BILL NUMBER: AB 1868	AMENDED
	BILL TEXT

	AMENDED IN ASSEMBLY  APRIL 5, 2010

INTRODUCED BY   Assembly Member Jones

                        FEBRUARY 12, 2010

   An act to amend Section 10291.5 of, and to add Section 10116.2 to,
the Insurance Code, relating to insurance.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 1868, as amended, Jones. Insurance: life: disability:
discretionary clauses.
   Existing law generally regulates life and disability insurance
policies, and requires the Insurance Commissioner to disapprove any
disability policy for issuance or delivery in this state in specified
circumstances. 
   This bill would prohibit a policy, contract, certificate, or
agreement offered or issued in this state providing for life
insurance, disability insurance, or disability income protection
coverage from containing a provision purporting to reserve
discretionary authority to the insurer, or an agent of the insurer,
to interpret the terms of the policy contract, certificate, or
agreement, or providing standards of interpretation or review that
are inconsistent with the laws of this state. The bill would require
the commissioner to disapprove any disability policy that contains a
provision of this type.  
   This bill would provide that if a policy, contract, certificate,
or agreement offered, issued, delivered, or renewed, whether or not
in California, that provides or funds life insurance or disability
insurance coverage for any California resident contains a provision
purporting to reserve discretionary authority to the insurer, or an
agent of the insurer, to determine eligibility for benefits or
coverage, to interpret the terms of the policy, contract,
certificate, or agreement, or to provide standards of interpretation
or review that are inconsistent with the laws of this state, that
provision would be void and unenforceable.  
   The bill would also require the commissioner to disapprove any
disability policy that contains a provision of this type. 
   Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  Section 10116.2 is added to the Insurance Code, to
read: 
   10116.2.  A policy, contract, certificate, or agreement offered or
issued in this state providing for life insurance, disability
insurance, or disability income protection coverage shall not contain
a provision purporting to reserve discretionary authority to the
insurer, or an agent of the insurer, to interpret the terms of the
policy contract, certificate, or agreement, or to provide standards
of interpretation or review that are inconsistent with the laws of
this state. 
    10116.2.   (a) If a policy, contract, certificate,
or agreement offered, issued, delivered, or renewed, whether or not
in California, that provides or funds life insurance or disability
insurance coverage for any California resident contains a provision
purporting to reserve discretionary authority to the insurer, or an
agent of the insurer, to determine eligibility for benefits or
coverage, to interpret the terms of the policy, contract,
certificate, or agreement, or to provide standards of interpretation
or review that are inconsistent with the laws of this state, that
provision is void and unenforceable. 
    (b)     For purposes of this section,
"renewed" means continued in force on or after the policy's
anniversary date. 
  SEC. 2.  Section 10291.5 of the Insurance Code is amended to read:
   10291.5.  (a) The purpose of this section is to achieve both of
the following:
   (1) Prevent, in respect to disability insurance, fraud, unfair
trade practices, and insurance economically unsound to the insured.
   (2) Assure that the language of all insurance policies can be
readily understood and interpreted.
   (b) The commissioner shall not approve any disability policy for
issuance or delivery in this state in any of the following
circumstances:
   (1) If the commissioner finds that it contains any provision, or
has any label, description of its contents, title, heading, backing,
or other indication of its provisions that is unintelligible,
uncertain, ambiguous, or abstruse, or likely to mislead a person to
whom the policy is offered, delivered  ,  or issued.
   (2) If it contains any provision for payment at a rate, or in an
amount, other than the product of rate times the periods for which
payments are promised, for loss caused by particular event or events,
as distinguished from character of physical injury or illness of the
insured, more than triple the lowest rate, or amount, promised in
the policy for the same loss caused by any other event or events,
loss caused by sickness, loss caused by accident, and different
degrees of disability each being considered, for the purpose of this
paragraph, a different loss; or if it contains any provision for
payment for any confining loss of time at a rate more than six times
the least rate payable for any partial loss of time or more than
twice the least rate payable for any nonconfining total loss of time;
or if it contains any provision for payment for any nonconfining
total loss of time at a rate more than three times the least rate
payable for any partial loss of time.
