BILL ANALYSIS
AB 989
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Date of Hearing: January 6, 2010
ASSEMBLY COMMITTEE ON INSURANCE
Jose Soloriose Solorio, Chair
AB 989 (Block) - As Introduced: February 27, 2009
SUBJECT : Senior insurance: actions against insurers.
SUMMARY : Authorizes any person who is harmed as a result of a
violation of the senior insurance laws (see "Existing Law"
below) to bring a civil action for compensatory damages and any
other remedies otherwise provided by law.
EXISTING LAW :
1)Establishes a series of legal protections in connection with
the sale of insurance to persons who are 65 years of age or
older. This area of law, known as senior insurance, does the
following:
a) Specifies that all insurers, brokers, agents, and others
engaged in the transaction of insurance owe a prospective
insured who is 65 years of age or older, a duty of honesty,
good faith, and fair dealing.
b) Provides that the conduct of an insurer, broker, agent,
or other person engaged in the insurance transaction,
during the offer and sale of a policy previous to the
purchase is relevant to any action alleging a breach of the
duty of good faith and fair dealing.
c) Requires disability and life insurance policies offered
to seniors to allow an examination period of 30 days.
d) Requires brokers and agents offering disability
insurance to seniors to provide a full and accurate written
comparison with existing health coverage, and explain the
relationship of the proposed coverage to an existing
Medicare or Medi-Cal benefit.
e) Prohibits advertisements to seniors from using words,
letters, or symbols that are used by governmental agencies
and that could mislead the public. Also, other specified
deceptive devices are prohibited from being used in
advertising to seniors.
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f) Prohibits insurers, brokers, and agents from causing a
senior to replace disability insurance unnecessarily, or
from recommending the sale of disability insurance
providing coverage of more than 100% of actual medical
expenses.
g) Requires, in connection with the sale of life insurance
or annuities, disclosures that the sale or liquidation of
stock, bonds, an IRA, annuity, or other asset to fund the
new product may have tax consequences and early withdrawal
penalties.
h) Prohibits the sale of annuities to seniors who meet
specified income or Medi-Cal criteria.
i) Requires that anyone who meets with a senior in the
senior's home in connection with the sale of life
insurance, including annuities, must deliver a written
notice at least 24 hours prior to the meeting.
2)Assigns the Insurance Commissioner with the administrative
authority to assess penalties against insurers, brokers,
agents, and other persons engaged in the transaction of
insurance who violate the laws regarding senior insurance.
Upon a showing of a violation of the senior insurance laws in
a civil action, a court may also assess the penalties
established in law.
3)Specifies that actions for injunctive relief, administrative
penalties (ranging from $1,000 to $300,000 and rescission of a
contract), damages, restitution, and other remedies in law,
may be brought in the superior court by the Attorney General,
district attorney, or city attorney on behalf of the people of
California. The court shall award reasonable attorney's fees
and court costs to the prevailing plaintiff who establishes a
violation of the laws regarding senior insurance.
FISCAL EFFECT : Undetermined.
COMMENTS :
1)Purpose. The purpose of this bill is to create a private
right of action for seniors harmed by violations of the laws
regarding senior insurance, to allow them to recover damages.
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2)Background. The author provides the following information as
background for the bill:
The Insurance Code provides California elders with important
protections against deceptive insurance sales practices. For
example, it requires that agents give elders 24 hour written
notice before coming into their homes to make sales
presentations, and imposes a duty of good faith and fair
dealing on insurance agents when dealing with seniors.
Under current law, violations of the senior insurance laws may
result in disciplinary proceedings against the agent by the
Insurance Commissioner and/or injunctive relief and damages
sought in a civil action by the Attorney General, a district
attorney, or a city attorney. However, under current law, an
elder who is harmed by a violation of these laws may not
himself or herself seek to recover for the harm caused. While
disciplinary proceedings brought against violators are an
important administrative tool to maintain licensee standards,
they do nothing to help elders recover from their losses. The
Attorney General, district attorneys, and city attorneys have
never brought a civil action for damages on behalf of an
affected elder. This bill corrects this problem by allowing
individual elders who have been harmed by violations of the
senior insurance laws to recover on their own behalf.
