BILL ANALYSIS Ó
SENATE INSURANCE COMMITTEE
Senator Ronald Calderon, Chair
SB 1170 (Leno) Hearing Date: April 11, 2012
As Amended: March 28, 2012
Fiscal: Yes
Urgency: No
SUMMARY Would restrict marketing strategies used by insurance
agents on persons over the age of 65 and require certain
disclosures when advertising or marketing the provision of
assistance to veterans to obtain veterans benefits from the
Department of Veterans Affairs (VA). Would also prohibit
insurance agents from delivering legal documents, including
living trust agreements, as a pretext for selling insurance
products.
DIGEST
Existing law
1. Makes it unlawful to engage in specified practices, unfair
methods of competition, and unfair or deceptive acts or
practices in a transaction intended to result or that results in
the sale or lease of goods or services, including making false
or misleading statements concerning the existence of price
reductions, or the home solicitation of a consumer who is a
senior citizen where a loan is made encumbering the primary
residence of that consumer for purposes of paying for home
improvements. A consumer who suffers damages as a result of the
use or employment of the prohibited acts or practices may bring
an action to recover civil damages of at least $1,000, and, if
the victim is a senior citizen and the trier of fact makes
specified findings, including that the consumer has suffered
substantial physical, emotional, or economic damage resulting
from the defendant's conduct, to recover an additional amount of
up to $5,000;
2. Provides that all insurers, brokers, agents, and others
engaged in the transaction of insurance owe a prospective
insured who is 65 years of age or older, a duty of honesty,
good faith, and fair dealing. This duty is in addition to
any other duty, whether express or implied, that may exist;
SB 1170 (Leno), Page 2
3. Requires any person who meets with a senior in the senior's
home to deliver a specified notice to the senior in writing,
in 14-point type, no less than 24 hours prior to that
individual's initial meeting in the senior's home;
4. Sets certain standards with regard to an advertisement, as
defined, or other device designed to produce leads based on
a response from a potential insured that is directed to a
person 65 years of age or older, including, but not limited
to, disclosing certain information, not using certain
language, names, letters, or symbols, and not using
specified deceptive or misleading practices and materials.;
5. Provides that a broker or agent may not use a senior
designation unless he or she has met certain conditions,
including, but not limited to, that the broker or agent has
been granted the right and is currently authorized to use
the senior designation by the organization that issues the
designation, and the senior designation has been approved by
the Insurance Commissioner for use by brokers and agents in
the sale of insurance to seniors, as provided. Existing law
deems certain words, phrases, acronyms, and logos as a
senior designation.
This bill
1. Would expand that provision to include advertising or
promoting any event, presentation, seminar, workshop, or
other public gathering regarding veterans' benefits or
entitlements that does not include a statement that the
person disseminating the statement is not authorized to
file an initial application for veterans' benefits or that
the event is not sponsored by or affiliated with specified
veterans' organizations, including the United States
Department of Veterans Affairs;
2. Would make it unlawful for an insurance agent who is not
licensed as an attorney to deliver to a person who is 65
years of age or older, or for an insurance agent who is
licensed as an attorney to deliver to a person who is 65
years of age or older in that person's home, a living trust
or other legal document if a purpose of the delivery is to
sell an insurance product;
SB 1170 (Leno), Page 3
3. Would additionally require the notice to be delivered no
more than 14 days prior to the meeting. The bill would also
require that the notice be a stand-alone document in
16-point-type, rather than 14-point-type, that the notice
include specified information regarding the agent,
including his or her full name and license number, and that
the notice include a specified statement;
4. Would change the definition of advertisement to also
include worksheets, questionnaires, or other materials
designed to collect personal or financial information about
a prospective insured or annuitant.
5. Would add veterans' organizations, veterans' agencies,
and the United States Department of Veterans Affairs to the
list of those entities that cannot be used in specified
deceptive or misleading advertising practices and
materials.
6. Would add the terms "entitlement," "expert," and
"veteran" to those words deemed a senior designation.
COMMENTS
1. Purpose of the bill
To protect senior veterans from deceptive marketing of
insurance products by giving them more information about
educational seminars and marketing materials aimed at senior
veterans that are designed to produce leads for insurance
sales; strengthen the written notification requirement in
advance of any annuity sales agent's visit to a prospective
senior client; and would end the practice of insurance
agents using the delivery of legal documents as a means of
gaining entrance into the home of a prospective senior
clients.
2. Background
The United States Department of Veterans affairs ("VA")
administers the Aid and Attendance Program as a safety net
program for low wealth veterans and their spouses who cannot
afford to pay for medical supplies or in-home healthcare.
Federal law prohibits any individual or organization from
charging a fee for helping a veteran file an initial
SB 1170 (Leno), Page 4
application for benefits. (38 CFR § 14.636.) Federal law
also prohibits any one from preparing or presenting any
claim under laws administered by the Secretary of the United
States Department of Veterans Affairs, unless that
individual has been recognized for such purposes by the VA.
(38 U.S.C. § 5901.)
According to California Advocates for Nursing Home Reform
(CANHR), predatory practices by some insurance sales agents
target seniors and senior veterans by appealing to the
senior's need for financial assistance or estate planning to
gain access to personal information or gain entrance into
the home of senior.
A sales agent may offer a "free lunch" seminar to educate
senior veterans about VA benefits. These seminars are
frequently advertised as if sponsored by non-profit
veterans' organizations or governmental agencies that assist
veterans. Related advertising materials usually fail to
disclose that the sponsor of the event intends to gather
personal and financial data in order to sell insurance
products. At the seminars, an agent may review senior
veterans' investments, inform them that their current
investments are unsafe, and advise them that in order to
qualify for VA benefits, they must transfer their assets
into a living trust funded by a deferred annuity.
