BILL NUMBER: SB 1449 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY AUGUST 6, 2012
AMENDED IN ASSEMBLY JUNE 21, 2012
AMENDED IN SENATE APRIL 17, 2012
AMENDED IN SENATE MARCH 29, 2012
INTRODUCED BY Senator Calderon
FEBRUARY 24, 2012
An act to amend Sections 10110.5, 10271 ,
and 10292 of, and to add Section 10271.5
10271.1 to, the Insurance Code, relating to insurance.
LEGISLATIVE COUNSEL'S DIGEST
SB 1449, as amended, Calderon. Life insurance and annuities.
Existing law governs the business of insurance and defines various
types of insurance for these purposes, including life insurance, and
disability insurance. Existing law generally makes the requirements
imposed on disability insurance contracts inapplicable to life
insurance, endowment, and annuity contracts, or supplemental
contracts thereto, that provide additional benefits in case of death
or dismemberment or loss of sight by accident, operate to safeguard
contracts against lapse, or give a special surrender value, a special
benefit, or an annuity, if the insured or annuitant becomes totally
and permanently disabled.
This bill would instead make those provisions inapplicable to
provisions and supplemental contracts that operate to safeguard
against lapse, or give a special surrender value,
benefit , or annuity, if the owner, insured,
or annuitant, or beneficiary meets certain
benefit triggers. The bill would specify that the provisions or
supplemental contracts that operate to safeguard life insurance
contracts against lapse include are defined
as a waiver of a premium benefit or monthly deduction benefit
when the insured becomes totally disabled, as specified, and would
define the term "special surrender value"
benefit" for purposes of those provisions. The bill would
require those provisions and supplemental contracts to contain
certain provisions, including information on giving notice of a
claim. The bill would authorize a contract or supplemental
contract issued by an admitted life and disability insurer to contain
a provision for a waiver of a special surrender benefit for a life
insurance or annuity contract in the event of voluntary or
involuntary unemployment of the owner, insured, or annuitant.
Existing law requires a supplemental contract described above, or,
if the supplemental contract is an integral part of a contract of
life insurance the entire contract, to be submitted to the Insurance
Commissioner for approval, and prohibits the commissioner from
approving a contract under certain circumstances, including if the
contract contains any provision that is likely to mislead a person to
whom the policy is offered, delivered, or issued.
This bill would require, if a supplemental contract is an integral
part of an annuity contract, the entire contract to be submitted to
the commissioner for approval. The bill would specify that a
provision or supplemental contract that operates to safeguard a life
insurance contract from lapse or includes a special surrender ben
efit shall be considered an integral part of a contract
and would require the insurer to submit, for information purposes, a
sample copy of the life insurance or annuity contract with which the
supplemental contract will be used in order to facilitate the review
of the supplemental contract. The bill would also
prohibit the commissioner from approving a contract or supplemental
contract if it contains any provision that the products constitute
long-term care or disability insurance or provide long-term care
coverage or disability benefits prohibit a provision
or supplemental contract that contains any title, description, or any
other indication that would describe or imply that the policy or
supplemental contract provides long-term care coverage, and would
require a provision or supplemental contract to specify any
applicable exclusions, which the bill would limit, as provided
.
The bill would require the Department of Insurance, by January 1,
2014, to submit a report to the Legislature on the number and type of
contracts and supplemental contracts approved or disapproved by the
commissioner pursuant to the bill's provisions.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 10110.5 of the
Insurance Code is amended to read:
10110.5. (a) A policy or endorsement issued
by an admitted life and disability insurer may contain a provision
for a waiver of premium payments in the event of involuntary
unemployment of the insured. Insurers issuing policies or
endorsements which contain that provision shall establish any
additional reserves and file any additional financial reports that
the commissioner may require.
(b) A contract or supplemental contract issued by an admitted life
and disability insurer may contain a provision for a waiver of
special surrender benefit for a life insurance or annuity contract in
the event of voluntary or involuntary unemployment of the owner,
insured, or annuitant, as applicable. Insurers issuing contracts or
supplemental contracts which contain that provision shall establish
any additional reserves and file any additional financial reports
that the commissioner may require.
