Amended in Assembly April 21, 2014

California Legislature—2013–14 Regular Session

Assembly BillNo. 2064


Introduced by Assembly Member Cooley

February 20, 2014


An act tobegin delete amend Sections 10081, 10085, 10086, 10089.6, and 10089.26 of, to add Sections 10081.1 and 10089.42 to, and to repeal and add Sections 10089.28 and 10089.41 of,end deletebegin insert amend, add, and repeal Sections 10083 and 10086 of, to amend, repeal, and add Sections 10083, 10086, 10089.6, 10089.26, and 10089.28 of, and to add Section 10089.42 to,end insert the Insurance Code, relating to earthquake insurance.

LEGISLATIVE COUNSEL’S DIGEST

AB 2064, as amended, Cooley. Earthquake insurance: mandatory offer.

Existing law prohibits a policy of residential property insurance from being issued or delivered or initially renewed in this state unless the named insured is offered coverage for loss or damage caused by an earthquake,begin insert as provided,end insert and, if the offer of earthquake coverage is accepted, requires the insurer to provide certain disclosures based on whether the policy was issued by the California Earthquake Authority (CEA).

Existing law created the CEA, to be administered under the authority of the Insurance Commissioner, and authorized it to transact insurance in this state as necessary to sell policies of basic residential earthquake insurance in the manner provided. The CEA has no authority to transact any other type of insurance business. The CEA’s operating expenses are capped at 3% of its premium income.

This bill would revise and recast these provisions bybegin delete insteadend deletebegin insert revising the disclosure language an insurer is required to use in offering earthquake coverage and making the contents of that disclosure language dependent upon whether the insurer is a member of the CEA or not and byend insert requiring insurers who are members of the CEA to provide their insureds with specified disclosures with regard to coverage of losses, the CEA’s liability limitations, and premiums concurrent with the issuance or renewal by the CEA of a residential earthquake insurance policy. The bill would also prohibit member insurers from issuing, delivering, or renewing a policy of residential property insurance in this state, unless the named insured is providedbegin delete notice ofend deletebegin insert information onend insert the availability of residential earthquake insurance from the CEA within 60 days of issuance or renewal of the insured’s residential insurance policy, as provided. The CEA would be required to prepare the forms ofbegin delete noticeend deletebegin insert the information requiredend insert for use by member insurers and submit the forms to the commissioner for approval. The insurers would be authorized to provide the notice electronically or by mail.begin delete The bill would provide that member insurers that fulfil the specified notice requirements would be in compliance with the earthquake insurance provisions applicable to the issuance, delivery, and renewal of a policy of residential property insurance.end delete

This bill would increase the cap on the CEA’s operating expenses to not more than 5% of its premium incomebegin insert, and exclude certain expenses and costs from being classified as operating expensesend insert. The bill would also require that a CEA residential earthquake insurance policy be effective upon receipt by the member insurer of both the completed CEA-approved application for the policy, signed by the applicant, and either the annual premium or the first installment of the annual premium.

This bill would alsobegin delete make conforming changes.end deletebegin insert make these provisionsend insertbegin insert operative on July 1, 2015.end insert

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

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

begin delete
P2    1

SECTION 1.  

Section 10081 of the Insurance Code is amended
2to read:

3

10081.  

Except as provided in Section 10081.1, a policy of
4residential property insurance shall not be issued or delivered or,
5with respect to policies in effect on the effective date of this
P3    1chapter, initially renewed in this state by any insurer unless the
2named insured is offered coverage for loss or damage caused by
3the peril of earthquake as provided in this chapter. That coverage
4may be provided in the policy of residential property insurance
5itself, either by specific policy provision or endorsement, or in a
6separate policy or certificate of insurance that specifically provides
7coverage for loss or damage caused by the peril of earthquake
8alone or in combination with other perils.

9

SEC. 2.  

Section 10081.1 is added to the Insurance Code, to
10read:

11

10081.1.  

Section 10081 does not apply to any insurer that
12participates in the California Earthquake Authority pursuant to
13Chapter 8.6 (commencing with Section 10089.5). Each insurer
14participating in the authority shall provide notice to all of its
15residential property insurance policyholders of the availability of
16earthquake insurance coverage in the manner required by Section
1710089.42.

end delete
begin delete18

SEC. 3.  

Section 10085 of the Insurance Code is amended to
19read:

20

10085.  

If the insurer establishes proof of mailing or delivery
21of the offer that is required pursuant to Section 10081 and the offer
22of earthquake coverage is not accepted by the named insured within
2330 days from the date of mailing or delivery of the offer, there
24shall be a conclusive presumption that the named insured elected
25not to accept the coverage. An election, actual or presumed, by
26any named insured shall be binding upon any other person insured
27or any other party having an insurable interest in the insured
28property.

end delete
begin delete
29

SEC. 4.  

Section 10086 of the Insurance Code, as amended by
30Section 14 of Chapter 369 of the Statutes of 2013, is amended to
31read:

32

10086.  

(a) If an offer of earthquake coverage, made pursuant
33to Section 10081, is accepted, the coverage shall be continued at
34the applicable rates and conditions for the policy term, provided
35the policy of residential property insurance is not terminated by
36the named insured or insurer.

37(1) At any renewal, an insurer may modify the terms and
38conditions of an existing policy, rider, or endorsement providing
39coverage against loss or damage caused by the peril of earthquake
P4    1if the modified terms and conditions provide the minimum
2coverages required by Section 10089.

3(2) An insurer that modifies the terms and conditions of an
4existing policy, rider, or endorsement shall provide the insured
5with the renewal notice in a stand-alone disclosure document
6stating the changes in the terms and conditions of the insured’s
7existing policy, rider, or endorsement. The offer of renewal may
8be made electronically pursuant to Section 38.5. Proof of mailing
9of the disclosure document by first-class mail to a named insured
10at the mailing address shown on the policy or application, or proof
11consistent with Section 38.5 that the offer of renewal of coverage
12was sent to the named insured or applicant by electronic
13transmission, creates a conclusive presumption that the disclosure
14document was provided. The disclosure shall include the following
15statement in 14-point boldface type:
16

17“THE COVERAGE IN THE POLICY WE ARE OFFERING
18YOU WITH THIS RENEWAL HAS BEEN REDUCED, AND
19SUBSTANTIALLY DIFFERS FROM THE COVERAGES
20PROVIDED BY YOUR HOMEOWNERS’ POLICY.
21 INSURANCE COMPANIES ARE ALLOWED TO RENEW
22EARTHQUAKE INSURANCE POLICIES WITH COVERAGE
23THAT IS REDUCED FROM THE COVERAGE YOU
24PREVIOUSLY PURCHASED. YOU MAY REQUEST A
25SAMPLE COPY OF THIS NEW POLICY TO REVIEW PRIOR
26TO MAKING A DECISION TO ACCEPT THIS RENEWAL,
27AND WE WILL MAIL OR DELIVER IT TO YOU WITHIN 14
28DAYS OF YOUR REQUEST. A REQUEST FOR THE SAMPLE
29COPY SHALL NOT CHANGE OR EXTEND THE POLICY
30EXPIRATION DATE SPECIFIED IN THE RENEWAL NOTICE.
31A SUMMARY OF THE CHANGES IS INCLUDED WITH THIS
32NOTICE.”
33

34The commissioner shall approve the form of the summary at the
35time he or she approves the policy. The summary shall include the
36information contained in subdivision (a) of Section 10083, and
37may be included with the renewal notice in standard type.

