BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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          |SENATE RULES COMMITTEE            |                  AB 1200|
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                                 THIRD READING


          Bill No:  AB 1200
          Author:   Hayashi (D)
          Amended:  8/18/09 in Senate
          Vote:     21

           
           SENATE BANKING, FINANCE, AND INS. COMMITTEE  :  8-1, 7/9/09
          AYES:  Calderon, Cogdill, Correa, Cox, Kehoe, Lowenthal,  
            Padilla, Runner
          NOES:  Liu
          NO VOTE RECORDED:  Florez, Harman, Price
           
          ASSEMBLY FLOOR  :  78-0, 6/1/09 - See last page for vote


           SUBJECT  :    Motor vehicle insurance:  direct repair  
          programs

           SOURCE  :     Personal Insurance Federation of California


           DIGEST  :    This bill revises and recasts Californias auto  
          repair anti-steering law duties, obligations and allowed  
          conduct for insurance companies, relative to consumers and  
          other parties in the claims settlement process.  

           Senate Floor Amendments  of 8/18/09 delete "intent"  
          provisions, and strike the phrase "pursuant to the policy"  
          from the phrase "the services and benefits available to the  
          claimant during the claims process pursuant to the policy."

           ANALYSIS  :    Existing statutory law, Section 758.5 of the  
          Insurance Code:
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          1. Prohibits an insurer from requiring that an automobile  
             be repaired at a specific automotive repair dealer. 
            
          2. Prohibits an insurer from suggesting or recommending  
             that an automobile be repaired at a specific automotive  
             repair dealer unless (a) the claimant requested the  
             referral, or (b) the claimant is informed, in writing,  
             of their right to select the automotive repair dealer.

          3. Requires that if a claimant accepts an insurer  
             recommendation, the insurer shall cause the damaged  
             vehicle to be restored to its condition prior to the  
             loss at no additional cost to the claimant other than as  
             stated in the policy or as allowed by law.  If an  
             automotive repair dealer recommendation is done orally  
             and accepted, the insurer shall provide a notice of  
             specified content to the claimant at the time the  
             recommendation is made.  The required written notice  
             required shall be sent or provided within five calendar  
             days from the oral recommendation.
           
          4. The written notice, in no less than 10-point type,  
             informs the claimant that the insurer is prohibited from  
             requiring that repairs be done at a specific automotive  
             repair dealer and that the claimant is able to select  
             the auto body repair shop which will repair the damage  
             covered by their insurance policy.  The disclosure  
             states that the insurer has recommended an automotive  
             repair dealer to repair the claimant's vehicle and if  
             the claimant agrees to its use, the insurer will cause  
             the damaged vehicle to be restored to its condition  
             prior to the loss at no added cost to the claimant  
             except as stated in the policy or allowed by law.

          5. Prohibits an insurer, after the claimant has chosen an  
             automotive repair dealer, from suggesting or  
             recommending that the claimant select a different  
             automotive repair, unless a referral has been expressly  
             requested by the claimant.  

          6. Requires any insurer that in its insurance contract  
             suggests or recommends that an automobile be repaired at  
             a particular automotive repair dealer must:







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             A.    Require the insurer to disclose the contract  
                provision prominently in writing at the time the  
                insurance is applied for and at the time a claim is  
                acknowledged by the insurer.
              
             B.    Prohibit such insurer, if a claimant elects to  
                have the vehicle repaired at the shop of his/her  
                choice, from limiting or discounting the reasonable  
                repair costs based on charges that would have been  
                incurred had the vehicle been repaired by the  
                insurer's chosen shop.

          7. Authorizes the Commissioner to enforce this section  
             using his or her powers, including those powers granted  
             to the Insurance Commissioner in the Unfair Practices  
             Act.

          Existing regulatory law regarding Department of Insurance  
          (CDI) regulations pending to implement Section 758.5 of the  
          Insurance Code:

             Pursuant to the authority provided in #7 above, the  
             Insurance Commissioner has proposed a pending regulation  
             entitled "Insurer Recommendations of Automotive Repair  
             Dealers."  The proposed regulation will implement  
             Section 758.5 of the Insurance Code (as added by SB 551  
             (Speier), Chapter 791, Statutes of 2003) and states its  
             purposes are to "benefit consumers by giving them a  
             better understanding of their rights and implement  
             Section 758.5 according to the intent of its authors."

          This bill:

          1. Adds to the Insurance Code's anti-steering in auto body  
             repair law a new subdivision to the effect that "An  
             insurer may provide the claimant with specific truthful  
             and nondeceptive information regarding the services and  
             benefits available to the claimant during the claims  
             process pursuant to the policy. This may include, but is  
             not limited to, information about the repair warranties  
             offered, the type of replacement parts to be used, the  
             anticipated time to repair the damaged vehicle, and the  
             quality of the workmanship available to the claimant."







