BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                   SB 621|
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                                 THIRD READING


          Bill No:  SB 621
          Author:   Calderon (D)
          Amended:  3/31/11
          Vote:     21

           
           SENATE INSURANCE COMMITTEE  :  8-0, 3/23/11
          AYES:  Calderon, Gaines, Anderson, Corbett, Lieu, 
            Lowenthal, Price, Wyland
          NO VOTE RECORDED:  Correa

           SENATE APPROPRIATIONS COMMITTEE  :  Senate Rule 28.8


           SUBJECT  :    Insurance:  life:  disability:  discretionary 
          clauses

           SOURCE  :     Department of Insurance


           DIGEST  :    This bill invalidates any discretionary clause 
          contained in a life and disability insurance policy and 
          prohibits the Insurance Commissioner from approving 
          disability insurance policies that contain such a 
          discretionary clause.

           ANALYSIS  :    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:
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          1.   Makes void and unenforceable a provision in a life 
            insurance or disability insurance policy, contract, 
            certificate, or agreement that is issued, delivered or 
            renewed, as defined, for a California resident, if the 
            provision reserves discretionary authority to the 
            insurer, or its agent, to: 

                 Determine eligibility for benefits or coverage;

                 Interpret the terms of the policy, contract, 
               certificate, or agreement; or

                 Provide standards of interpretation or review that 
               are inconsistent with the laws of this state.
                              
          2.Defines "renewed" as continued in force on or after the 
            policy's anniversary date. 

          3.Provides that nothing in the bill prohibits an insurer 
            from including contract language informing their insured 
            that as part of its routine operations the insurer 
            applies the terms of its contracts for making decisions, 
            including making determinations regarding eligibility, 
            receipt of benefits and claims, or explaining policies, 
            procedures, and processes, so long as the provision could 
            not give rise to a deferential standard of review by any 
            reviewing court.

          4.Prohibits the Insurance Commissioner from approving a 
            disability policy that reserves discretionary authority 
            to the insurer or its agent to 

                 Determine the eligibility for benefits or coverage;

                 Interpret the terms of the policy; or

                 Provide standards of interpretation or review that 
               are inconsistent with the laws of this state.

           Comments
           
           Purpose of the bill  .  This bill, sponsored by the 
          Department of Insurance, prohibits life and disability 

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          insurance policies from containing a discretionary clause, 
          and prohibits the Insurance Commissioner from approving 
          disability insurance policies that contain a discretionary 
          clause.  

          The Department of Insurance explains that a discretionary 
          clause is a provision that reserves discretionary authority 
          to the insurer to determine eligibility for benefits or 
          coverage, to interpret the terms of the policy, or to 
          provide standards of interpretation or review that are 
          inconsistent with the 
          laws of this state.  
                     
          Under existing law, the Insurance Commissioner must not 
          approve disability insurance policies containing any clause 
          or provision that is "unintelligible, uncertain, ambiguous, 
          abstruse, or likely to mislead a person to whom the policy 
          is offered, delivered, or issued."

          In 2002, The National Association of Insurance 
          Commissioners, in recognition of the issues this bill seeks 
          to address, adopted a Model law (Model 42) which it 
          describes as follows: 
                          
            "(MDL-42) This models helps ensure that health insurance 
            benefits and disability-income protection coverage are 
            contractually guaranteed, and helps avoid the conflict of 
            interest that occurs when the carrier responsible for 
            providing benefits has discretionary authority to decide 
            what benefits are due."

           Prior legislation  .  This bill is identical to AB 1868 
          (Jones), 2009-10 Session, which was vetoed in 2010.  In the 
          veto message of AB 1868, Governor Schwarzenegger stated:  
                     
            "I am returning Assembly Bill 1868 without my signature.

            "This bill would prohibit the Insurance Commissioner from 
            approving any disability or life insurance policy if it 
            includes a provision that would reserve discretionary 
            authority to the insurer to determine eligibility for 
            benefits, and voids certain provisions of a policy or 
            agreement if it provides or funds life insurance or 
            disability insurance coverage.

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            "This bill is unnecessary, as the Insurance Commissioner 
            already has the authority to prohibit the use of 
            discretionary clauses."

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

           SUPPORT  :   (Verified  4/11/11)

          Department of Insurance (source) 
          Congress of California Seniors          
          Consumer Attorneys of California
          United Policyholders


           ARGUMENTS IN SUPPORT  :    The Consumer Attorneys of 
          California state:  "Under current law, when an ERISA 
          ÝEmployee Retirement Income Security Act] disability 
          carrier in California decides a claim, the consumer has the 
          right to an administrative appeal (before a different 
          reviewer, employed by the same insurance company).  Most 
          ERISA disability policies reserve broad discretion to 
          interpret the language and terms of the contract.  Thus, if 
          the consumer chooses to appeal his or her claim, it must be 
          done in Federal Court.  But, the claimant's hands are tied 
          and he or she must show that the insurance company abused 
          its discretion in reaching its decision without the ability 
          to bring in new information or facts. This makes it near 
          impossible for the consumer to have a fair and impartial 
          hearing."


          DLW:kc  4/12/11   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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