38The commissioner may approve substantially similar disclosure
39forms if necessary to accurately disclose relevant information to
40the policyholder. The commissioner may also approve disclosure
P5    1forms substantially similar to the disclosure statement required by
2Section 10083 if necessary to accurately disclose relevant
3information to the policyholder.

4(b) If the offer of earthquake coverage made pursuant to Section
510081 is not accepted, the insurer or any affiliated insurer shall be
6required on an every other year basis to offer earthquake coverage
7in connection with any continuation, renewal, or reinstatement of
8the policy following any lapse thereof, or with respect to any other
9policy that extends, changes, supersedes, or replaces the policy of
10residential property insurance. The offer may be made
11electronically pursuant to Section 38.5.

12(c) Nothing in this section shall preclude the named insured
13from terminating the earthquake coverage at any time.

14(d) This section shall remain in effect only until January 1, 2019,
15and as of that date is repealed, unless a later enacted statute, that
16is enacted before January 1, 2019, deletes or extends that date.

end delete
17begin insert

begin insertSECTION 1.end insert  

end insert

begin insertSection 10083 of the end insertbegin insertInsurance Codeend insertbegin insert, as amended
18by Section 12 of Chapter 369 of the Statutes of 2013, is amended
19to read:end insert

20

10083.  

(a) The offer of coverage required by Section 10081
21may be made prior to, concurrent with, or within 60 days following
22the issuance or renewal of a residential property insurance policy.
23If the offer of coverage is mailed to the named insured or applicant,
24it shall be mailed to the mailing address shown on the policy of
25residential property insurance or on the application. The offer may
26be made electronically pursuant to Section 38.5. The offer of
27earthquake coverage shall contain the following language in at
28least 10-point boldface type:


30YOUR POLICY DOES NOT PROVIDE COVERAGE
31AGAINST THE PERIL OF EARTHQUAKE.

32CALIFORNIA LAW REQUIRES THAT EARTHQUAKE
33COVERAGE BE OFFERED TO YOU AT YOUR OPTION.

34WARNING: THESE COVERAGES MAY DIFFER
35SUBSTANTIALLY FROM AND PROVIDE LESS
36PROTECTION THAN THE COVERAGE PROVIDED BY YOUR
37HOMEOWNERS’ INSURANCE POLICY. THERE ARE
38EXCLUSIONS AND LIMITATIONS SUCH AS
39OUTBUILDINGS, SWIMMING POOLS, MASONRY FENCES,
40AND MASONRY CHIMNEYS. THIS DISCLOSURE FORM
P6    1CONTAINS ONLY A GENERAL DESCRIPTION OF
2COVERAGES AND IS NOT PART OF YOUR EARTHQUAKE
3INSURANCE POLICY. ONLY THE SPECIFIC PROVISIONS
4OF YOUR POLICY WILL DETERMINE WHETHER A
5PARTICULAR LOSS IS COVERED AND, IF SO, THE
6AMOUNT PAYABLE.

7THE COVERAGE, SUBJECT TO POLICY PROVISIONS,
8MAY BE PURCHASED AT ADDITIONAL COST ON THE
9FOLLOWING TERMS:

10(A) AMOUNT OF DWELLING COVERAGE: ____

11(B) APPLICABLE DEDUCTIBLE: ____ IF YOUR LOSS IS
12BELOW THIS AMOUNT, YOU MAY NOT RECEIVE ANY
13PAYMENT FROM YOUR COVERAGE.

14YOUR INSURANCE COMPANY OR AGENT WILL
15PROVIDE WRITTEN NOTICE AS TO HOW THE
16DEDUCTIBLE APPLIES TO THE MARKET VALUE OF YOUR
17COVERAGE, THE INSURED VALUE OF YOUR COVERAGE,
18OR THE REPLACEMENT VALUE OF YOUR COVERAGE.

19(C) CONTENTS COVERAGE: ____

20IF YOUR LOSS DOES NOT EXCEED THE DEDUCTIBLE
21FOR THE DWELLING, YOU WILL NOT RECEIVE ANY
22PAYMENT FOR THIS COVERAGE.

23YOUR INSURANCE COMPANY OR AGENT WILL
24PROVIDE WRITTEN NOTICE AS TO HOW THE
25DEDUCTIBLE APPLIES TO THE AMOUNT YOU RECEIVE
26PURSUANT TO THIS COVERAGE.

27(D) ADDITIONAL LIVING EXPENSES: ____

28(E) RATE OR PREMIUM: ____

29YOU MUST ASK THE COMPANY TO ADD EARTHQUAKE
30COVERAGE WITHIN 30 DAYS FROM THE DATE OF
31MAILING OF THIS NOTICE OR IT SHALL BE
32CONCLUSIVELY PRESUMED THAT YOU HAVE NOT
33ACCEPTED THIS OFFER.

34THIS COVERAGE SHALL BE EFFECTIVE ON THE DAY
35YOUR ACCEPTANCE OF THIS OFFER IS RECEIVED BY US.


37(b) When the insurer, agent, or broker establishes delivery of
38the disclosure form by obtaining the signature of the applicant or
39insured, or when an insurer, agent, or broker provides the applicant
40with the disclosure form and the applicant does not return a signed
P7    1acknowledgment of receipt within 60 days of the date it was
2provided, there shall be a conclusive presumption that the insurer,
3agent, or broker has complied with the disclosure requirements of
4this section.

5(c) The offer may contain additional provisions not in conflict
6with or in derogation of this section.

7(d) The commissioner may only approve modifications to the
8language prescribed in subdivision (a) if all of the following
9conditions are met:

10(1) The modifications are not in conflict with or in derogation
11of any provision of this section or Section 10089.

12(2) The modifications are necessary to ensure that the disclosure
13statement accurately reflects the coverage actually provided by
14the policy being offered.

15(3) The modifications are strictly limited to necessary changes
16so that the modified disclosure statement is otherwise identical to
17the disclosure statement prescribed in this section.

18(e) Use of the language prescribed by this section, or modified
19language approved pursuant to subdivision (d), shall constitute
20compliance with the requirements of Section 10081 by an insurer
21subject thereto.