SECTION 1. SEC. 2. Section 10271 of
the Insurance Code is amended to read:
10271. (a) Except as set forth in this section, this chapter
shall not apply to, or in any way affect, provisions in life
insurance, endowment, or annuity contracts, or contracts supplemental
thereto, that provide additional benefits in case of death or
dismemberment or loss of sight by accident, or that operate to
safeguard those contracts against lapse, as described in subdivision
(a) of Section 10271.5 10271.1 , or
give a special surrender value benefit
, as defined in subdivision (b) of Section 10271.5
10271.1 , or a special benefit,
or an annuity, in the event that the owner,
insured, or annuitant, or beneficiary,
as applicable, meets the benefit triggers specified in the life
insurance or annuity contract or a rider, amendment, or
endorsement attached to the supplemental
contract.
(b) (1) A provision or supplemental contract described in
subdivision (a) shall contain all of the provisions set forth in
paragraph (2). However, an insurer, at its option, may substitute for
one or more of the provisions a corresponding provision of different
wording approved by the commissioner that is not less favorable in
any respect to the insurer or the beneficiary
owner, insured, or annuitant, as applicable. The provisions required
by paragraph (2) shall be preceded individually by the appropriate
caption as provided in subparagraph (D) of paragraph (2), or, at the
option of the insurer, by the appropriate individual or group
captions or subcaptions as the commissioner may approve .
(2) The provisions required to be included in a provision or
supplemental contract pursuant to this subdivision shall be in the
following form:
ENTIRE CONTRACT: CHANGES: This provision or supplemental
contract, including any endorsement and attached papers, constitutes
the entire provision or supplemental contract. No change in the
provision or supplemental contract shall be valid until approved by
an executive officer of the insurer that is endorsed on or attached
to the contract. No agent has authority to change the provision or
supplemental contract or to waive any of its provisions.
REINSTATEMENT: If there is a separate premium charged for the
provision or supplemental contract, and if that premium is not paid
on time, and if the insurer or its agent subsequently accepts the
premium, the insurer shall, without requiring an application for
reinstatement, reinstate the provision or supplemental contract.
(2) With respect to the benefit standards described in
subdivisions (a) and (b) of Section 10271.1, the following
requirements apply to the supplemental contracts with these benefits:
(A) Either the contract or supplemental contract shall provide
that the contract and the supplemental contract constitute the entire
insurance or annuity contract consistent with paragraph (7) of
subdivision (c) of Section 2534.3 of Title 10 of the California Code
of Regulations, and shall also provide that no agent has the
authority to change the contract or to waive any of its provisions.
This requirement applies without regard to whether the contract is a
variable or nonvariable contract, or a group or individual contract.
(B) Either the contract or supplemental contract shall provide for
reinstatement consistent with paragraph (3) of subdivision (c) of
Section 2534.3 of Title 10 of the California Code of Regulations.
This requirement applies without regard to whether the contract is a
variable or nonvariable contract, or a group or individual contract.
(C) Supplemental contracts subject to underwriting shall include
an incontestability statement that provides that the insurer shall
not contest the supplemental contract after it has been in force
during the lifetime of the insured for two years from its date of
issue, and may only be contested based on a statement made in the
application for the supplemental contract, if the statement is
attached to the contract. The statement upon which the contest is
made shall be material to the risk accepted or the hazard assumed by
the insurer.
(D) A provision or supplemental contract described in subdivision
(a) shall include:
NOTICE
(i) NOTICE OF CLAIM:
Written The insurer may require written notice
of claim must be given to the insurer within
no less than 20 days after an occurrence covered by the
provision or supplemental contract, or commencement of any loss
covered by the provision or supplemental contract , or as
soon thereafter as is reasonably possible . Notice given by
or on behalf of the insured or the beneficiary , as
applicable to the insurer at address/telephone number]
the insurer's address or telephone number , or
to any authorized agent of the insurer, with information sufficient
to identify the insured, shall be deemed notice to the insurer.