   (3) If it contains any provision for payment for disability caused
by particular event or events, as distinguished from character of
physical injury or illness of the insured, payable for a term more
than twice the least term of payment provided by the policy for the
same degree of disability caused by any other event or events; or if
it contains any benefit for total nonconfining disability payable for
lifetime or for more than 12 months and any benefit for partial
disability, unless the benefit for partial disability is payable for
at least three months; or if it contains any benefit for total
confining disability payable for lifetime or for more than 12 months,
unless it also contains benefit for total nonconfining disability
caused by the same event or events payable for at least three months,
and, if it also contains any benefit for partial disability, unless
the benefit for partial disability is payable for at least three
months. The provisions of this paragraph shall apply separately to
accident benefits and to sickness benefits.
   (4) If it contains provision or provisions that would have the
effect, upon any termination of the policy, of reducing or ending the
liability as the insurer would have, but for the termination, for
loss of time resulting from  an  accident occurring
while the policy is in force or for loss of time commencing while the
policy is in force and resulting from sickness contracted while the
policy is in force or for other losses resulting from  an
 accident occurring or sickness contracted while the policy
is in force, and also contains provision or provisions reserving to
the insurer the right to cancel or refuse to renew the policy, unless
it also contains other provision or provisions the effect of which
is that termination of the policy as the result of the exercise by
the insurer of that right shall not reduce or end the liability in
respect to the hereinafter specified losses as the insurer would have
had under the policy, including its other limitations, conditions,
reductions, and restrictions, had the policy not been so terminated.
   The specified losses referred to in the preceding paragraph are:
   (i) Loss of time which commences while the policy is in force and
results from sickness contracted while the policy is in force.
   (ii) Loss of time that commences within 20 days following and
results from  an  accident occurring while the
policy is in force.
   (iii) Losses that result from  an  accident
occurring or sickness contracted while the policy is in force and
arise out of the care or treatment of illness or injury and that
occur within 90 days from the termination of the policy or during a
period of continuous compensable loss or losses which period
commences prior to the end of the 90 days.
   (iv) Losses other than those specified in clause (i), (ii), or
(iii) of this paragraph that result from  an 
accident occurring or sickness contracted while the policy is in
force and the losses occur within 90 days following the accident or
the contraction of the sickness.
   (5) If by any caption, label, title, or description of contents
the policy states, implies, or infers without reasonable
qualification that it provides loss of time indemnity for lifetime,
or for any period of more than two years, if the loss of time
indemnity is made payable only when house confined or only under
special contingencies not applicable to other total loss of time
indemnity.
   (6) If it contains any benefit for total confining disability
payable only upon condition that the confinement be of an abnormally
restricted nature unless the caption of the part containing that
benefit is accurately descriptive of the nature of the confinement
required and unless, if the policy has a description of contents,
label, or title, at least one of them contain reference to the nature
of the confinement required.
   (7) (A) If, irrespective of the premium charged  therefor
 , any benefit of the policy is, or the benefits of the policy
as a whole are, not sufficient to be of real economic value to the
insured.
   (B) In determining whether benefits are of real economic value to
the insured, the commissioner shall not differentiate between
insureds of the same or similar economic or occupational classes and
shall give due consideration to all of the following:
   (i) The right of insurers to exercise sound underwriting judgment
in the selection and amounts of risks.
   (ii) Amount of benefit, length of time of benefit, nature or
extent of benefit, or any combination of those factors.
   (iii) The relative value in purchasing power of the benefit or
benefits.
   (iv) Differences in insurance issued on an industrial or other
special basis.
   (C) To be of real economic value, it shall not be necessary that
any benefit or benefits cover the full amount of any loss that might
be suffered by reason of the occurrence of any hazard or event
insured against.
