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)
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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
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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
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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:
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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.
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