22(f) This section shall remain in effect only untilbegin delete January 1, 2019,end delete
23begin insert July 1, 2015,end insert and as of that date is repealed, unless a later enacted
24statute, that is enacted beforebegin delete January 1, 2019,end deletebegin insert July 1, 2015,end insert deletes
25or extends that date.

26begin insert

begin insertSEC. 2.end insert  

end insert

begin insertSection 10083 is added to the end insertbegin insertInsurance Codeend insertbegin insert, to read:end insert

begin insert
27

begin insert10083.end insert  

(a) The offer of coverage required by Section 10081
28may be made prior to, concurrent with, or within 60 days following
29the issuance or renewal of a residential property insurance policy.
30If the offer of coverage is mailed to the named insured or applicant,
31it shall be mailed to the mailing address shown on the policy of
32residential property insurance or on the application. The offer
33may be made electronically pursuant to Section 38.5.

34(1) If the offer is made by a nonparticipating insurer as defined
35in Section 10089.5, the offer of earthquake coverage shall contain
36all of the following language in at least 10-point boldface type:


38“Your [property; renters; homeowners; condominium;
39townhouse; dwelling; landlord; or other term that may describe
40the type of companion policy] policy does not cover earthquake
P8    1damage to your home or its contents. To cover earthquake damage
2to your home and its contents you need to purchase a separate
3earthquake insurance policy. The coverage provided by an
4earthquake insurance policy is different from, and typically more
5limited than, the coverage provided by your [property; renters;
6homeowners; condominium; townhouse; dwelling; landlord; or
7other term that may describe the type of companion policy] policy.
8California law requires insurance companies to offer earthquake
9insurance in conjunction with a residential property insurance
10policy. If you do not accept the offer of earthquake insurance below
11within 30 days of the mailing of this notice, your insurance
12company may presume that you have not accepted this offer of
13earthquake insurance.

14You may purchase earthquake insurance coverage, subject to
15policy provisions, at additional cost on all of the following terms:

16(A) Amount of Dwelling Coverage [Insurers may reference
17Building Property coverage if a Common Interest Development
18policy.]: ___________________

19(B) Applicable Deductible: ___________________ If your loss
20is below this amount, you may not receive any payment for your
21loss.

22(C) Contents Coverage [Insurers may reference Personal
23Property as that term is in the policy.]: [Insurers should include
24and explain briefly how the deductible works. Some variation is
25allowed, but samples include:

26For a Homeowners Policy, the dwelling deductible applies to
27Contents Coverage. Nothing will be paid until the dwelling
28deductible is met by damage to Coverage A and Coverage B
29property.

30For Renters Policies and Common Interest Development
31Policies, a $750 deductible applies to Contents Coverage.]

32(D) Additional Living Expenses [Insurers may reference Loss
33of Use.]: [Insurers shall explain briefly if there is a deductible and
34how much it is.]

35(E) Estimated Annual Premium:_______________

36Contact your insurance agent or your insurance company to
37obtain details regarding this offer of earthquake insurance and
38other coverage options.”


P9    1(2) If the offer is made by a participating insurer as defined by
2Section 10089.5, the offer of earthquake coverage shall contain
3all of the following language in at least 10-point boldface type:


5“Your [property; renters; homeowners; condominium;
6townhouse; dwelling; landlord; or other term that may describe
7the type of companion policy] policy does not cover earthquake
8damage to your home or its contents. To cover earthquake damage
9to your home and its contents you need to purchase a separate
10earthquake insurance policy. The coverage provided by an
11earthquake insurance policy is different from, and typically more
12limited than, the coverage provided by your [property; renters;
13homeowners; condominium; townhouse; dwelling; landlord; or
14other term that may describe the type of companion policy] policy.
15California law requires insurance companies to offer earthquake
16insurance in conjunction with a residential property insurance
17policy. If you do not accept the offer of earthquake insurance below
18within 30 days of the mailing of this notice, your insurance
19company may presume that you have not accepted this offer of
20earthquake insurance.

21You may purchase earthquake insurance coverage, subject to
22policy provisions, at additional cost on all of the following terms:

23(A) Amount of Dwelling Coverage [Insurers may reference
24Building Property coverage if a Common Interest Development
25policy.]: ___________________

26(B) Applicable Deductible: ___________________ If your loss
27is below this amount, you may not receive any payment for your
28loss.

29(C) Contents Coverage [Insurers may reference Personal
30Property as that term is in the policy.]: [Insurers should include
31and explain briefly how the deductible works. Some variation is
32allowed, but samples include:

33For a Homeowners Policy, the dwelling deductible applies to
34Contents Coverage. Nothing will be paid until the dwelling
35 deductible is met by damage to Coverage A and Coverage B
36property.

37For Renters Policies and Common Interest Development
38Policies, a $750 deductible applies to Contents Coverage.]

P10   1(D) Additional Living Expenses [Insurers may reference Loss
2of Use.]: [Insurers shall explain briefly if there is a deductible and
3how much it is.]

4(E) Estimated Annual Premium:_______________

5For an additional premium, you can choose California
6Earthquake Authority (CEA) coverage options such as higher
7limits for contents or additional living expenses coverages,
8increased building code upgrade limits, or a lower deductible.
9You can also choose to buy certain CEA coverages separately.

10Contact your insurance agent or your insurance company to
11obtain details regarding this offer of earthquake insurance and
12other coverage options.”


14(b) When the insurer, agent, or broker establishes delivery of
15the disclosure form by obtaining the signature of the applicant or
16insured, or when an insurer, agent, or broker provides the
17applicant with the disclosure form and the applicant does not
18return a signed acknowledgment of receipt within 60 days of the
19date it was provided, there shall be a conclusive presumption that
20the insurer, agent, or broker has complied with the disclosure
21requirements of this section.

22(c) The offer may contain additional provisions not in conflict
23with or in derogation of this section.

24(d) The commissioner may only approve modifications to the
25language prescribed in subdivision (a) if all of the following
26conditions are met:

27(1) The modifications are not in conflict with or in derogation
28of any provision of this section or Section 10089.

29(2) The modifications are necessary to ensure that the disclosure
30statement accurately reflects the coverage actually provided by
31the policy being offered.

32(3) The modifications are strictly limited to necessary changes
33so that the modified disclosure statement is otherwise identical to
34the disclosure statement prescribed in this section.

35(e) Use of the language prescribed by this section, or modified
36language approved pursuant to subdivision (d), shall constitute
37compliance with the requirements of Section 10081 by an insurer
38subject to the requirements.

39(f) This section shall become operative on July 1, 2015.

P11   1(g) This section shall remain in effect only until January 1, 2019,
2and as of that date is repealed, unless a later enacted statute, that
3is enacted before January 1, 2019, deletes or extends that date.

end insert
4begin insert

begin insertSEC. 3.end insert  

end insert

begin insertSection 10083 of the end insertbegin insertInsurance Codeend insertbegin insert, as added by
5Section 13 of Chapter 369 of the Statutes of 2013, is amended to
6read:end insert

7

10083.  