3)Arguments in support. The California Advocates for Nursing
Home Reform (CANHR) states that California has over 200,000
individuals licensed to sell annuities to seniors. According
to CANHR, California's 3.8 million seniors cannot expect the
state to protect them when malfeasance has occurred and
insurance agents violate the senior insurance laws. CANHR
notes that the Department of Insurance, which recently cut
back staff, has fewer than three full-time attorneys working
on senior annuity issues.
CANHR states that law enforcement is generally not interested
in having to spend scarce resources on elder financial abuse
cases. According to this organization, financial elder abuse
is not a priority, and only a few district attorney offices
have attempted any prosecutions. CANHR concludes that since
public authorities cannot adequately protect senior rights,
seniors need a private right of action so that they may enlist
the support of attorneys who can help to seek restitution.
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The Consumer Attorneys of California (CAOC) states that
government agencies often lack the resources to seek and
obtain administrative penalties against violators and they
cannot vindicate the legal rights of elders who have been
harmed by these tactics. CAOC also states that providing
individual seniors with the right to enforce these provisions
would require no public funding and would promote the
Legislature's objectives in enacting protective measures for
the senior community in California.
4)Arguments in opposition. The Association of Life and Health
Insurance Companies (ACLHIC) and the American Council of Life
Insurers (ACLI) state that the bill would do nothing to
enhance the many protections in place for senior consumers,
and would more likely create a class action vehicle that would
dramatically increase insurers' expenses and drive up the cost
of life insurance and annuities to California consumers.
ACLHIC and ACLI state that depending on the size of the class
and claims involved, merely filing a class action or
certifying a class may be sufficient to induce a settlement
that has nothing to do with the ultimate merits of the case.
The costs of the settlements must be passed on to insureds in
the form of higher insurance premiums and annuity
considerations.
According to ACLHIC and ACLI, the bill would also
significantly increase burdens on California's court system
because the bill would require the courts to assert
jurisdiction over a new and potentially large class of cases.
Also, since these cases would be attractive to class-actions,
they are more likely to prove complex and time-consuming, with
the added potential for having to coordinate between "private"
prosecutors and public prosecutors. Additionally, the bill
would encourage private plaintiffs to consider only their
personal costs and benefits, and not the cost to the public
generally. Additionally, ACLHIC and ACLI state that the
Commissioner's regulatory authority would be usurped by
generating inconsistent regulation through isolated and
inconsistent jury verdicts and judicial opinions.
The Civil Justice Association of California (CJAC) states that
insurance regulations should be enforced by the Department of
Insurance, not by individual attorneys through lawsuits. CJAC
states that the area of senior insurance is heavily regulated
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in California including a series of duties owed to seniors,
requirements for credentials on persons selling insurance to
seniors, and limitations on how to reach new clients, among
other requirements. These regulations are enforceable by the
IC who may levy fines, revoke licenses, negotiate compromises,
and issue advice regarding a company's course of action. One
of the reasons California has regulatory bodies like the
Department of Insurance is so that the regulator may issue
prescriptive rules that will prevent fraud and wrongdoing -
not merely to punish the wrongdoer and compensate the victim
after it has occurred. CJAC states this bill could allow a
lawsuit by a person who is not even a policyholder against an
insurance company. In the case of senior insurance, it could
permit a lawsuit by an heir against an insurance company, even
if it is technical violation to justify the lawsuit.
The National Association of Insurance and Financial Advisors
of California (NAIFA-California) states that this bill would
not protect seniors but result in an onslaught of lawsuits
against insurance companies and agents. This group states
that insurance agents, who are small business men and women,
would have to spend significant resources to defend
themselves. Furthermore, the bill would usurp the IC's
regulatory authority and undermine his ability to regulate
consistently and effectively.
REGISTERED SUPPORT / OPPOSITION :
Support
California Advocates for Nursing Home Reform (CANHR)
Consumer Attorneys of California (CAOC)
Professional Fiduciary Association of California (PFAC)
Opposition
Allstate Insurance Company
American Insurance Association (AIA)
American Council of Life Insurers (ACLI)
Association of California Life & Health Insurance Companies
(ACLHIC)
California Insurance Wholesalers Association (CIWA)
Civil Justice Association of California (CJAC)
Insurance Brokers & Agents of the West (IBA West)
Metropolitan Life Insurance Company (MetLife)
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National Association of Insurance and Financial Advisors of
California (NAIFA-CA)
Personal Insurance Federation of California (PIFC)
State Farm Mutual Automobile Insurance Company
The Surplus Line Association of California
Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086