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          2. Requires the written notice required if an automotive  
             repair dealer recommendation is done orally and accepted  
             to be in a separate and freestanding document.

          3. In addition, the requirement of an insurer to not  
             provide a suggestion or recommendation of an automotive  
             repair dealer except upon request or without informing a  
             claimant of their right to select a the automotive  
             repair dealer is made subject to the new authorization  
             for insurers, described in paragraph 2 above, to provide  
             "information regarding the services and benefits  
             available to the claimant during the claims process."

          4. Recasts the prohibition on an insurer, after the  
             claimant has chosen an automotive repair dealer, from  
             suggesting or recommending that the claimant select a  
             different automotive repair unless a referral has been  
             expressly requested by the claimant so that such  
             suggestions or recommendations would be permitted as  
             part of providing the information regarding the services  
             and benefits available to the claimant described in  
             paragraph 2 above.
           
          5. States that the changes made by the act enacted during  
             the 2009-10 Regular Session that amended this section  
             shall only apply to actions filed on or after January 1,  
             2010.

           Background on CDI's current regulatory process  .  While this  
          bill states that the changes it makes "shall only apply to  
          actions filed on or after January 1, 2010", the clearest  
          immediate context where the changes proposed by this bill  
          will have significant impact is with respect to a set of  
          pending regulations which CDI states are necessary to  
          implement, interpret, and make specific the section of law  
          which this bill proposes to amend.

           CDI's proposed regulation  .  As currently proposed, the  
          regulation, entitled "Insurer Recommendations of Automotive  
          Repair Dealers" reads as follows:

                                  Proposed Text 
             Regulation Implementing and Interpreting Insurance Code  







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                                      758.5
               California Code of Regulations, Title 10, Chapter 5,  
                    Subchapter 9, Article 7.5, Section 2698.93

            ARTICLE 7.5. - Insurer Recommendations of Automotive  
            Repair Dealers
            Section 2698.93 (a) This article applies to any claim in  
            which an insurer may be required to provide benefits for  
            repair of a motor vehicle pursuant to a policy of  
            insurance as defined by section 660 of the Insurance  
            Code.  For purposes of this article "claimant" means a  
            first-party claimant or insured, or a third-party  
            claimant who asserts a right of recovery for automotive  
            repairs under an insurance policy
            (b) Except when a referral is expressly requested by the  
            claimant, after a claimant has chosen an automotive  
            repair dealer, the insurer shall not suggest or recommend  
            that the claimant select a different automotive repair  
            dealer. 
            (c) For purposes of subdivision (b), a claimant has  
            chosen an automotive repair dealer when the claimant has  
            specified to the insurer a specific automotive repair  
            dealer registered with the Bureau of Automotive Repair  
            pursuant to sections 9884 and 9889.52 of the Business and  
            Professions Code which he or she wishes to repair the  
            vehicle. 
            (d) For purposes of subdivision (b), an insurer suggests  
            or recommends that the claimant select a different  
            automotive repair dealer when the insurer, whether orally  
            or in writing, communicates information to the claimant  
            which is relevant only to the choice of the automotive  
            repair dealer.  Suggesting or recommending includes, but  
            is not limited to, the following:

               (1) Communication regarding the insurer's direct  
               repair program or its list of approved automotive  
               repair dealers. 
               (2) Communication regarding the quality of the chosen  
               automotive repair dealer. 
               (3) Communication regarding the quality of an  
               automotive repair dealer other than the chosen dealer.  

               (4) Communication which identifies an automotive  
               repair dealer other than the automotive repair dealer  







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               chosen by the claimant, unless expressly requested by  
               the claimant.

            (e) Nothing in this article restricts the ability of an  
            insurer to explain contractual provisions of the  
            insurance policy to the claimant, including the insurer's  
            obligation to pay only costs that are reasonably  
            necessary to restore the damaged vehicle to its  
            pre-accident condition. 
            NOTE:  Authority cited:  Section 758.5, Insurance Code.   
            Reference: Section 758.5, Insurance Code.
            
          CDI states regulation's goal is reducing steering disputes  .  
           According to the CDI website, the need for the regulation  
          has arisen because insurance companies and automotive  
          repair dealers clash over what information insurers can  
          tell claimants, and when the information can be told.  The  
          CDI states the purpose of the regulation is to clarify the  
          type of information which can be disclosed by an insurance  
          company to a claimant, and when the information may be  
          disclosed.  By clarifying when an insurance company may  
          provide a claimant a referral, and by clarifying what  
          communication constitutes a referral, the CDI intends that  
          this regulation will reduce the conflict between insurance  
          companies and automotive repair dealers in interpreting  
          Section 758.5. 