   (8) If it substitutes a specified indemnity upon the occurrence of
accidental death for any benefit of the policy, other than a
specified indemnity for dismemberment, which would accrue prior to
the time of that death or if it contains any provision which has the
effect, other than at the election of the insured exercisable within
not less than 20 days in the case of benefits specifically limited to
the loss by removal of one or more fingers or one or more toes or
within not less than 90 days in all other cases, of doing any of the
following:
   (A) Of substituting, upon the occurrence of the loss of both
hands, both feet, one hand and one foot, the sight of both eyes or
the sight of one eye and the loss of one hand or one foot, some
specified indemnity for any or all benefits under the policy unless
the indemnity so specified is equal to or greater than the total of
the benefit or benefits for which the specified indemnity is
substituted and which, assuming in all cases that the insured would
continue to live, could possibly accrue within four years from the
date of such dismemberment under all other provisions of the policy
applicable to the particular event or events, as distinguished from
character of physical injury or illness, causing the dismemberment.
   (B) Of substituting, upon the occurrence of any other
dismemberment some specified indemnity for any or all benefits under
the policy unless the indemnity so specified is equal to or greater
than one-fourth of the total of the benefit or benefits for which the
specified indemnity is substituted and which, assuming in all cases
that the insured would continue to live, could possibly accrue within
four years from the date of the dismemberment under all other
provisions of the policy applicable to the particular event or
events, as distinguished from character of physical injury or
illness, causing the dismemberment.
   (C) Of substituting a specified indemnity upon the occurrence of
any dismemberment for any benefit of the policy that would accrue
prior to the time of dismemberment.
   As used in this section, loss of a hand shall be severance at or
above the wrist joint, loss of a foot shall be severance at or above
the ankle joint, loss of an eye shall be the irrecoverable loss of
the entire sight thereof, loss of a finger shall mean at least one
entire phalanx thereof and loss of a toe the entire toe.
   (9) If it contains provision, other than as provided in Section
10369.3, reducing any original benefit more than 50 percent on
account of age of the insured.
   (10) If the insuring clause or clauses contain no reference to the
exceptions, limitations, and reductions, if any, or no specific
reference to, or brief statement of, each abnormally restrictive
exception, limitation, or reduction.
   (11) If it contains benefit or benefits for loss or losses from
specified diseases only unless:
   (A) All of the diseases so specified in each provision granting
the benefits fall within some general classification based upon the
following:
   (i) The part or system of the human body principally subject to
all  of  those diseases.
   (ii) The similarity in nature or cause of those diseases.
   (iii) In case of diseases of an unusually serious nature and
protracted course of treatment, the common characteristics of all
 of  those diseases with respect to severity of affliction
and cost of treatment.
   (B) The policy is entitled and each provision granting the
benefits is separately captioned in clearly understandable words so
as to accurately describe the classification of diseases covered and
expressly point out, when that is the case, that not all diseases of
the classification are covered.
   (12) If it does not contain provision for a grace period of at
least the number of days specified below for the payment of each
premium falling due after the first premium, during which grace
period the policy shall continue in force provided, that the grace
period to be included in the policy shall be not less than seven days
for policies providing for weekly payment of premium, not less than
10 days for policies providing for monthly payment of premium and not
less than 31 days for all other policies.
   (13) If it includes a provision purporting to reserve
discretionary authority to the insurer, or an agent of the insurer,
 to determine eligibility for benefits or coverage  to
interpret the terms of the policy  contract, certificate, or
agreement,  or to provide standards of interpretation or
review that are inconsistent with the laws of this state.
   (14) If it fails to conform in any respect with any law of this
state.
   (c) The commissioner shall not approve any disability policy
covering hospital, medical, or surgical expenses unless the
commissioner finds that the application conforms to both of the
following requirements:
   (1) All applications for disability insurance covering hospital,
medical, or surgical expenses, except that which is guaranteed issue,
which include questions relating to medical conditions, shall
contain clear and unambiguous questions designed to ascertain the
health condition or history of the applicant.