(a) The offer of coverage required by Section 10081
8may be made prior to, concurrent with, or within 60 days following
9the issuance or renewal of a residential property insurance policy.
10If the offer of coverage is mailed to the named insured or applicant,
11it shall be mailed to the mailing address shown on the policy of
12residential property insurance or on the application.begin delete The offer of
13earthquake coverage shall contain the following language in at
14least 10-point boldface type:end delete

begin delete

16YOUR POLICY DOES NOT PROVIDE COVERAGE
17AGAINST THE PERIL OF EARTHQUAKE.

18CALIFORNIA LAW REQUIRES THAT EARTHQUAKE
19COVERAGE BE OFFERED TO YOU AT YOUR OPTION.

20WARNING: THESE COVERAGES MAY DIFFER
21SUBSTANTIALLY FROM AND PROVIDE LESS
22PROTECTION THAN THE COVERAGE PROVIDED BY YOUR
23HOMEOWNERS’ INSURANCE POLICY. THERE ARE
24EXCLUSIONS AND LIMITATIONS SUCH AS
25OUTBUILDINGS, SWIMMING POOLS, MASONRY FENCES,
26AND MASONRY CHIMNEYS. THIS DISCLOSURE FORM
27CONTAINS ONLY A GENERAL DESCRIPTION OF
28COVERAGES AND IS NOT PART OF YOUR EARTHQUAKE
29INSURANCE POLICY. ONLY THE SPECIFIC PROVISIONS
30OF YOUR POLICY WILL DETERMINE WHETHER A
31PARTICULAR LOSS IS COVERED AND, IF SO, THE
32AMOUNT PAYABLE.

33THE COVERAGE, SUBJECT TO POLICY PROVISIONS,
34MAY BE PURCHASED AT ADDITIONAL COST ON THE
35FOLLOWING TERMS:

36(A) AMOUNT OF DWELLING COVERAGE: ____

37(B) APPLICABLE DEDUCTIBLE: ____   IF YOUR LOSS IS
38BELOW THIS AMOUNT, YOU MAY NOT RECEIVE ANY
39PAYMENT FROM YOUR COVERAGE.

P12   1YOUR INSURANCE COMPANY OR AGENT WILL
2PROVIDE WRITTEN NOTICE AS TO HOW THE
3DEDUCTIBLE APPLIES TO THE MARKET VALUE OF YOUR
4COVERAGE, THE INSURED VALUE OF YOUR COVERAGE,
5OR THE REPLACEMENT VALUE OF YOUR COVERAGE.

6(C) CONTENTS COVERAGE: ____

7IF YOUR LOSS DOES NOT EXCEED THE DEDUCTIBLE
8FOR THE DWELLING, YOU WILL NOT RECEIVE ANY
9PAYMENT FOR THIS COVERAGE.

10YOUR INSURANCE COMPANY OR AGENT WILL
11PROVIDE WRITTEN NOTICE AS TO HOW THE
12DEDUCTIBLE APPLIES TO THE AMOUNT YOU RECEIVE
13PURSUANT TO THIS COVERAGE.

14(D) ADDITIONAL LIVING EXPENSES: ____

15(E) RATE OR PREMIUM: ____

16YOU MUST ASK THE COMPANY TO ADD EARTHQUAKE
17COVERAGE WITHIN 30 DAYS FROM THE DATE OF
18MAILING OF THIS NOTICE OR IT SHALL BE
19CONCLUSIVELY PRESUMED THAT YOU HAVE NOT
20ACCEPTED THIS OFFER.

21THIS COVERAGE SHALL BE EFFECTIVE ON THE DAY
22YOUR ACCEPTANCE OF THIS OFFER IS RECEIVED BY US.
23


end delete
begin insert

24(1) If the offer is made by a nonparticipating insurer as defined
25in Section 10089.5, the offer of earthquake coverage shall contain
26all of the following language in at least 10-point boldface type:

end insert
begin insert

27“Your [property; renters; homeowners; condominium;
28townhouse; dwelling; landlord; or other term that may describe
29the type of companion policy] policy does not cover earthquake
30damage to your home or its contents. To cover earthquake damage
31to your home and its contents you need to purchase a separate
32earthquake insurance policy. The coverage provided by an
33earthquake insurance policy is different from, and typically more
34limited than, the coverage provided by your [property; renters;
35homeowners; condominium; townhouse; dwelling; landlord; or
36other term that may describe the type of companion policy] policy.
37California law requires insurance companies to offer earthquake
38insurance in conjunction with a residential property insurance
39policy. If you do not accept the offer of earthquake insurance below
40within 30 days of the mailing of this notice, your insurance
P13   1company may presume that you have not accepted this offer of
2earthquake insurance.

end insert
begin insert

3You may purchase earthquake insurance coverage, subject to
4policy provisions, at additional cost on all of the following terms:

end insert
begin insert

5(A) Amount of Dwelling Coverage [Insurers may reference
6Building Property coverage if a Common Interest Development
7policy.]: ___________________

end insert
begin insert

8(B) Applicable Deductible: ___________________ If your loss
9is below this amount, you may not receive any payment for your
10loss.

end insert
begin insert

11(C) Contents Coverage [Insurers may reference Personal
12Property as that term is in the policy.]: [Insurers should include
13and explain briefly how the deductible works. Some variation is
14allowed, but samples include:

end insert
begin insert

15For a Homeowners Policy, the dwelling deductible applies to
16Contents Coverage. Nothing will be paid until the dwelling
17deductible is met by damage to Coverage A and Coverage B
18property.

end insert
begin insert

19For Renters Policies and Common Interest Development
20Policies, a $750 deductible applies to Contents Coverage.]

end insert
begin insert

21(D) Additional Living Expenses [Insurers may reference Loss
22of Use.]: [Insurers shall explain briefly if there is a deductible and
23how much it is.]

end insert
begin insert

24(E) Estimated Annual Premium:_______________

end insert
begin insert

25Contact your insurance agent or your insurance company to
26obtain details regarding this offer of earthquake insurance and
27other coverage options.”

end insert

begin insertend insert
begin insert

29(2) If the offer is made by a participating insurer as defined by
30Section 10089.5, the offer of earthquake coverage shall contain
31all of the following language in at least 10-point boldface type:

end insert

begin insertend insert
begin insert

33“Your [property; renters; homeowners; condominium;
34townhouse; dwelling; landlord; or other term that may describe
35the type of companion policy] policy does not cover earthquake
36damage to your home or its contents. To cover earthquake damage
37to your home and its contents you need to purchase a separate
38earthquake insurance policy. The coverage provided by an
39earthquake insurance policy is different from, and typically more
40limited than, the coverage provided by your [property; renters;
P14   1homeowners; condominium; townhouse; dwelling; landlord; or
2other term that may describe the type of companion policy] policy.
3California law requires insurance companies to offer earthquake
4insurance in conjunction with a residential property insurance
5policy. If you do not accept the offer of earthquake insurance below
6within 30 days of the mailing of this notice, your insurance
7company may presume that you have not accepted this offer of
8earthquake insurance.

