BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                   SB 621|
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                              UNFINISHED BUSINESS


          Bill No:  SB 621
          Author:   Calderon (D)
          Amended:  6/28/11
          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

           SENATE FLOOR  :  37-0, 5/16/11
          AYES:  Alquist, Anderson, Berryhill, Blakeslee, Calderon, 
            Cannella, Corbett, Correa, De León, DeSaulnier, Dutton, 
            Emmerson, Evans, Fuller, Gaines, Hancock, Harman, 
            Hernandez, Huff, Kehoe, La Malfa, Leno, Lieu, Liu, 
            Lowenthal, Negrete McLeod, Padilla, Pavley, Price, Rubio, 
            Runner, Simitian, Steinberg, Vargas, Wolk, Wright, Yee
          NO VOTE RECORDED:  Strickland, Walters, Wyland

           ASSEMBLY FLOOR  :  78-0, 8/25/11 (Consent) - See last page 
            for vote


           SUBJECT  :    Insurance:  life:  disability:  discretionary 
          clauses

           SOURCE  :     Department of Insurance


           DIGEST  :    This bill invalidates any provision in a life 
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          insurance or disability insurance policy that provides 
          discretionary authority to the insurer to determine 
          eligibility for benefits or coverage.


           Assembly Amendments  delete language which prohibited the 
          Insurance Commissioner (IC) from approving disability 
          insurance policies that contain discretionary clause, 
          specify this bill applies to both group and individual 
          insurance products, authorize the IC to adopt regulations 
          to implement this bill, and specify that the authority 
          provided by this bill is self-executing.

           ANALYSIS  :    Existing law generally regulates life and 
          disability insurance policies, and requires the IC to 
          disapprove any disability policy for issuance or delivery 
          in this state in specified circumstances.  

          This bill:

          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: 

             A.    Determine eligibility for benefits or coverage;

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

             C.    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 this 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, 

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             procedures, and processes, so long as the provision 
             could not give rise to a deferential standard of review 
             by any reviewing court.

          4.  Specifies this bill applies to both group and 
             individual insurance products.

          5.  Authorizes the IC to adopt regulations to implement 
             this bill.

          6.  Specifies that the authority provided by this bill is 
             self-executing.  If a life insurance or disability 
             insurance policy, contract, certificate, or agreement 
             contains a provision rendered void and unenforceable by 
             this bill, then the parties to the policy, contract, 
             certificate, or agreement and the courts shall treat the 
             provision as void and unenforceable.

           Comments
           
           Purpose of the bill  .  This bill, sponsored by the 
          Department of Insurance, prohibits life and disability 
          insurance policies from containing a discretionary clause, 
          and prohibits the IC 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 IC 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: 

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            "(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."

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

           SUPPORT  :   (Verified  8/23/11)

          Department of Insurance (source) 
          California Conference Board of the Amalgamated Transit 
          Union
          California Conference of Machinists
          California Official Court Reporters Association
          California Teamsters Public Affairs Council
          Congress of California Seniors
          Consumer Attorneys of California
          Engineers and Scientists of California 
          International Longshore and Warehouse Union
          Professional and Technical Engineers, Local 21
          UNITE HERE!
          United Food and Commercial Workers - Western States 
          Conference
          United Policyholders
          Utility Workers Union of America, Local 132

           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 

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          hearing."

           ASSEMBLY FLOOR  :  78-0, 8/25/11 (Consent)
          AYES:  Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, 
            Bill Berryhill, Block, Blumenfield, Bradford, Brownley, 
            Buchanan, Butler, Charles Calderon, Campos, Carter, 
            Cedillo, Chesbro, Conway, Cook, Davis, Dickinson, 
            Donnelly, Eng, Feuer, Fletcher, Fong, Fuentes, Furutani, 
            Beth Gaines, Galgiani, Garrick, Gatto, Gordon, Grove, 
            Hagman, Halderman, Hall, Harkey, Hayashi, Roger 
            Hernández, Hill, Huber, Hueso, Huffman, Jeffries, Jones, 
            Knight, Lara, Logue, Bonnie Lowenthal, Ma, Mansoor, 
            Mendoza, Miller, Mitchell, Monning, Morrell, Nestande, 
            Nielsen, Norby, Olsen, Pan, Perea, V. Manuel Pérez, 
            Portantino, Silva, Skinner, Smyth, Solorio, Swanson, 
            Torres, Valadao, Wagner, Wieckowski, Williams, Yamada, 
            John A. Pérez
          NO VOTE RECORDED:  Bonilla, Gorell

          JJA:kc  8/26/11   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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