   (2) The application questions designed to ascertain the health
condition or history of the applicant shall be based on medical
information that is reasonable and necessary for medical underwriting
purposes. The application shall include a prominently displayed
notice that states:


   "California law prohibits an HIV test from being required or used
by health insurance companies as a condition of obtaining health
insurance coverage."


   (d) Nothing in this section authorizes the commissioner to
establish or require a single or standard application form for
application questions.
   (e) The commissioner may, from time to time as conditions warrant,
after notice and hearing, adopt reasonable rules and regulations,
and amendments and additions thereto, as are necessary or convenient,
to establish, in advance of the submission of policies, the standard
or standards conforming to subdivision (b), by which he or she shall
disapprove or withdraw approval of any disability policy.
   In adopting  that rule or regulation   those
rules and regulations  the commissioner shall give consideration
to the criteria herein established and to the desirability of
approving for use in policies in this state uniform provisions,
nationwide or otherwise, and is hereby granted the authority to
consult with insurance authorities of any other state and their
representatives individually or by way of convention or committee, to
seek agreement upon those provisions.
   Any such rule or regulation shall be adopted in accordance with
the procedure provided in Chapter 3.5 (commencing with Section 11340)
of Part 1 of Division 3 of Title 2 of the Government Code.
   (f) The commissioner may withdraw approval of filing of any policy
or other document or matter required to be approved by the
commissioner, or filed with him or her, by this chapter when the
commissioner would be authorized to disapprove or refuse filing of
the same if originally submitted at the time of the action of
withdrawal.
   The withdrawal shall be in writing and shall specify the reasons.
An insurer adversely affected by any such withdrawal may, within a
period of 30 days following mailing or delivery of the writing
containing the withdrawal, by written request secure a hearing to
determine whether the withdrawal should be annulled, modified, or
confirmed. Unless, at any time, it is mutually agreed to the
contrary, a hearing shall be granted and commenced within 30 days
following filing of the request and shall proceed with reasonable
dispatch to determination. Unless the commissioner in writing in the
withdrawal, or subsequent thereto, grants an extension, the
withdrawal shall, in the absence of a request, be effective,
prospectively and not retroactively, on the 91st day following the
mailing or delivery of the withdrawal, and, if request for the
hearing is filed, on the 91st day following mailing or delivery of
written notice of the commissioner's determination.
   (g) No proceeding under this section is subject to Chapter 5
(commencing with Section 11500) of Part 1 of Division 3 of Title 2 of
the Government Code.
   (h) Except as provided in subdivision (k), any action taken by the
commissioner under this section is subject to review by the courts
of this state and proceedings on review shall be in accordance with
the Code of Civil Procedure.
   Notwithstanding any other provision of law to the contrary,
petition for a review may be filed at any time before the effective
date of the action taken by the commissioner. No action of the
commissioner shall become effective before the expiration of 20 days
after written notice and a copy thereof are mailed or delivered to
the person adversely affected, and any action so submitted for review
shall not become effective for a further period of 15 days after the
filing of the petition in court. The court may stay the
effectiveness thereof for a longer period.
   (i) This section shall be liberally construed to effectuate the
purpose and intentions herein stated; but shall not be construed to
grant the commissioner power to fix or regulate rates for disability
insurance or prescribe a standard form of disability policy, except
that the commissioner shall prescribe a standard supplementary
disclosure form for presentation with all disability insurance
policies, pursuant to Section 10603.
   (j) This section shall be effective on and after July 1, 1950, as
to all policies thereafter submitted and on and after January 1,
1951, the commissioner may withdraw approval pursuant to subdivision
(d) of any policy thereafter issued or delivered in this state
irrespective of when its form may have been submitted or approved,
and prior to those dates the provisions of law in effect on January
1, 1949, shall apply to those policies.
   (k) Any policy issued by an insurer to an insured on a form
approved by the commissioner, and in accordance with the conditions,
if any, contained in the approval, at a time when that approval is
outstanding shall, as between the insurer and the insured, or any
person claiming under the policy, be conclusively presumed to comply
with, and conform to, this section.
                            ____ CORRECTIONS  Text--Pages 5 and 8.
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