BILL ANALYSIS                                                                                                                                                                                                    Ó






                             SENATE JUDICIARY COMMITTEE
                             Senator Noreen Evans, Chair
                              2011-2012 Regular Session


          SB 1164 (Emmerson)
          As Amended March 26, 2012
          Hearing Date: May 1, 2012
          Fiscal: No
          Urgency: No
          TW   
                    

                                        SUBJECT
                                           
                     Professional Liability Insurers:  Immunity

                                      DESCRIPTION  

          This bill would extend the sunset date from January 1, 2013 to 
          January 1, 2016 of limited liability immunity for professional 
          liability insurers issuing non-renewal notice statements, which 
          specify the reason for the nonrenewal, sent to a healthcare 
          provider policyholder.

                                      BACKGROUND 

          Under existing law, insurers are required to give written notice 
          of a policy cancellation or nonrenewal and 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, AB 1123 (Wyland, Ch. 327, Stats. 2005) was enacted and 
          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 
          in bad faith. 

          At the time AB 1123 was heard in this committee, 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 
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          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 ƯAB 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 this committee, it was amended to provide that its 
          provisions sunset on January 1, 2011.  The sunset was extended 
          to January 1, 2013 by AB 119 (Wyland, Ch. 30, Stats. 2009).  

          This bill, sponsored by the California Association of 
          Professional Liability Insurers, would further extend the sunset 
          date of the limited liability immunity from January 1, 2013 to 
          January 1, 2016.

                                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, 2013, provides that there is no 
          liability on the part of, and no cause of action of any nature 
          shall arise against, a professional liability insurer, who 
          provides insurance to health care providers, for any statement 
          made in any of the following: 
           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; 
           any communication providing information pertaining to the 
            nonrenewal; or 
           evidence submitted at any court proceeding or informal inquiry 
            in which the nonrenewal is an issue.  (Ins. Code Sec. 678.3.)

           Existing law  , until January 1, 2013, provides that the above 
          immunity from liability extends to statements made by a 
                                                                      



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          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 extend the sunset date of these provisions to 
          January 1, 2016. 

                                        COMMENT
           
          1.  Stated need for the bill  
          
          The author writes:
          
            Over the years, the California Insurance Code has been amended 
            to require an insurer to give written notice of a policy 
            cancellation (Insurance Code Section 677.2) and nonrenewal 
            (Section 678.1).  The written notice must contain the reasons 
            for the cancellation or nonrenewal.  Unfortunately, there were 
            a number of lawsuits filed against insurers alleging slander 
            or defamation arising from compliance with the above statutory 
            requirement.  In 1968, Insurance Code Section 667 was added to 
            provide an immunity for notices of cancellation of auto 
            policies, and in 1969 the section was amended to cover 
            nonrenewal as well.  Insurance Code Section 679 (which covers 
            property and other commercial insurers) provides that insurers 
            or their agents are not liable for any statement made in the 
            cancellation of a policy, unless the statement was made in bad 
            faith with malice in fact.  Unlike Section 667, however, 
            Section 679 does not specifically address the nonrenewal of a 
            policy.  Because Section 679 was not amended to parallel the . 
            . . statute covering auto policies, professional liability 
            insurers continued to be threatened with and occasionally sued 
            for defamation or libel arising from compliance with the 
            requirement to give a written notice and reasons for 
            nonrenewal.  This bill would extend the life of Section 678.3, 
            which was enacted to rectify this problem. 
          
          The California Association of Professional Liability Insurers 
          (CAPLI), the sponsor of this bill, expresses its desire for an 
          extension of the sunset by asserting 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 of limited liability immunity  
                                                                      



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          Existing law requires a professional liability insurer, who 
          intends not to renew a policy, or to condition a policy renewal, 
          to give written notice of the nonrenewal and the reasons for the 
          nonrenewal in advance of the end of the policy period.  (Ins. 
          Code Sec. 678.1.)  Existing law, until January 1, 2013, provides 
          that there is no liability on the part of, and no cause of 
          action of any nature shall arise against, a professional 
          liability insurer, who provides insurance to health care 
          providers, for any statement made regarding the nonrenewal.  
          (Ins. Code Sec. 678.3.)  This bill would extend the sunset of 
          these provisions from January 1, 2013 to January 1, 2016.  

          The author argues that the limited liability immunity statute 
          allows professional liability insurers to be more candid when 
          providing the reasons for nonrenewal, which provides the 
          insured, and any additional individuals covered under the 
          policy, with clear and specific information about why the 
          insured is being cancelled from coverage.  CAPLI asserts that in 
          the seven years since its enactment, Insurance Code Section 
          678.3, added by AB 1123, has "demonstrated its value."  
          Professional liability insurers are providing more detailed 
          information to the policyholder who is not being renewed.  

          In response to concerns raised when this committee reviewed AB 
          119 (Wyland, Ch. 30, Stats. 2009), which provided the existing 
          sunset date, the sponsor of that bill presented a letter written 
          prior to the enactment of Section 678.3.  This letter 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."  The sponsor 
          of AB 119 pointed out that the second letter stated 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.  

          CAPLI submitted to this committee recent examples of letters 
          providing detailed statements for the nonrenewal, which included 
          "claims matter and care below the standard," "practice profile," 
          and "failure to comply w/underwriting request."  CAPLI also 
          submitted a risk assessment letter provided by NORCAL Mutual 
          Insurance Company.  This letter to the policyholder listed 11 
          areas in which the policyholder needed improvement to enhance 
          patient care and reduce liability exposure.  Some of the areas 
          for improvement listed in the letter included physician decision 
          making process, medical records documentation, medication 
                                                                      



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          management: drug allergies, medical records: security, telephone 
          liability - after-hours telephone calls and triage, and 
          employment practices: identification.  NORCAL advised that the 
          policyholder was informed that he would be nonrenewed if these 
          areas were not improved and ultimately NORCAL ceased coverage 
          for these reasons. 

          CAPLI argues that extending the sunset is appropriate because 
          these letters help demonstrate that professional liability 
          insurers are issuing more detailed statements because of the 
          immunity statute.  CAPLI further states that, should the 
          immunity from liability be removed by operation of the current 
          sunset, insurers will resort to merely providing policyholders 
          with a statement that the policy is being cancelled for 
          "underwriting concerns."  CAPLI notes that broad nonrenewal 
          statements such as this do not provide the public with 
          sufficient information regarding the nonrenewal.  CAPLI states 
          that providing the public with effective information regarding 
          nonrenewals is good public policy.


           Support  :  None Known

           Opposition  :  None Known

                                        HISTORY
           
           Source  :  California Association of Professional Liability 
          Insurers 

           Related Pending Legislation  :  None Known

           Prior Legislation  :

          AB 119 (Wyland, Ch. 30, Stats. 2009) See Background; Comment 2.

          AB 1123 (Wyland, Ch. 327, Stats. 2005) See Background; Comments 
          1 and 2.

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