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  No    
          Local:  No

           SUPPORT  :   (Verified  8/19/09)

          Personal Insurance Federation of California (source)
          Allstate
          American Insurance Association
          Association of California Insurance Companies
          Farmers
          Liberty Mutual Group
          National Association of Mutual Insurance Companies
          Pacific Association of Domestic Insurance Companies
          Progressive
          State Farm Insurance Companies
          21st Century








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           OPPOSITION  :    (Verified  8/19/09)

          Bakersfield Auto Body
          Bertolli's Auto Body Shop, Inc
          California Autobody Association
          California New Car Dealers Association
          Collision Repair Association of California
          Consumer Attorneys of California
          Consumer Watchdog
          Faith Quality Auto Body, Inc.
          Fender Menders, Inc.
          Penske Automotive Collision Center
          Precision Auto Body

           ARGUMENTS IN SUPPORT  :    According to the Personal  
          Insurance Federation of California (PIFC) which supports  
          this bill and is its sponsor, existing law prohibits auto  
          insurers from forcing a driver to a particular auto repair  
          facility, but fails to ensure that drivers get a complete  
          picture of their auto repair options.  This bill guarantees  
          that drivers can make an informed choice when selecting an  
          auto repair facility.

          The PIFC states Section 758.5 of the Insurance Code  
          prohibits auto insurers from requiring a claimant to use a  
          specific auto repair facility.  According to the PIFC,  
          Senator Speier declared that her bill would "eliminate the  
          insurance industry practice of 'steering' auto body repair  
          work, which occurs when an insurer prevents a consumer from  
          having auto body repairs done at a repair shop preferred by  
          the consumer."  Auto insurers do not object to this law.   
          However, PIFC believes some body shop owners want to use  
          the current law to keep customers in the dark about their  
          auto repair options so as to deprive them of an informed  
          choice about alternatives, including an auto insurer's  
          "direct repair program (DRP)."  A DRP is a network of  
          vetted body shops that operate under contracts covering  
          warranties, guaranteed prices, experience and service.

          PIFC believes this bill will ensure that every consumer can  
          make an informed choice of auto repair facilities by  
          providing an appropriate balance of the need for claimants  
          to understand the benefits of an auto insurance policy,  
          including the benefits that DRPs may provide, and the  







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          consumers freedom to choose an auto repair shop without  
          auto insurer coercion.

           ARGUMENTS IN OPPOSITION  :    The California Autobody  
          Association (CAA) states it is very concerned that this  
          bill, as proposed, instead allows insurers to legally  
          "steer" the insured or claimant to an insurer preferred  
          repair shop even after an informed consumer has clearly  
          made a choice as to where the vehicle should be repaired.   
          The CAA believes that consumers should have meaningful  
          choice; that insurers should not disparage the consumer's  
          choice of repair shop and that consumers be fully informed  
          of all benefits provided by their auto body repair shop.

          The California New Car Dealers Association (CNCDA) is  
          opposed to this bill which it says "will neuter an  
          important consumer protection statute" and open the door  
          for insurers to "steer" consumers to repair shops that have  
          contractually agreed to save insurers money by following  
          insurer limitations on the manner in which vehicles are  
          repaired.  The CNCDA also states that this bill, while  
          apparently innocuous on its face, "is in reality a Trojan  
          horse that would allow insurers to engage in communications  
          that the Legislature sought to prohibit with the enactment  
          of Insurance Code Section 758.5.  
          Although insurers claim to have the consumers' best  
          interests in mind, it is the bill's adding the 'ability of  
          an insurer to explain benefits' despite a consumer's having  
          already announced a preference for a particular body shop  
          that would give insurers the license sell their own program  
          and to disparage or 'damn with faint praise' the choice of  
          body shop made by the consumer."


           ASSEMBLY FLOOR  : 
          AYES:  Adams, Ammiano, Anderson, Arambula, Beall, Bill  
            Berryhill, Tom Berryhill, Blakeslee, Blumenfield,  
            Brownley, Buchanan, Caballero, Charles Calderon, Carter,  
            Chesbro, Conway, Cook, Coto, Davis, De La Torre, De Leon,  
            DeVore, Duvall, Emmerson, Eng, Evans, Feuer, Fletcher,  
            Fong, Fuentes, Fuller, Furutani, Gaines, Galgiani,  
            Garrick, Gilmore, Hagman, Hall, Harkey, Hayashi,  
            Hernandez, Hill, Huber, Huffman, Jeffries, Knight,  
            Krekorian, Lieu, Logue, Bonnie Lowenthal, Ma, Mendoza,  







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            Miller, Monning, Nava, Nestande, Niello, Nielsen, John A.  
            Perez, V. Manuel Perez, Portantino, Price, Ruskin, Salas,  
            Saldana, Silva, Skinner, Smyth, Solorio, Audra  
            Strickland, Swanson, Torlakson, Torres, Torrico, Tran,  
            Villines, Yamada, Bass
          NO VOTE RECORDED:  Block, Jones


          JJA:mw  8/19/09   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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