law, such
as notices, disclosures or completeness of terms. It must be
recalled that UETA is intended to be a procedural statute,
facilitating e-commerce by mutual agreement, but not
displacing otherwise applicable substantive law and/or
oversight. For example, if the parties' e-mails show
agreement on the sale of widgets, these electronic records
would still need a quantity term to create a valid contract.
Electronic records and signatures simply satisfy
requirements under existing law, such as those governing
insurance transactions that require certain documents to be
in writing or signed and retained as a record.
7. Voluntary Nature of UETA Transactions As crafted by the
NCCUSL, to provide rules by which electronic commerce could
be conducted across the country, protecting the voluntary
ability of persons to opt in or opt out of such transactions
was a basic building block and California's law reflects
this. Under California's UETA:
a. The use of electronic records and signatures
AB
328 (Calderon) Page 13
may not be required.
b. UETA only applies to a transaction between
parties each of whom has agreed in an electronic
record to conduct the transaction electronically.
c. Pursuant to UETA, a party who has agreed to
conduct one transaction electronically can refuse to
conduct other transactions electronically.
8. Support The Association of California Insurance Companies
(ACIC), which is the sponsor, states "AB 328 will allow for
more transactions to be conducted electronically while still
providing important consumer protections. This bill
maintains the Civil Code protections that require a consumer
to agree to receive materials electronically and also
prevents an insurer from requiring that materials be
provided electronically. The ACIC notes the UETA framework
for electronic transactions has now been adopted in more
than 40 states to "facilitate E-commerce". ACIC states AB
328 "will allow transactions such as the homeowner
disclosure document to be provided electronically. Typically
such transactions are required to be sent by mail even
though the consumer can receive their policy through e-mail.
This bill will allow the policyholder to have these notices
handled by e-mail or other electronic format. If the
policyholder wishes to continue receiving such notices by
mail, he or she could continue to do so"
a. Opposition None
9. Questions
a. Should the term "exempted" on page 3, line 38
be deleted and replaced by "excepted" to correctly
reflect the language of Section 1851 to which it
refers.
b. Should the authorization which will permit any
notice related to the specified lines of insurance to
be sent electronically upon agreement of the parties
when done in accordance with California's UETA law
specifically exclude those notices that UETA excludes
so there is no implication this bill overrides UETA's
exclusions by implication?
c. Should the proposed affidavit of transmission
AB
328 (Calderon) Page 14
which is provided for on page 4, lines 4 through 7 be
amended to focus on the feature that is central to
sending under UETA, the fact that the electronic
record has passed into a realm of electronic commerce
that is beyond the control of the sender and any party
transacting business for the sender?
d. UETA sets up specific rules which guide a
determination of when an electronic record is sent or
received but specifies that if a person is aware that
an electronic record purportedly sent, or purportedly
received under UETA was not actually sent or received,
the legal effect of the sending or receipt is
determined by other applicable law and further
provides that except to the extent permitted by the
other law, this rule may not be varied by agreement.
Should the provision on page 4, lines 7 through 9
which states that "Any notice provided by electronic
transmission shall be treated as if mailed or given
for the purposes of any provision of the Insurance
Code" be amended so that it does not override UETA
Section 1633,15(g) and remains consistent with the
UETA principle that makes a determination of sending
or receiving subject to other applicable law if it is
known the electronic record was not sent or received?
e. To support regulatory oversight, should
language be added requiring an insurance company to 1)
maintain a system for confirming that notices are sent
in compliance with UETA and 2) requiring that copies
of confirmations and electronic signatures are
retained and retrievable by the insurer on request of
the Department of Insurance while the policy is in
force and for 5 years thereafter?
f. To protect the right conferred on parties by
UETA that they can opt in and opt out of receiving
electronic records and transacting business
electronically, shall a provision be added to require
insurers to maintain a system allowing their
transaction partners to opt in and opt out agreemenst
to transact business electronically and to require
that electronic records are to be maintained for the
same amount of time as written records.
AB
328 (Calderon) Page 15
10. Suggested Amendments
1. On page 3, line 38, strike "exempted" and insert:
excepted
2. On Page 3, line 39, after "may" insert:
if not excluded by subdivisions (b) or (c) of
Section 1633.3,
3. On page 4, line 5, after the second occurrence of the
word "transmission" insert:
into an information processing system outside the
control of the sender or of any person that sent
the electronic record on behalf of the sender
4. On page 4, line 9, after "Code", insert:
except as provided by Section 1633.15(g) of the
Civil Code. The insurance company shall maintain
a system for confirming that any notice or
document that is to be provided has been sent in
a manner consistent with Section 1633.15 of the
Civil Code. A valid electronic signature shall
be sufficient for any provision of law requiring
a written signature. The insurance company shall
retain a copy of the confirmation and electronic
signature, when either is required, with the
policy information so that they are retrievable
upon request by the Department of Insurance while
the policy is in force and for five years
thereafter.
5. Add a provision as follows:
Insurers shall maintain a system for
electronically confirming a policyholder's
decision to opt in to an agreement to conduct
transactions electronically and a system that
will allow the policyholder to electronically opt
out of the agreement to conduct business
electronically as specified in subdivision (c) of
Section 1633.5. The insurer shall maintain the
electronic records for the same amount of time
AB
328 (Calderon) Page 16
the insurer would be required to maintain those
records if the records were in written form.
1. Prior Legislation SB 820 (Sher), enacting California's
Uniform Electronic Transactions Act as Chapter 428, Statutes
of 1999.
On June 30, 2000, the President of the United States signed
the "Electronic Signatures in Global and National Commerce
Act" (ESIGN Act, Pub.L. 106-229, 14 Stat. 464, enacted June
30, 2000, 15 U.S.C. ch.96) establishing the validity of
electronic signatures for interstate and international
commerce.
POSITIONS
Support
Association of California Insurance Companies (ACIC)
Oppose
None
Principal Consultant: Kenneth Cooley (916) 651-4102