end insert
begin insert

9You may purchase earthquake insurance coverage, subject to
10policy provisions, at additional cost on all of the following terms:

end insert
begin insert

11(A) Amount of Dwelling Coverage [Insurers may reference
12Building Property coverage if a Common Interest Development
13policy.]: ___________________

end insert
begin insert

14(B) Applicable Deductible: ___________________ If your loss
15is below this amount, you may not receive any payment for your
16loss.

end insert
begin insert

17(C) Contents Coverage [Insurers may reference Personal
18Property as that term is in the policy.]: [Insurers should include
19and explain briefly how the deductible works. Some variation is
20allowed, but samples include:

end insert
begin insert

21For a Homeowners Policy, the dwelling deductible applies to
22Contents Coverage. Nothing will be paid until the dwelling
23deductible is met by damage to Coverage A and Coverage B
24property.

end insert
begin insert

25For Renters Policies and Common Interest Development
26Policies, a $750 deductible applies to Contents Coverage.]

end insert
begin insert

27(D) Additional Living Expenses [Insurers may reference Loss
28of Use.]: [Insurers shall explain briefly if there is a deductible and
29how much it is.]

end insert
begin insert

30(E) Estimated Annual Premium:_______________

end insert
begin insert

31For an additional premium, you can choose California
32Earthquake Authority (CEA) coverage options such as higher
33limits for contents or additional living expenses coverages,
34increased building code upgrade limits, or a lower deductible.
35You can also choose to buy certain CEA coverages separately.

end insert
begin insert

36Contact your insurance agent or your insurance company to
37obtain details regarding this offer of earthquake insurance and
38other coverage options.”

end insert

39(b) When the insurer, agent, or broker establishes delivery of
40the disclosure form by obtaining the signature of the applicant or
P15   1insured, or when an insurer, agent, or broker provides the applicant
2with the disclosure form and the applicant does not return a signed
3acknowledgment of receipt within 60 days of the date it was
4provided, there shall be a conclusive presumption that the insurer,
5agent, or broker has complied with the disclosure requirements of
6this section.

7(c) The offer may contain additional provisions not in conflict
8with or in derogation of this section.

9(d) The commissioner may only approve modifications to the
10language prescribed in subdivision (a) if all of the following
11conditions are met:

12(1) The modifications are not in conflict with or in derogation
13of any provision of this section or Section 10089.

14(2) The modifications are necessary to ensure that the disclosure
15statement accurately reflects the coverage actually provided by
16the policy being offered.

17(3) The modifications are strictly limited to necessary changes
18so that the modified disclosure statement is otherwise identical to
19the disclosure statement prescribed in this section.

20(e) Use of the language prescribed by this section, or modified
21language approved pursuant to subdivision (d), shall constitute
22compliance with the requirements of Section 10081 by an insurer
23subject thereto.

24(f) This section shall become operative on January 1, 2019.

25begin insert

begin insertSEC. 4.end insert  

end insert

begin insertSection 10086 of the end insertbegin insertInsurance Codeend insertbegin insert, as amended by
26Section 14 of Chapter 369 of the Statutes of 2013, is amended to
27read:end insert

28

10086.  

(a) If an offer of earthquake coverage is accepted, the
29coverage shall be continued at the applicable rates and conditions
30for the policy term, provided the policy of residential property
31insurance is not terminated by the named insured or insurer.

32(1) At any renewal, an insurer may modify the terms and
33conditions of an existing policy, rider, or endorsement providing
34coverage against loss or damage caused by the peril of earthquake
35if the modified terms and conditions provide the minimum
36coverages required by Section 10089.

37(2) An insurer that modifies the terms and conditions of an
38existing policy, rider, or endorsement shall provide the insured
39with the renewal notice in a stand-alone disclosure document
40stating the changes in the terms and conditions of the insured’s
P16   1existing policy, rider, or endorsement. The offer of renewal may
2be made electronically pursuant to Section 38.5. Proof of mailing
3of the disclosure document by first-class mail to a named insured
4at the mailing address shown on the policy or application, or proof
5consistent with Section 38.5 that the offer of renewal of coverage
6was sent to the named insured or applicant by electronic
7transmission, creates a conclusive presumption that the disclosure
8document was provided. The disclosure shall include the following
9statement in 14-point boldface type:


11THE COVERAGE IN THE POLICY WE ARE OFFERING
12YOU WITH THIS RENEWAL HAS BEEN REDUCED, AND
13SUBSTANTIALLY DIFFERS FROM THE COVERAGES
14PROVIDED BY YOUR HOMEOWNERS’ POLICY.
15INSURANCE COMPANIES ARE ALLOWED TO RENEW
16EARTHQUAKE INSURANCE POLICIES WITH COVERAGE
17THAT IS REDUCED FROM THE COVERAGE YOU
18PREVIOUSLY PURCHASED. YOU MAY REQUEST A
19SAMPLE COPY OF THIS NEW POLICY TO REVIEW PRIOR
20TO MAKING A DECISION TO ACCEPT THIS RENEWAL,
21AND WE WILL MAIL OR DELIVER IT TO YOU WITHIN 14
22DAYS OF YOUR REQUEST. A REQUEST FOR THE SAMPLE
23COPY SHALL NOT CHANGE OR EXTEND THE POLICY
24EXPIRATION DATE SPECIFIED IN THE RENEWAL NOTICE.
25A SUMMARY OF THE CHANGES IS INCLUDED WITH THIS
26NOTICE.


28The commissioner shall approve the form of the summary at the
29time he or she approves the policy. The summary shall include the
30information contained in subdivision (a) of Section 10083, and
31may be included with the renewal notice in standard type.

32The commissioner may approve substantially similar disclosure
33forms if necessary to accurately disclose relevant information to
34the policyholder. The commissioner may also approve disclosure
35forms substantially similar to the disclosure statement required by
36Section 10083 if necessary to accurately disclose relevant
37information to the policyholder.

