BILL ANALYSIS Ó SENATE JUDICIARY COMMITTEE Senator Hannah-Beth Jackson, Chair 2013-2014 Regular Session AB 1234 (Levine) As Amended January 17, 2014 Hearing Date: June 24, 2014 Fiscal: No Urgency: No TMW SUBJECT Insurance: Registration Statements DESCRIPTION Existing law provides that all information, documents, and copies thereof obtained by or disclosed to the Insurance Commissioner (Commissioner) or any other person in the course of an examination or investigation of an insurance holding company system (IHCS) member pursuant to the Insurance Holding Company System Regulatory Act, and all information required to be reported to the Commissioner in IHCS registration documents shall be kept confidential, shall not be subject to disclosure pursuant to the California Public Records Act (CPRA) and shall not be subject to subpoena. This bill would further provide that information is also not subject to discovery from the Commissioner or admissible into evidence in any private civil action if obtained from the Commissioner in any manner. BACKGROUND The California Department of Insurance (CDI) participates in an insurance regulator accreditation program developed by the National Association of Insurance Commissioners (NAIC). This accreditation program provides uniformity among the member state insurance departments as well as consumer protections. Periodically, NAIC develops uniform insurance standards which are included in NAIC's model laws. Each member of the accreditation program must then adopt the model laws in order to maintain its accreditation. (more) AB 1234 (Levine) Page 2 of ? The Insurance Holding Company System Regulatory Act provides insurance regulators the tools to investigate "who" is controlling "what" in an insurance holding company system (two or more affiliated persons, one or more being an insurer) (IHCS) since ownership and control of an IHCS may pass through a variety of persons or entities. In 2010, the NAIC adopted significant revisions to that Act in response to concerns that insurance regulators lacked the necessary authority to adequately understand how noninsurance entities within an IHCS might pose a risk to an insurer, particularly given the financial difficulties experienced by a noninsurance affiliate of the American International Group (AIG) IHCS during the most recent financial crisis. SB 1448 (Calderon, Ch. 282, Stats. 2012) adopted those NAIC revisions under California's Insurance Holding Company System Regulatory Act, which requires insurers authorized to do business in this state that are part of an IHCS to register with the Insurance Commissioner (Commissioner) and, in the course of an examination or investigation by the Commissioner, requires information to be disclosed to the Commissioner. Existing law provides that information, documents, and copies thereof obtained by or disclosed to the Commissioner or any other person in the course of an examination or investigation of an IHCS member, and all information required to be reported to the Commissioner in IHCS registration documents, shall be kept confidential, shall not be subject to disclosure pursuant to the California Public Records Act (CPRA) and shall not be subject to subpoena. In order to maintain its accreditation in the NAIC program, California had to adopt those requirements. Similarly, this bill would provide that information provided to the Commissioner is also not subject to discovery from the Commissioner or admissible into evidence in any private civil action if obtained from the Commissioner in any manner. This bill was heard by the Senate Insurance Committee on June 11, 2014, and passed out on a vote of 10-0. CHANGES TO EXISTING LAW Existing law , the Insurance Holding Company System Regulatory Act (Act), requires insurers authorized to do business in this state that are part of an insurance holding company system (IHCS) to register with the Insurance Commissioner AB 1234 (Levine) Page 3 of ? (Commissioner). (Ins. Code Sec. 1215.4(a).) Existing law requires registration forms to include specified information regarding the legal and financial relationships between IHCS members, including, for example, the capital structure, general financial condition, ownership, and management of the insurer. (Ins. Code Sec. 1215.4(b).) Existing law provides that all information, documents, and copies thereof obtained by or disclosed to the Commissioner or any other person in the course of an examination or investigation of an IHCS member, and all information required to be reported to the Commissioner in IHCS registration documents, shall be kept confidential, shall not be subject to disclosure pursuant to the California Public Records Act (CPRA) and shall not be subject to subpoena. (Ins. Code Sec. 1215.8(a).) Existing law requires that information to not be made public by the Commissioner or any other person except to insurance departments of other states without the prior written consent of the insurance company to which it pertains, unless the Commissioner, after giving the insurer notice and an opportunity to be heard, determines that the interests of policyholders, shareholders, or the public will be served by the publication of the information, as specified. (Ins. Code Sec. 1215.8(a).) Existing law specifies circumstances under which the Commissioner may share otherwise confidential documents or information with certain parties in order to assist in the performance of the Commissioner's duties. (Ins. Code Sec. 1215.8(b).) Existing law provides that documents, materials, or other information filed in the possession or control of the National Association of Insurance Commissioners (NAIC) shall be confidential by law and privileged, shall not be subject to subpoena, and shall not be subject to discovery or admissible in evidence in any private civil action. (Ins. Code Sec. 1215.8(e).) Existing law , the CPRA, generally requires records maintained by public agencies to be accessible to the public. (Gov. Code Sec. 6250 et seq.) Existing law exempts from public disclosure applications submitted by insurance companies to state agencies. (Gov. Code Sec. 6254(d)(1).) AB 1234 (Levine) Page 4 of ? This bill would provide that all information, documents, and copies thereof obtained by or disclosed to the commissioner or any other person in the course of an examination or investigation of an IHCS member, and all information required to be reported to the commissioner in IHCS registration documents is not subject to discovery from the Commissioner or admissible into evidence in any private civil action if obtained from the Commissioner in any manner. COMMENT 1. Stated need for the bill The author writes: Much of the National Association of Insurance Commissioners (NAIC) recommendations were adopted in California under SB 1448 (Calderon 2012), and SB 1448 constitutes much of existing law on the issue. Existing law allows for the Insurance Commissioner to regulate insurance holding companies and in doing so there is a need for the exchange of information with both departments in other states as well as with NAIC. 23 states in addition to California have fully or substantially adopted the recommended NAIC language. . . . While the changes in the bill are CDI's current practice the bill is needed because the lack of clarity without the bill could lead to future issues with sharing info with both NAIC and other state agencies. Lastly to be NAIC accredited the state must [adopt] the NAIC Act by January 1, 2016. 