BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 621| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 445-6614 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ 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 CONTINUED SB 621 Page 2 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, CONTINUED SB 621 Page 3 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: CONTINUED SB 621 Page 4 "(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 CONTINUED SB 621 Page 5 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 **** END **** CONTINUED