BILL ANALYSIS Ó
SB 1170
Page 1
Date of Hearing: July 3, 2012
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
SB 1170 (Leno) - As Amended: May 1, 2012
PROPOSED CONSENT
SENATE VOTE : 38-0
SUBJECT : SENIOR INSURANCE
KEY ISSUE : IN ORDER TO PROTECT SENIOR VETERANS FROM REPORTED
INSURANCE SCAMS, SHOULD VARIOUS RESTRICTIONS BE PLACED ON HOW A
FINANCIAL AGENT MAY APPROACH POTENTIAL SENIOR CLIENTS?
FISCAL EFFECT : As currently in print this bill is keyed fiscal.
SYNOPSIS
This non-controversial bill, sponsored by California Advocates
for Nursing Home Reform (CANHR), seeks to establish important
consumer protections for seniors who reportedly are being
targeted by companies aggressively marketing insurance and other
financial products under the guise of qualifying them for
veterans' benefits. To address this, the bill would prohibit a
non-attorney insurance agent from delivering to a person 65
years of age or older any living trust, estate planning, or
other legal documents (other than legitimate insurance contracts
or related documents) if a purpose of the delivery is to sell an
insurance product to the senior. Insurance agents who are also
attorneys would be more narrowly prohibited from that practice,
unless they complied with disclosure rules for attorneys who
sell financial products. In addition, the bill would include
veterans' organizations and agencies to the list of governmental
agencies that cannot be used by agents to imply an endorsed
connection in their advertising practices and materials, and
would enhance notification requirements that must be met before
an insurance agent can meet with a senior in his or her home for
the purpose of selling an insurance product. This bill is
supported by the Department of Insurance and a number of
advocacy groups for seniors and veterans. The bill has no known
opposition and previously was approved by the full Senate and
the Assembly Insurance Committee without receiving a single "no"
vote.
SB 1170
Page 2
SUMMARY : Increases transparency requirements in advertising and
promotional material for the sale of life insurance and other
annuities to senior citizens, and particularly veterans.
Specifically, this bill , among other things:
1)Makes it an unfair sales practice under the Consumer Legal
Remedies Act to fail to disclose to a veteran, in connection
with advertising for events, seminars, workshops and related
activities concerning veterans benefits, that the promoters
are not authorized to represent veterans in the application
for or appeal of the denial of veteran's benefits.
2)Prohibits an insurance agent who is not a licensed attorney
from delivering to a person who is 65 years of age or older a
living trust or other legal document, other than an insurance
contract or other insurance product document, if a purpose of
the delivery is to sell an insurance product.
3)Prohibits an insurance agent who is a licensed attorney from
delivering to a person who is 65 years of age or older a
living trust or other legal document, other than an insurance
contract or other insurance product document, unless the
insurance agent complies with specified disclosure
requirements under Section 6175.3 of the Business and
Professions Code.
4)Requires a person meeting with a senior in the senior's home
for the purpose of selling or promoting life insurance,
including annuities, to deliver to that senior a written
notice of the meeting no less than 24 hours and no more than
14 days prior to the initial meeting.
5)Requires an insurance agent, if the senior has an existing
insurance relationship with the agent and requests a meeting
with the agent in the senior's home the same day, to deliver
to the senior a specified, stand-alone notice prior to the
meeting that provides, among other things, a disclosure that
the agent is a licensed insurance agent and is meeting with
the senior for the purpose of selling, discussing, and/or
delivering life insurance, including annuities, and/or other
insurance products as specified.
EXISTING LAW :
SB 1170
Page 3
1)Pursuant to the Consumer Legal Remedies Act (CLRA), provides
that it is an unfair or deceptive trade practice for any
person to charge or receive an unreasonable fee, as defined,
to prepare or aid an applicant or recipient in the
procurement, maintenance, or securing of public social
services, including veteran pension benefits administered by
the United States Department of Veterans Affairs or the
California Department of Veterans Affairs. (Civil Code
Section 1770(24).)
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, and that this duty is in
addition to any other express or implied duty that may exist.
(Insurance Code Section 785(a).)
3)Provides that the conduct of an insurer, broker, or agent, or
other person engaged in the transaction of insurance, during
the offer and sale of a policy or certificate previous to the
purchase is relevant to any action alleging a breach of the
duty of good faith and fair dealing. (Insurance Code Section
785(b).)
4)Authorizes an attorney to sell financial products to an elder
or dependent adult with whom the attorney has or has had,
within the preceding three years, an attorney-client
relationship, as specified, as long as the attorney provides
specified disclosures, including that the client may obtain
independent advice regarding the purchase of the financial
product and that the financial product may be returned to the
issuing company within 30 days of receipt by the client for a
refund. (Business and Professions Code Section 6175.3.)