CLAIM
(ii) CLAIM FORMS: The insurer,
upon receipt of a notice of claim, will
shall furnish to the claimant such forms as are usually
furnished by it for filing a proof of occurrence or a proof of loss.
If the forms are not furnished within 15 days after giving notice,
the claimant shall be deemed to have complied with the requirements
of this policy the provision or supplemental
contract as to proof of occurrence or proof of loss upon
submitting, within the time fixed in the policy
provision or supplemental contract for filing proof of
occurrence or proof of loss, written proof covering the character and
the extent of the occurrence or loss.
PROOF
(iii) PROOF OF LOSS:
Written The insurer may require that the insured
provide written proof of occurrence or proof of loss
must be furnished to the insurer at its office in case of claim for
occurrence or loss for which this provision or supplemental contract
provides a benefit within no less than 90 days
after the termination of the period for which the insurer is liable,
and, in the case of claim for any other occurrence or loss, within 90
days after the date of the occurrence or loss. Failure to furnish
proof within the time required shall not invalidate or reduce the
claim if it was not reasonably possible to give proof within the
time, provided proof is furnished as soon as reasonably possible and,
except in the absence of legal capacity, no later than one year from
the time proof is otherwise required.
PHYSICAL
(iv) PHYSICAL EXAMINATIONS: The
insurer, at its own expense, shall have the right and opportunity to
examine the person of the insured when and as often as the insurer
may reasonably require during the pendency of a claim.
(c) The commissioner shall review contracts and supplemental
contracts to ensure that the language can be readily understood and
interpreted, and shall not approve any contract or supplemental
contract for insurance or delivery in this state if the commissioner
finds that the contract or supplemental contract does any of the
following:
(1) Contains any provision, label, description of its contents,
title, heading, backing, or other indication of its provisions that
is unintelligible, uncertain, ambiguous, or abstruse, or likely to
mislead a person to whom the contract or supplemental contract is
offered, delivered, or issued.
(2) Constitutes fraud, unfair trade practices, and insurance
economically unsound to the owner, insured, or annuitant,
or beneficiary, as applicable.
(3) Contains any provision, label, description of its contents,
title, heading, backing, or other indication of its provisions that
the products constitute long-term care or disability insurance or
provide long-term care coverage or disability benefits.
(d) A provision or supplemental contract described in subdivision
(a) shall not contain any title, description, or any other indication
that would describe or imply that the policy or supplemental
contract provides long-term care coverage.
(e) Commencing two years from the date of the issuance of the
provision or supplemental contract, no claim for loss incurred or
disability, as defined in the provision or supplemental contract, may
be reduced or denied on the grounds that a disease or physical
condition not excluded from coverage by name or specific description
effective on the date of loss had existed prior to the effective date
on the coverage of the provision or supplemental contract.
(f) With regard to benefits set forth in Section 10271.1, the
provisions and supplemental contracts shall specify any applicable
exclusions, which shall be limited to the following:
(1) Total disability caused or substantially contributed to by any
attempt at suicide or intentionally self-inflicted injury, while
sane or insane.
(2) Total disability caused or substantially contributed to by war
or an act of war, as defined in the exclusion provisions of the
contract.
(3) Total disability caused or substantially contributed to by
active participation in a riot, insurrection, or terrorist activity.
(4) Total disability caused or substantially contributed to by
committing or attempting to commit a felony.
(5) Total disability caused or substantially contributed to by
voluntary intake of either:
(A) Any drug, unless prescribed or administered by a physician and
taken in accordance with the physician's instructions.
(B) Poison, gas, or fumes, unless they are the direct result of an
occupational accident.
(6) Total disability occurring after the policy anniversary or
supplemental contract anniversary, as applicable and as defined in
the policy or supplemental contract, on which the insured attains a
specified age of no less than 65.
(7) Total disability in consequence of the insured being
intoxicated, as defined by the jurisdiction where the total
disability occurred.
