California Legislature—2013–14 Regular Session

Assembly Bill No. 546

Introduced by Assembly Member Stone

February 20, 2013

An act to amend Section 10110.1 of the Insurance Code, relating to insurance.

LEGISLATIVE COUNSEL’S DIGEST

AB 546, as introduced, Stone. Insurance: life and disability insurance: insurable interest.

Existing law provides, among other things, that an insurable interest, with reference to life and disability insurance, is an interest based upon a reasonable expectation of pecuniary advantage through the continued life, health, or bodily safety of another person and consequent loss by reason of that person’s death or disability or a substantial interest engendered by love and affection in the case of individuals closely related by blood or law.

This bill would make technical, nonsubstantive changes to those provisions.

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 10110.1 of the Insurance Code is
amended to read:

10110.1.  

(a) An insurable interest, with reference to life and
disability insurance, is an interest based upon a reasonable
expectation of pecuniary advantage through the continued life,
health, or bodily safety of another person and consequent loss begin delete by
reason end delete of that begin delete person’s end delete begin insert person by reason of end insert death or disability or
a substantial interest engendered by love and affection in the case
of individuals closely related by blood or law.

(b) An individual has an unlimited insurable interest in his or
her own life, health, and bodily safety and may lawfully take out
a policy of insurance on his or her own life, health, or bodily safety
and have the policy made payable to whomsoever he or she pleases,
regardless of whether the beneficiary designated has an insurable
interest.

(c) Except as provided in Section 10110.4, an employer has an
insurable interest, as referred to in subdivision (a), in the life or
physical or mental ability of any of its directors, officers, or
employees or the directors, officers, or employees of any of its
subsidiaries or any other person whose death or physical or mental
disability might cause financial loss to the employer; or, pursuant
to begin delete any end delete begin insert a end insert contractual arrangement with begin delete any end delete begin insert a end insert shareholder concerning
the reacquisition of shares owned by the shareholder at the time
of his or her death or disability, on the life or physical or mental
ability of that shareholder for the purpose of carrying out the
contractual arrangement; or, pursuant to begin delete any end delete begin insert a end insert contract obligating
the employer as part of compensation arrangements or pursuant
to a contract obligating the employer as guarantor or surety, on
the life of the principal obligor. The trustee of an employer or
trustee of a pension, welfare benefit plan, or trust established by
an employer providing life, health, disability, retirement, or similar
benefits to employees and retired employees of the employer or
its affiliates and acting in a fiduciary capacity with respect to those
employees, retired employees, or their dependents or beneficiaries
has an insurable interest in the lives of employees and retired
employees for whom those benefits are to be provided. The
employer shall obtain the written consent of the individual being
insured.

(d) Trusts and special purpose entities that are used to apply for
and initiate the issuance of policies of insurance for investors,
where one or more beneficiaries of those trusts or special purpose
entities do not have an insurable interest in the life of the insured,
violate the insurable interest laws and the prohibition against
wagering on life.

(e)  begin delete Any end delete begin insert A end insert device, scheme, or artifice designed to give the
appearance of an insurable interest where there is no legitimate
insurable interest violates the insurable interest laws.

(f) An insurable interest shall be required to exist at the time
the contract of life or disability insurance becomes effective, but
need not exist at the time the loss occurs.

(g)  begin delete Any end delete begin insert A end insert contract of life or disability insurance procured or
caused to be procured upon another individual is void unless the
person applying for the insurance has an insurable interest in the
individual insured at the time of the application.

(h) Notwithstanding subdivisions (a), (f), and (g), a charitable
organization that meets the requirements of Section 214 or 23701d
of the Revenue and Taxation Code may effectuate life or disability
insurance on an insured who consents to the issuance of that
insurance.

(i) This section shall not be interpreted to define all instances
in which an insurable interest exists.