38(3) If the earthquake coverage is provided by a policy issued
39by the California Earthquake Authority, the following disclosure
40shall be provided in 14-point boldface type:

P17   1CALIFORNIA EARTHQUAKE AUTHORITY POLICY
2DISCLOSURE
3

4THIS POLICY IS BEING PURCHASED FROM THE
5CALIFORNIA EARTHQUAKE AUTHORITY (“CEA”). THE
6COVERAGE IN THIS CEA POLICY SUBSTANTIALLY
7DIFFERS FROM THE COVERAGES PROVIDED IN YOUR
8HOMEOWNER’S POLICY. THE CEA IS NOT PART OF OR
9ASSOCIATED WITH YOUR HOMEOWNER’S INSURANCE
10COMPANY. IF LOSSES AS A RESULT OF AN EARTHQUAKE
11OR A SERIES OF EARTHQUAKES EXCEED THE
12AVAILABLE RESOURCES OF THE CEA, THIS POLICY IS
13NOT COVERED BY THE CALIFORNIA INSURANCE
14GUARANTY ASSOCIATION. THEREFORE, THE
15CALIFORNIA INSURANCE GUARANTY ASSOCIATION
16WILL NOT PAY YOUR CLAIMS OR PROTECT YOUR
17ASSETS IF THE CEA BECOMES INSOLVENT AND IS
18UNABLE TO MAKE PAYMENTS AS PROMISED. IN
19ADDITION, YOUR CEA POLICY MAY BE SUBJECT TO
20FUTURE SURCHARGES OF THE POLICY PREMIUM IN
21CERTAIN CASES WHERE AN EARTHQUAKE OR SERIES
22OF EARTHQUAKES HAS EXCEEDED AVAILABLE
23RESOURCES TO PAY CLAIMS. IN THAT CASE, THIS
24MEANS THAT IN ADDITION TO THE ANNUAL PREMIUM,
25YOU MAY BE CHARGED UP TO AN ADDITIONAL 20% OF
26THE PREMIUM.


28(b) If the offer is not accepted, the insurer or any affiliated
29insurer shall be required on an every other year basis to offer
30earthquake coverage in connection with any continuation, renewal,
31or reinstatement of the policy following any lapse thereof, or with
32respect to any other policy that extends, changes, supersedes, or
33replaces the policy of residential property insurance. The offer
34may be made electronically pursuant to Section 38.5.

35(c) Nothing in this section shall preclude the named insured
36from terminating the earthquake coverage at any time.

37(d) This section shall remain in effect only untilbegin delete January 1, 2019,end delete
38begin insert July 1, 2015,end insert and as of that date is repealed, unless a later enacted
39statute, that is enacted beforebegin delete January 1, 2019,end deletebegin insert July 1, 2015,end insert deletes
40or extends that date.

P18   1begin insert

begin insertSEC. 5.end insert  

end insert

begin insertSection 10086 is added to the end insertbegin insertInsurance Codeend insertbegin insert, to read:end insert

begin insert
2

begin insert10086.end insert  

(a) If an offer of earthquake coverage, made pursuant
3to Section 10081, is accepted, the coverage shall be continued at
4the applicable rates and conditions for the policy term, provided
5the policy of residential property insurance is not terminated by
6the named insured or insurer.

7(1) At any renewal, an insurer may modify the terms and
8conditions of an existing policy, rider, or endorsement providing
9coverage against loss or damage caused by the peril of earthquake
10if the modified terms and conditions provide the minimum
11coverages required by Section 10089.

12(2) An insurer that modifies the terms and conditions of an
13existing policy, rider, or endorsement shall provide the insured
14with the renewal notice in a stand-alone disclosure document
15stating the changes in the terms and conditions of the insured’s
16existing policy, rider, or endorsement. The offer of renewal may
17be made electronically pursuant to Section 38.5. Proof of mailing
18of the disclosure document by first-class mail to a named insured
19at the mailing address shown on the policy or application, or proof
20consistent with Section 38.5 that the offer of renewal of coverage
21was sent to the named insured or applicant by electronic
22transmission, creates a conclusive presumption that the disclosure
23document was provided. The disclosure shall include the following
24statement in 14-point boldface type:


26“THE COVERAGE IN THE POLICY WE ARE OFFERING YOU
27WITH THIS RENEWAL HAS BEEN REDUCED, AND
28SUBSTANTIALLY DIFFERS FROM THE COVERAGES
29PROVIDED BY YOUR HOMEOWNERS’ POLICY. INSURANCE
30COMPANIES ARE ALLOWED TO RENEW EARTHQUAKE
31INSURANCE POLICIES WITH COVERAGE THAT IS REDUCED
32FROM THE COVERAGE YOU PREVIOUSLY PURCHASED.
33YOU MAY REQUEST A SAMPLE COPY OF THIS NEW POLICY
34TO REVIEW PRIOR TO MAKING A DECISION TO ACCEPT
35THIS RENEWAL, AND WE WILL MAIL OR DELIVER IT TO YOU
36WITHIN 14 DAYS OF YOUR REQUEST. A REQUEST FOR THE
37SAMPLE COPY SHALL NOT CHANGE OR EXTEND THE
38POLICY EXPIRATION DATE SPECIFIED IN THE RENEWAL
39NOTICE. A SUMMARY OF THE CHANGES IS INCLUDED WITH
40THIS NOTICE.”


P19   2The commissioner shall approve the form of the summary at the
3time he or she approves the policy. The summary shall include the
4information contained in subdivision (a) of Section 10083, and
5may be included with the renewal notice in standard type.

6The commissioner may approve substantially similar disclosure
7forms if necessary to accurately disclose relevant information to
8the policyholder. The commissioner may also approve disclosure
9forms substantially similar to the disclosure statement required
10by Section 10083 if necessary to accurately disclose relevant
11information to the policyholder.

12(b) If the offer of earthquake coverage made pursuant to Section
1310081 is not accepted, the insurer or any affiliated insurer shall
14be required on an every other year basis to offer earthquake
15coverage in connection with any continuation, renewal, or
16reinstatement of the policy following any lapse thereof, or with
17respect to any other policy that extends, changes, supersedes, or
18replaces the policy of residential property insurance. The offer
19may be made electronically pursuant to Section 38.5.

20(c) Nothing in this section shall preclude the named insured
21from terminating the earthquake coverage at any time.

22(d) This section shall become operative on July 1, 2015.

23(e) This section shall remain in effect only until January 1, 2019,
24and as of that date is repealed, unless a later enacted statute, that
25is enacted before January 1, 2019, deletes or extends that date.

end insert
26

begin deleteSEC. 5.end delete
27begin insertSEC. 6.end insert  

Section 10086 of the Insurance Code, as added by
28Section 15 of Chapter 369 of the Statutes of 2013, is amended to
29read:

30

10086.  

(a) If an offer of earthquake coverage, made pursuant
31to Section 10081, is accepted, the coverage shall be continued at
32the applicable rates and conditions for the policy term, provided
33the policy of residential property insurance is not terminated by
34the named insured or insurer.

35(1) At any renewal, an insurer may modify the terms and
36conditions of an existing policy, rider, or endorsement providing
37coverage against loss or damage caused by the peril of earthquake
38if the modified terms and conditions provide the minimum
39coverages required by Section 10089.