5)Requires a person meeting with a senior in the senior's home
for the purpose selling life insurance, including annuities,
to the senior insured or prospective insured to deliver
written 24-hour advance notice of the meeting as well as
specified disclosures. (Insurance Code Section
789.10(a)-(b).)
COMMENTS : This non-controversial bill, sponsored by California
Advocates for Nursing Home Reform (CANHR), seeks to establish
important consumer protections for seniors who reportedly are
being targeted by companies aggressively marketing insurance and
SB 1170
Page 4
other financial products under the guise of qualifying them for
veterans' benefits. According to the author:
Financial predators target high wealth veterans who would
not otherwise qualify for the Aid and Attendance Program and
counsel them how to move their assets into 'safe harbors'
such as irrevocable trusts and deferred annuities.
Insurance agents advertise "free lunch" seminars to educate
senior vets about their entitlement to VAA benefits. They
often market these seminars as if they were sponsored by
non-profit veterans' organizations or governmental agencies
that assist veterans. These materials usually fail to
disclose the true intent of the seminars: to gather
financial data in order to sell insurance products. The
AARP has warned seniors about these seminars that offer vets
a "quick overhaul" of their investments and promise
qualification for lifetime benefits, but end up causing
serious long-term financial harm.
This bill expands protections for senior citizens against
deceptive or misleading insurance advertisements regarding
veteran's benefits assistance . The author notes that this bill
is necessary to address reported scams by so-called "trust
mills" that target senior veterans who may be eligible for
benefits under the Veterans Aid and Attendance (VAA) program.
The VAA program is administered by the United States Department
of Veterans Affairs and provides supplemental income to veterans
or their surviving spouses if their combined income is less than
$15,493 per year and they own assets less than $80,000,
excluding a residence.
Proponents of this bill report that self-described "veterans
advocates" are targeting senior veterans to sell them financial
services and products (e.g. deferred annuities) for the purpose
of hiding the veteran's assets to qualify for veteran's
benefits. The "veterans advocate" is incentivized because he
may receive a commission on the sale of financial products to
the veteran. To bring greater transparency to such
transactions, this bill would first extend existing
advertisement disclosure requirements for the sale of insurance
products to seniors to include advertisements relating to
veteran's benefits. In addition, this bill would expand the
Consumer Legal Remedies Act (CLRA) to specifically prohibit
misleading advertising regarding veterans benefits sent to
persons age 65 or older. By incorporating this prohibition
SB 1170
Page 5
under the CLRA, a senior veteran would be authorized to exercise
that Act's private right of action against any individual for
violating these prohibitions under the bill. (Civil Code
Section 1780.)
This bill regulates delivery of estate-related documents if the
intent is to sell insurance products. According to the author
and the Department of Insurance, some unscrupulous insurance
agents and brokers utilize the delivery of estate planning
documents in order to gain direct access to the senior in his or
her home in order to sell inappropriate insurance documents to
the senior. Existing law does not prohibit the insurance agent
from gaining access to the senior's home under the guise of
delivering estate planning documents. Once inside, however,
nothing prevents the agent from pressuring the senior to
purchase insurance annuities, which may not be in the senior's
best interest but which could yield a substantial commission for
the agent.
Given that insurance agents and attorneys are involved in the
practice of preparing estate planning documents, which may
include appropriate insurance products, this bill would set up a
different standard for delivery of these documents depending
upon whether the insurance agent is a licensed attorney. First,
this bill would prohibit a non-attorney insurance agent from
delivering to a person 65 years of age or older any living
trust, estate planning, or other legal documents (other than
legitimate insurance contracts or related documents) if a
purpose of the delivery is to sell an insurance product to the
senior. Violations would subject the insurance agent to
disciplinary measures by the California Department of Insurance.
Finally, this bill also would prohibit an insurance agent, who
is a licensed attorney, from delivering to a person who is 65
years of age or older specified trust or estate-planning
documents unless the insurance agent complies with requirements
to disclose his potential commission for the sale, pursuant to
existing law that applies to attorneys who sell financial
products (See Section 6175.3 of the Business and Professions
Code.) These additional disclosures are intended to alert the
senior citizen to a possible conflict of interest on the part of
the attorney, as well as provide the senior with information
about the potential need for outside review of the insurance
documents provided by the attorney.
Pending related legislation. SB 1184 (Corbett) would prohibit
SB 1170
Page 6
an insurance agent from having a financial interest in an entity
to which he or she refers a client in connection with veterans
benefits. The bill is pending in the Assembly Appropriations
Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
California Advocates for Nursing Home Reform (sponsor)
AARP
AFSMCE
American Legion, Department of California
AMVETS, Department of California
California Alliance for Retired Americans
California Association of County Veterans Service Officers
California Commission on Aging
California Senior Legislature
Consumer Federation of California
Department of Insurance
Vietnam Veterans of America, California State Council
Opposition
None on file
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334