An agent or sales organization might work with an attorney
who drafts and sells living trust documents. Once the
personal information is gathered from a senior and a "living
trust document" is drafted, the agent will contact the
senior to notify the senior that he or she has been
"retained" to deliver the legal document to the senior's
home. The agent sets up a convenient time for the delivery
of the senior's pre-paid documents, and follows up with a
letter confirming the time the agent will be at the senior's
home. The purpose of the visit is not to deliver and
explain the trust documents, but to sell insurance products
that may be inappropriate for the senior's financial needs.
3. Summary of Arguments in Support
a. CANHR supports SB 1170 because predators that
manipulate seniors into believing they possess special
skills and knowledge and know the ins-and-outs of
"getting around the system" often charge exorbitant fees
SB 1170 (Leno), Page 5
that are out of proportion to the worth of their advice.
The advice provided may damage the seniors' estates or
preexisting estate plans and end up thwarting their
testamentary wishes. SB 1170 requires notices designed
to inform interested parties about services provided and
safeguards to prevent misleading advertisements;
b. CANHR also states that some agents have found a way
to work around notice requirements intended to protect
seniors from aggressive sales pitches targeted in
senior's homes. Some agents have buried required
declarations on back pages of letters. On introductory
or cover pages, some agents have claimed to be
experienced Retirement Planners licensed with the
California Department of Insurance. Strengthened
notification requirements clarify the purpose of an
agent's visit.
c. Additionally, CANHR expresses concern that an agent
delivering estate documents has access to invaluable
personal information and that delivery of prepaid legal
documents unjustifiably gives an annuity agent an
opportunity to gain entrance into the home and pressure a
senior into purchasing unneeded or inappropriate
products. SB 1170 directly prohibits that sales
technique.
d. AARP supports the bill because some agents market
products by advising senior veterans to purchase
annuities or other products in order to qualify for
certain veterans benefits. This transfer of assets can
have adverse consequences for seniors when applying for
other benefits. SB 1170 provides safeguards against
agents who mislead seniors about benefits programs.
1. Summary of Arguments in Opposition
None received
2. Suggested Amendments
The Judiciary Committee plans to set this bill immediately
and needs possession as soon as possible. If agreeable to
this Committee, the bill may reported as "Do Pass and
re-refer" to allow the Judiciary Committee to hear the bill
on April 17. The following amendments would be adopted as
SB 1170 (Leno), Page 6
author's amendments as soon as the bill reaches Judiciary
Committee.
a. Add the following Assembly Members as co-authors:
Huffman, Wieckowski, Yamada;
b. Page 6, line 34: Delete "the" and insert "any"
(grammatical change suggested by the Department of
Insurance);
c. Page 7, line 3: Delete "Agencies" and insert "the
Agency" (grammatical change suggested by Senate Engrossing
and Enrolling);
d. Page 7, line 9, after "seminar," insert "workshops,"
(grammatical change suggested by Senate Engrossing and
Enrolling);
e. Page 7, line 33, after "seminar," insert "workshops,"
(grammatical change suggested by Engrossing and
Enrolling);
f. Page 7, line 40: Delete "has" and insert "have"
(grammatical change suggested by Engrossing and
Enrolling);
g. Page 8, lines 30 - 31: Delete "785.5" and insert
"785.4" (change in numbering to avoid potential chaptering
problems with SB 1184 (Corbett), which also adds 785.5
with the Insurance Code);
h. Page 8, lines 30 - 40: Amendments will distinguish
prohibited legal documents from insurance contracts and
remove the exception that applies to previously purchased
insurance products. The amendments will clarify issues
related to attorneys who are also agents and remove an
exception that would allow an attorney/agent to deliver
prohibited legal documents outside of a senior's home,
remove language that such visits are prohibited if the
purpose of the delivery is to sell insurance products and
add a reference to Business and Professions Code section
6173.5 (relating to attorneys who sell financial products
to seniors or dependent adults);
i. Page 11, line 4: Delete Section 4 (Insurance Code
787.1) in its entirety (The Department of Insurance
SB 1170 (Leno), Page 7
suggested that "veterans" and "entitlements" be removed
from this section, leaving only one new word in
subdivision (e): "expert." Arguably, "expert" is a
"variation or synonym" of "specialist" and therefore
subject to Section 787.1);
j. Page 16, line 10, after "and" insert "telephone".
1. Prior and Related Legislation
a. SB 620 (Scott) (enacted as Chapter 547,
Statutes of 2003) created additional restrictions on
advertising practices that target senior citizens by
prohibiting the sharing of commissions or other
compensation between attorneys and non-attorneys,
creating greater training and disclosure requirements
for Life agents, and imposing restrictions on the sale
of life insurance policies and annuities in the home
of a senior citizen.
b. SB 180 (Corbett) (enacted as Chapter 295,
Statutes of 2011) prohibits charging an unreasonable
fee for providing or preparing an application for
veterans aid benefits.
c. AB 689 (Blumenfield) (enacted as Chapter 295,
Statutes of 2011) created enhanced suitability
standards by prohibiting the sale of annuities to
seniors without specified training and requiring an
insurance producer to demonstrate reasonable grounds
for believing an annuity transaction is suitable for
the consumer.
POSITIONS
Support
California Advocates for Nursing Home Reform (CANHR)/ Sponsor
American Legion, Department of California (Co-Sponsor)
AMVETS-Department of California (Co-Sponsor)
California Association of County Veterans Service Officers
(Co-Sponsor)
Vietnam Veterans of America - California State Council
SB 1170 (Leno), Page 8
(Co-Sponsor)
California Commission on Aging
American Federation of State, County and Municipal Employees
(AFSCME)
American Association of Retired People (AARP)
Opposition
None received
Consultant: Hugh Slayden, (916) 651-4773