BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 1200| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ 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: CONTINUED AB 1200 Page 2 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: AB 1200 Page 3 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." AB 1200 Page 4 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 AB 1200 Page 5 758.5 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 AB 1200 Page 6 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 AB 1200 Page 7 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 AB 1200 Page 8 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, AB 1200 Page 9 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 **** END ****