(8) Total disability caused or materially contributed to by
engaging in an illegal occupation.
(d)
(g) If the commissioner notifies the insurer, in
writing, that the filed form does not comply with the requirements of
law and specifies the reasons for his or her opinion, it is unlawful
for an insurer to issue any policy in that form.
SEC. 2. SEC. 3. Section
10271.5 10271.1 is added to the Insurance Code,
to read:
10271.5. 10271.1. (a) (1)
Provisions or supplemental contracts that operate to safeguard life
insurance contracts against lapse include, but are not
limited to, are defined as a waiver of premium
benefit or a waiver of monthly deduction benefit, as applicable, in
which the insurer waives the premium or monthly deduction for a life
insurance contract when the insured becomes totally disabled, as
defined in the contract or supplemental contract, and where the
waiver continues until the end of the insured's disability, or until
the attainment of an age established by the insurer.
(2) For purposes of this subdivision, total disability shall not
be less favorable to the insured than the following:
(A) During the first 24 months of total disability, the insured is
unable to perform with reasonable continuity the substantial and
material duties of his or her job due to sickness or bodily injury.
(B) After the first 24 months of total disability, the insured,
due to sickness or bodily injury, is unable to engage with reasonable
continuity in any other job in which he or she could reasonably be
expected to perform satisfactorily in light of his or her age,
education, training, experience, station in life, or physical and
mental capacity.
(3) The definition of total disability may also include
presumptive total disability, such as the insured's total and
permanent loss of sight of both eyes, hearing of both ears, speech,
the use of both hands, both feet, or one hand and one foot.
(4) The total disability shall be required to continue for a
consecutive period of time specified in the contract or supplemental
contract.
(5) The insurer may provide exclusions based on injuries or
illness that were intentionally self-inflicted or the product of
reckless or illegal conduct.
(4) The insurer may require total disability to continue for an
uninterrupted period of time specified in the contract or
supplemental contract, or the insurer may allow separate periods of
disability to be combined.
(6)
(5) The waiver of premium or monthly deduction benefit
shall continue for the period specified in the contract or
supplemental contract, but shall not be less favorable to the insured
than the following:
(A) If the insured's total disability begins before the insured
attains 60 years of age, the company insurer
shall waive all premiums or monthly deductions due for the
period of the total disability, and if the total disability extends
to the insured's attainment of 65 years of age, the company
insurer shall waive all further premiums or
monthly deductions due.
(B) If the insured's total disability begins after the age
specified in subparagraph (A), the company
insurer shall waive all premiums or monthly deductions due for
the period that the insured continues to be totally disabled up to 65
years of age.
(b) "Special surrender value" includes
benefit" is defined as a "waiver of surrender charge benefit"
wherein the insurer waives the surrender charge usually charged for a
withdrawal of funds from the cash value of a life insurance contract
or the account value of an annuity contract if the owner, insured,
or annuitant, or beneficiary, as
applicable, meets any of the following criteria:
(1) Develops any medical condition where the annuitant or
policy owner's owner's, insured's, or annuitant's
life expectancy is expected to be less than or equal to a
limited period of time that shall not be restricted to a period of
less than six 12 months or greater
than 24 months .
(2) Is receiving, as prescribed by a physician and surgeon,
registered nurse, or licensed social worker, home care or
community-based services, as defined in subdivision (a) of Section
10232.9, or is confined in a skilled nursing facility, convalescent
nursing home, or extended care facility, which shall not be defined
more restrictively than as in the Medicare Program, or is confined in
a residential care facility or residential care facility for the
elderly, as defined in Section 1569.2 of the
Health and Safety Code. Out-of-state providers of services shall be
defined as comparable in licensure and staffing requirements to
California providers.
(3) Has a medical condition that may reduce his or her life
expectancy.
(4) Becomes confined in an eligible institution, as defined in the
contract or supplemental contract, because he or she needs
extraordinary medical intervention.
(5) Is totally disabled and unable to perform any work for pay or
profit for a period of time specified in the contract or supplemental
contract.