P20   1(2) An insurer that modifies the terms and conditions of an
2existing policy, rider, or endorsement shall provide the insured
3with the renewal notice in a stand-alone disclosure document
4stating the changes in the terms and conditions of the insured’s
5existing policy, rider, or endorsement. Proof of mailing of the
6disclosure document by first-class mail to a named insured at the
7mailing address shown on the policy or application creates a
8conclusive presumption that the disclosure document was provided.
9The disclosure shall include the following statement in 14-point
10boldface type:

11

12“THE COVERAGE IN THE POLICY WE ARE OFFERING
13YOU WITH THIS RENEWAL HAS BEEN REDUCED, AND
14SUBSTANTIALLY DIFFERS FROM THE COVERAGES
15PROVIDED BY YOUR HOMEOWNERS’ POLICY.
16INSURANCE COMPANIES ARE ALLOWED TO RENEW
17EARTHQUAKE INSURANCE POLICIES WITH COVERAGE
18THAT IS REDUCED FROM THE COVERAGE YOU
19PREVIOUSLY PURCHASED. YOU MAY REQUEST A
20SAMPLE COPY OF THIS NEW POLICY TO REVIEW PRIOR
21TO MAKING A DECISION TO ACCEPT THIS RENEWAL,
22AND WE WILL MAIL OR DELIVER IT TO YOU WITHIN 14
23DAYS OF YOUR REQUEST. A REQUEST FOR THE SAMPLE
24COPY SHALL NOT CHANGE OR EXTEND THE POLICY
25EXPIRATION DATE SPECIFIED IN THE RENEWAL NOTICE.
26A SUMMARY OF THE CHANGES IS INCLUDED WITH THIS
27NOTICE.”

28

29The commissioner shall approve the form of the summary at the
30time he or she approves the policy. The summary shall include the
31information contained in subdivision (a) of Section 10083, and
32may be included with the renewal notice in standard type.

33The commissioner may approve substantially similar disclosure
34forms if necessary to accurately disclose relevant information to
35the policyholder. The commissioner may also approve disclosure
36forms substantially similar to the disclosure statement required by
37Section 10083 if necessary to accurately disclose relevant
38information to the policyholder.

39(b) If the offer of earthquake coverage made pursuant to Section
4010081 is not accepted, the insurer or any affiliated insurer shall be
P21   1required on an every other year basis to offer earthquake coverage
2in connection with any continuation, renewal, or reinstatement of
3the policy following any lapse thereof, or with respect to any other
4policy that extends, changes, supersedes, or replaces the policy of
5residential property insurance.

6(c) Nothing in this section shall preclude the named insured
7from terminating the earthquake coverage at any time.

8(d) This section shall become operative on January 1, 2019.

begin delete
9

SEC. 6.  

Section 10089.6 of the Insurance Code is amended to
10read:

11

10089.6.  

(a) There is hereby created the California Earthquake
12Authority, which shall be administered under the authority of the
13commissioner and have the powers conferred by this chapter. The
14authority shall be authorized to transact insurance in this state as
15necessary to sell policies of basic residential earthquake insurance
16in the manner set forth in Sections 10089.26, 10089.27, and
1710089.28. The authority shall have no authority to transact any
18other type of insurance business.

19(b) (1) The investments of the authority shall be limited to those
20securities eligible under Section 16430 of the Government Code.

21(2) The rights, obligations, and duties owed by the authority to
22its insureds, beneficiaries of insureds, and applicants for insurance
23shall be the same as the rights, obligations, and duties owed by
24insurers to its insureds, beneficiaries of insureds and applicants
25for insurance under common law, regulations, and statutes. The
26authority shall be liable to its insureds, beneficiaries of insureds,
27and applicants for insurance as an insurer is liable to its insureds,
28beneficiaries of insureds, and applicants for insurance under
29common law, regulations, and statutes.

30(c) The operating expenses of the authority shall be capped at
31not more than 5 percent of the premium income received by the
32authority. The funds shall be available to pay any advocacy fees
33awarded in a proceeding under subdivision (c) of Section 10089.11.

34

SEC. 7.  

Section 10089.26 of the Insurance Code is amended
35to read:

36

10089.26.  

(a) (1) The authority shall issue policies of basic
37residential earthquake insurance, including earthquake loss
38assessment policies for individual condominium unit properties,
39to any owner of a qualifying residential property, as long as the
P22   1owner has secured a policy of residential property insurance from
2a participating insurer.

3(2) A policy of residential earthquake insurance written by the
4authority shall be effective upon receipt by the participating insurer
5of both of the following:

6(A) The completed authority-approved application for the policy,
7signed by the applicant.

8(B) Either the annual premium or the first installment of the
9annual premium.

10(b) For purposes of this section, earthquake loss assessment
11coverage shall be issued in a minimum amount of fifty thousand
12dollars ($50,000) for individual condominium units valued at more
13than one hundred thirty-five thousand dollars ($135,000).
14Earthquake loss assessment coverage shall be issued in a minimum
15amount of twenty-five thousand dollars ($25,000) for individual
16condominium units of one hundred thirty-five thousand dollars
17($135,000) in value or less. The value of the land shall be excluded
18when determining the value of the condominium, as it relates to
19the earthquake loss assessment coverage offered by the authority.

20(c) The panel shall submit to the board, and the board shall
21approve, rates for earthquake loss assessment coverage that
22reasonably balance the earthquake loss assessment coverages
23offered and the potential exposure to earthquake loss resulting
24from an earthquake loss assessment policy as compared to the
25coverages offered and the potential exposure to earthquake loss
26resulting from residential property other than individual
27condominium policies.

28(d) It is the intent of the Legislature, to the extent practicable,
29that rates charged by the authority to condominium loss assessment
30policyholders and residential property owner policyholders are
31treated equitably, and that a proportionate share of premiums is
32paid for potential exposure to loss, to the authority.

33(e) Nothing in this section shall prohibit a participating or
34nonparticipating insurer from offering a condominium earthquake
35loss assessment policy for different amounts of coverage other
36than those offered by the authority.

37

SEC. 8.  

Section 10089.28 of the Insurance Code is repealed.

end delete
38begin insert

begin insertSEC. 7.end insert  

end insert

begin insertSection 10089.6 of the end insertbegin insertInsurance Codeend insertbegin insert is amended to
39read:end insert

P23   1

10089.6.  

(a) There is hereby created the California Earthquake
2Authority, which shall be administered under the authority of the
3commissioner and have the powers conferred by this chapter. The
4authority shall be authorized to transact insurance in this state as
5necessary to sell policies of basic residential earthquake insurance
6in the manner set forth in Sections 10089.26, 10089.27, and
710089.28. The authority shall have no authority to transact any
8other type of insurance business.

9(b) (1) The investments of the authority shall be limited to those
10securities eligible under Section 16430 of the Government Code.

11(2) The rights, obligations, and duties owed by the authority to
12its insureds, beneficiaries of insureds, and applicants for insurance
13shall be the same as the rights, obligations, and duties owed by
14insurers to its insureds, beneficiaries of insureds and applicants
15for insurance under common law, regulations, and statutes. The
16authority shall be liable to its insureds, beneficiaries of insureds,
17and applicants for insurance as an insurer is liable to its insureds,
18beneficiaries of insureds, and applicants for insurance under
19common law, regulations, and statutes.

