BILL ANALYSIS SENATE JUDICIARY COMMITTEE Senator Ellen M. Corbett, Chair 2009-2010 Regular Session SB 119 Senator Wyland As Introduced Hearing Date: May 5, 2009 Insurance Code SK:jd SUBJECT Professional Liability Insurance: Renewal: Liability DESCRIPTION This bill would revise the sunset date on a law that provides immunity from liability for insurers who issue professional liability insurance to health care providers for any statement made in a notice of nonrenewal. The law, which sunsets on January 1, 2011, provides that such immunity does not extend to statements shown to have been made in bad faith. This bill would extend the sunset date to January 1, 2013. (This analysis reflects author's amendments to be offered in committee.) BACKGROUND Under existing law, insurers are required to give written notice of a policy cancellation or nonrenewal and to include in that notice the reasons for the cancellation or nonrenewal. Existing law also provides that insurers are immune from liability for statements made in the notice of cancellation unless the statements are shown to have been made in bad faith with malice in fact. In 2005, the Legislature passed and the governor signed AB 1123 (Wyland, Chapter 327, Statutes of 2005) which generally extended this same immunity from liability to statements made by professional liability insurers in notices of nonrenewal to health care providers. Similarly, this immunity from liability does not apply to statements which are shown to have been made (more) SB 119 (Wyland) Page 2 of ? in bad faith. At the time AB 1123 was heard in this Committee in 2005, supporters of the bill asserted that they had been penalized for giving specified reasons for nonrenewal. Specifically, NORCAL Mutual Insurance Company stated that it had been sued twice since 2002 for defamation based upon the reason given for nonrenewal. NORCAL asserted that because insurers are required to state the reason for nonrenewal but were subject (at that time) to a civil action for the stated reason, it was faced with "a Hobson's choice to change guidelines for nonrenewal notices to give a plain vanilla response or face a lawsuit from a physician who may not want the true reasons for his or her nonrenewal disclosed. Without a qualified immunity such as that contained in [AB 1123] (which does not immunize bad faith communications), carriers will choose not to give a detailed reason, but instead will simply state the doctor is being nonrenewed at 'Company Election' or 'Does Not Meet Guidelines.'" When AB 1123 was heard in the Senate Judiciary Committee, it was amended to provide that its provisions sunset on January 1, 2011. This bill would revise that sunset date, extending these statutory immunity provisions to January 1, 2013. CHANGES TO EXISTING LAW Existing law requires a professional liability insurer who intends not to renew a policy, or to condition a policy renewal as specified, to give written notice of the nonrenewal and the reasons for the nonrenewal at least 60 days, but not more than 120 days, in advance of the end of the policy period. (Ins. Code Sec. 678.1.) Existing law , until January 1, 2011, provides that there is no liability on the part of, and no cause of action of any nature shall arise against, an insurer who issues professional liability insurance policies to health care providers for any statement made in any of the following: a)a written notice of nonrenewal, or any other oral or written communication specifying the reasons for nonrenewal of a policy issued to a health care provider; b)any communication providing information pertaining to the nonrenewal; or c)evidence submitted at any court proceeding or informal inquiry SB 119 (Wyland) Page 3 of ? in which the nonrenewal is an issue. (Ins. Code Sec. 678.3.) Existing law , until January 1, 2011, provides that the above immunity from liability extends to statements made by a professional liability insurer's authorized representatives, agents, or employees or any licensed authorized insurance agent or broker and does not extend to statements shown to have been made in bad faith. (Id.) This bill would provide that the above-described provisions sunset on January 1, 2013. COMMENT 1. Stated need for the bill The author writes: Section 678.3 was enacted because professional liability insurers-who are required by law to give reasons for cancellation or nonrenewal of a policy-were being sued for defamation for those statements. While auto insurers had an immunity for statements made in the nonrenewal notice, professional liability carriers did not. AB 1123 (Wyland) addressed this discrepancy. The sponsor of this bill, the California Association of Professional Liability Insurers, asserts that the immunity provided by AB 1123 to insurers who issue professional liability policies to health care providers "promotes more candor in communications made to the insured and should continue to be preserved." 2. Extension of sunset more appropriate as questions remain about the statute's usefulness As currently in print, this bill would delete the sunset date on Insurance Code Section 678.3, thereby extending its qualified immunity provisions indefinitely. In response to concerns regarding whether the case had been made for such a deletion, the author and his sponsor have agreed to extend the sunset date for an additional two years, rather than delete it entirely. The sponsor of this bill asserts that in the four years since its enactment, Insurance Code Section 678.3, added by AB 1123, has "demonstrated its value." In response to Committee staff SB 119 (Wyland) Page 4 of ? queries, however, the sponsor has indicated that while no empirical evidence has been gathered demonstrating the statute's usefulness, professional liability insurers have not been sued for statements made in policy nonrenewals. On the one hand, it may certainly be the case that the qualified immunity provided in Insurance Code Section 678.3 has protected professional liability insurers from suit. On the other hand, however, it may also be the case that these insurers are simply giving the "plain vanilla response" described by NORCAL above and therefore there is little on which to base a defamation claim, for instance. In response to this concern and questions about whether Section 678.3 has changed behavior and encouraged insurers to provide more information in policy nonrenewals without the fear that their candor will result in a lawsuit, the sponsor provided examples of a letter sent by NORCAL to a health care provider before the enactment of the immunity provisions and another sent after the immunity protections took effect. The letter written prior to the enactment of Section 678.3 stated that the reason for nonrenewal was "Does not meet Underwriting Guidelines." The nonrenewal reason in the letter written after enactment was "Practice Profile - Hospital Action." NORCAL points out that the second letter states a more specific, detailed reason for the nonrenewal, and the company's underwriting department would have no information about the underlying claims, or action taken against the doctor. It is important to note however, that NORCAL is not the only company that offers these policies to health care providers and so the examples described above are only examples of one company's behavior. In addition, because of computer system changes, NORCAL was only able to provide a very limited example of a letter written to a doctor before the enactment of Section 678.3 and another written after the statute's enactment. In response to these concerns about whether the statute has truly changed behavior, the author and sponsor agreed to simply extend the sunset date on the statute for two additional years rather than remove it entirely. 3. Author's amendment to extend sunset date for two additional years The author has agreed to amend the bill as follows: SB 119 (Wyland) Page 5 of ? On page 2, line 11 insert "(c) This section shall remain in effect only until January 1, 2013, and as of that date is repealed, unless a later enacted statute, that is enacted before January 1, 2013, deletes or extends that date." Support : Civil Justice Association of California; The Doctors Company; NORCAL Mutual Insurance Company Opposition : None Known HISTORY Source : California Association of Professional Liability Insurers Related Pending Legislation : None known Prior Legislation : AB 1123 (Wyland, Chapter 327, Statutes of 2005) See Background. **************