2. Exempting IHCS information from discovery and as trial evidence Under this bill, all information, documents, and copies thereof obtained by or disclosed to the Commissioner regarding an IHCS in the course of an examination or investigation or reported as required under existing law would not be subject to production pursuant to discovery or admissible as evidence in any private party civil action. Existing law already makes that information exempt from production pursuant to a subpoena. (Ins. Code Sec. 1215.8(a).) The California Department of Insurance (CDI), sponsor, writes: To ensure adequate consumer protections and sufficient AB 1234 (Levine) Page 5 of ? mitigation of risk, California has actively worked within the NAIC to update their model Holding Company Act, most recently doing so in 2012. The contents of AB 1234 reflect a technical and clarifying amendment that confirms both current California Insurance Code and CDI practice such that relevant CDI investigations, as well as those of other state insurance regulators, remain confidential. These investigations protect policyholders and consumers by ensuring the proper solvency of CDI-regulated entities. Ensuring that CDI investigations and examinations, as well as those of our insurance regulator counterparts in other states, remain confidential is a fundamental tenet of proper regulation. Otherwise there could be a significant chilling effect on the investigatory process that could negatively impact millions of policyholders and consumers if regulated entities fear inappropriate disclosure of information. Many insurers that are domiciled in other countries, particularly in Europe, have been quite aggressive in attempting to rebuff appropriate regulatory investigative activities of not only CDI but other states within the NAIC framework. Ensuring confidentiality of information is fundamental to counter such attempts to thwart proper regulatory activity. Generally, all working papers, recorded information, documents, and copies thereof produced by, obtained by, or disclosed to the Commissioner or any other person in the course of an examination shall be given confidential treatment and are not subject to subpoena and shall not be made public by the Commissioner or any other person. (Ins. Code Sec. 735.5(c).) Existing law protects various types of insurance documents submitted to the Commissioner from discovery or use as evidence in civil actions. (See, i.e., Ins. Code Sec. 923.6(f)(1) (insurer certification examination); Ins. Code Sec. 935.8 ( own risk and solvency information).) More importantly, existing law already makes IHCS documents, materials, or other information filed in the possession or control of the NAIC confidential by law and privileged, not be subject to subpoena, and not subject to discovery or admissible in evidence in any private civil action. (Ins. Code Sec. 1215.8(e).) This bill would clarify that IHCS information would not be subject to discovery or admissible as evidence in a private civil action, which would bring California into conformity with NAIC requirements and maintain California's NAIC accreditation. 3. Author's amendment AB 1234 (Levine) Page 6 of ? The California Constitution declares the people's right to transparency in government. ("The people have the right of access to information concerning the conduct of the people's business, and therefore, the meetings of public bodies and the writings of public officials and agencies shall be open to public scrutiny....") (Cal. Const., art. I, Sec. 3.) Accordingly, the Constitution provides that a statute, court rule, or other authority, shall be broadly construed if it furthers the people's right of access, and narrowly construed if it limits the right of access; a statute, court rule, or other authority that limits the right of access must be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest. (Cal. Const., art. I, Sec. 3.) While this bill would limit the public's right of access to information, documents, and copies thereof obtained by or disclosed to the Commissioner or any other person in the course of an examination or investigation of an IHCS member, this bill does not currently provide findings and declarations regarding this limitation. To correct this issue, the author offers the following amendment, which would state the interest protected by the limitation and the need to protect that interest. Author's amendment On page 4, after line 16, insert: SEC. 2. The Legislature finds and declares that Section 1 of this act imposes a limitation on the public's right of access to the writings of public officials and agencies within the meaning of Section 3 of Article I of the California Constitution. Pursuant to that constitutional provision, the Legislature makes the following findings to demonstrate the interest protected by this limitation and the need for protecting that interest: In order to protect proprietary information, it is necessary to enact legislation that the insurance holding company system information provided pursuant to this act is kept confidential. Support : None Known AB 1234 (Levine) Page 7 of ? Opposition : None Known HISTORY Source : California Department of Insurance Related Pending Legislation : None Known Prior Legislation : SB 1448 (Calderon, Ch. 282, Stats. 2012) See Background; Comment 1. Prior Vote : Senate Committee on Insurance (Ayes 10, Noes 0) Assembly Floor (Ayes 72, Noes 0) Assembly Committee on Judiciary (Ayes 9, Noes 0) Assembly Committee on Insurance (Ayes 12, Noes 0) Assembly Committee on Rules (Ayes 9, Noes 0) **************