(6) Is disabled and is prevented from engaging in the substantial
and material duties of an occupation for which she or he becomes
qualified by reason of education or training or for a period
specified in the contract, not to exceed 12 months.
(7) Has a chronic illness, defined as a permanent inability to
perform a specified number of activities of daily living, or has a
permanent severe cognitive impairment or a similar form of dementia.
(3) Has any medical condition that would, in the absence of
treatment, result in death within a limited period of time, as
defined in the provision or supplemental contract, but that shall not
be restricted to a period of less than six months.
(4) Is totally disabled, as follows:
(A) During the first 24 months of total disability, the owner,
insured, or annuitant, as applicable, is unable to perform with
reasonable continuity the substantial and material duties of his or
her job due to sickness or bodily injury.
(B) After the first 24 months of total disability, the owner,
insured, or annuitant, as applicable, due to sickness or bodily
injury, is unable to engage with reasonable continuity in any other
job in which he or she could reasonably be expected to perform
satisfactorily in light of his or her age, education, training,
experience, station in life, or physical and mental capacity.
(C) The definition of total disability may also include
presumptive total disability, such as the insured's total and
permanent loss of sight of both eyes, hearing of both ears, speech,
the use of both hands, both feet, or one hand and one foot.
(D) The insurer may require the total disability to continue for
an uninterrupted period of time specified in the contract or
supplemental contract, or the insurer may allow separate periods of
disability to be combined.
(5) Has a chronic illness as defined pursuant to either
subparagraph (A) or (B):
(A) Either of the following:
(i) Impairment in performing two out of seven activities of daily
living, as set forth in subdivisions (a) and (g) of Section 10232.8,
meaning the insured needs human assistance, or needs continual
substantial supervision.
(ii) The insured has an impairment of cognitive ability, meaning a
deterioration or loss of intellectual capacity due to mental illness
or disease, including Alzheimer's disease or related illnesses, that
requires continual supervision to protect oneself or others.
(B) Either of the following:
(i) Impairment in performing two out of six activities of daily
living as described in subdivisions (b), (d), (e), and (f) of Section
10232.8 due to a loss of functional capacity to perform the
activity.
(ii) Impairment of cognitive ability, meaning the insured needs
substantial supervision due to severe cognitive impairment, as
described in subdivision (b) of Section 10232.8.
(8)
(6) Has become involuntarily or voluntarily unemployed.
(d) The department shall report to the Legislature by January 1,
2014, the number and type of contracts and supplemental contracts
approved or disapproved under this section. The report shall include,
by category of policy and the feature involved, a statement of the
reasons for disapproval. The report shall not include the identity of
any insurer, specific contract language, or any proprietary
language.
(e) (1) The requirement for submitting a report imposed under
subdivision (d) is inoperative on January 1, 2018, pursuant to
Section 10231.5 of the Government Code.
(2) The report submitted pursuant to subdivision (d) shall comply
with Section 9795 of the Government Code.
SEC. 3. SEC. 4. Section 10292 of the
Insurance Code is amended to read:
10292. (a) A supplemental contract described in Section 10271
shall not be delivered or issued for delivery to any person in this
state until a copy of the form thereof is submitted to, and approved
by, the commissioner. If the supplemental contract is an integral
part of a contract of life insurance or annuity, the entire contract
shall be submitted to the commissioner, but his or her
power of approval or disapproval is limited to the supplemental
portion and any other portions that relate to the supplemental
portion.
(b) A supplemental contract described in Section 10271.1 shall be
considered an integral part of a contract for purposes of this
section. To facilitate the review of a supplemental contract, the
insurer shall submit, for informational purposes, a sample copy of
the life insurance or annuity contract with which the supplemental
contract will be used. To facilitate the location of the required
provisions as stated in paragraph (2) of subdivision (b) of Section
10271, the insurer shall provide the sample copy page reference for
the provisions that appear in the contract.
(b)
(c) The commissioner may adopt reasonable rules and
regulations as are necessary to administer and carry out the purposes
of Sections 10271 and 10271.5, and this section.