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 (more) SB 1164 (Emmerson) Page 2 of ? 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 SB 1164 (Emmerson) Page 3 of ? 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 SB 1164 (Emmerson) Page 4 of ? 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 SB 1164 (Emmerson) Page 5 of ? 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. **************