20(c) The operating expenses of the authority shall be capped at
21not more than 3 percent of the premium income received by the
22authority. The funds shall be available to pay any advocacy fees
23awarded in a proceeding under subdivision (c) of Section 10089.11.

begin insert

24(d) This section shall remain in effect only until July 1, 2015,
25and as of that date is repealed, unless a later enacted statute, that
26is enacted before July 1, 2015, deletes or extends that date.

end insert
27begin insert

begin insertSEC. 8.end insert  

end insert

begin insertSection 10089.6 is added to the end insertbegin insertInsurance Codeend insertbegin insert, to
28read:end insert

begin insert
29

begin insert10089.6.end insert  

(a) There is hereby created the California Earthquake
30Authority, which shall be administered under the authority of the
31commissioner and have the powers conferred by this chapter. The
32authority shall be authorized to transact insurance in this state as
33necessary to sell policies of basic residential earthquake insurance
34in the manner set forth in Sections 10089.26, 10089.27, and
3510089.28. The authority shall have no authority to transact any
36other type of insurance business.

37(b) (1) The investments of the authority shall be limited to those
38securities eligible under Section 16430 of the Government Code.

39(2) The rights, obligations, and duties owed by the authority to
40its insureds, beneficiaries of insureds, and applicants for insurance
P24   1shall be the same as the rights, obligations, and duties owed by
2insurers to its insureds, beneficiaries of insureds, and applicants
3for insurance under common law, regulations, and statutes. The
4authority shall be liable to its insureds, beneficiaries of insureds,
5and applicants for insurance as an insurer is liable to its insureds,
6beneficiaries of insureds, and applicants for insurance under
7common law, regulations, and statutes.

8(c) The operating expenses of the authority shall be capped at
9not more than 5 percent of the premium income received by the
10authority. The funds shall be available to pay any advocacy fees
11awarded in a proceeding under subdivision (c) of Section 10089.11.

12(d) For purposes of this subdivision, the term “operating
13expenses of the authority” excludes solely the following:

14(1) The costs of and transaction expenses associated with
15risk-transfer purchases, including the purchase of reinsurance
16and with capital-market contracts.

17(2) The expense of securing and repaying bonds.

18(3) The cost of repayment of bonds guaranteed, insured, or
19otherwise backed by any department or agency of the United States
20or of this state, or by any private entity.

21(4) Payments to third parties for all of the following services
22provided to the authority:

23(A) Investment.

24(B) Loss-modeling.

25(C) Legal services.

26(5) Costs associated with the authority’s efforts to acquaint the
27public with and market authority products, promote earthquake
28preparedness, and earthquake-loss mitigation under the authority’s
29duly adopted strategic plan.

30(6) Producer compensation.

31(7) Participating insurer fees and reimbursement amounts
32arising under written contracts.

33(8) Amounts paid by the authority to support research in seismic
34science and seismic engineering.

35(9) Loans, grants, and expenses to support and maintain the
36authority’s earthquake loss-mitigation goals and programs,
37whether conducted by the authority alone or in collaboration with
38or by other persons.

39(10) The costs of and loss-adjustment expenses associated with
40adjusting and paying policyholder claims for earthquake losses
P25   1that are incurred by the authority under its earthquake insurance
2policies, including all costs and expenses associated with
3claim-related litigation, provided that all of those costs and
4expenses shall be reported to the Legislature in the manner
5required by subdivision (e) of Section 10089.13.

6(e) This section shall become operative on July 1, 2015.

end insert
7begin insert

begin insertSEC. 9.end insert  

end insert

begin insertSection 10089.26 of the end insertbegin insertInsurance Codeend insertbegin insert is amended
8to read:end insert

9

10089.26.  

(a) The authority shall issue policies of basic
10residential earthquake insurance, including earthquake loss
11assessment policies for individual condominium unit properties,
12to any owner of a qualifying residential property, as long as the
13owner has secured a policy of residential property insurance from
14a participating insurer.

15(1) For purposes of this section, earthquake loss assessment
16coverage shall be issued in a minimum amount of fifty thousand
17dollars ($50,000) for individual condominium units valued at more
18than one hundred thirty-five thousand dollars ($135,000).
19Earthquake loss assessment coverage shall be issued in a minimum
20amount of twenty-five thousand dollars ($25,000) for individual
21condominium units of one hundred thirty-five thousand dollars
22($135,000) in value or less. The value of the land shall be excluded
23when determining the value of the condominium, as it relates to
24the earthquake loss assessment coverage offered by the authority.

25(2) The panel shall submit to the board, and the board shall
26approve, rates for earthquake loss assessment coverage that
27reasonably balance the earthquake loss assessment coverages
28offered and the potential exposure to earthquake loss resulting
29from an earthquake loss assessment policy as compared to the
30coverages offered and the potential exposure to earthquake loss
31resulting from residential property other than individual
32condominium policies.

33It is the intent of the Legislature, to the extent practicable, that
34rates charged by the authority to condominium loss assessment
35policyholders and residential property owner policyholders are
36treated equitably, and that a proportionate share of premiums is
37paid for potential exposure to loss, to the authority.

38(b) Nothing in this section shall prohibit a participating or
39nonparticipating insurer from offering a condominium earthquake
P26   1loss assessment policy for different amounts of coverage other
2than those offered by the authority.

begin insert

3(c) This section shall remain in effect only until July 1, 2015,
4and as of that date is repealed, unless a later enacted statute, that
5is enacted before July 1, 2015, deletes or extends that date.

end insert
6begin insert

begin insertSEC. 10.end insert  

end insert

begin insertSection 10089.26 is added to the end insertbegin insertInsurance Codeend insertbegin insert, to
7read:end insert

begin insert
8

begin insert10089.26.end insert  

(a) (1) The authority shall issue policies of basic
9residential earthquake insurance, including earthquake loss
10assessment policies for individual condominium unit properties,
11to any owner of a qualifying residential property, as long as the
12owner has secured a policy of residential property insurance from
13a participating insurer.

14(2) A policy of residential earthquake insurance written by the
15authority shall be effective upon receipt by the participating insurer
16of both of the following:

17(A) The completed authority-approved application for the policy,
18signed by the applicant.

19(B) Either the annual premium or the first installment of the
20annual premium.

21(b) For purposes of this section, earthquake loss assessment
22coverage shall be issued in a minimum amount of fifty thousand
23dollars ($50,000) for individual condominium units valued at more
24than one hundred thirty-five thousand dollars ($135,000).
25Earthquake loss assessment coverage shall be issued in a minimum
26amount of twenty-five thousand dollars ($25,000) for individual
27condominium units of one hundred thirty-five thousand dollars
28($135,000) in value or less. The value of the land shall be excluded
29when determining the value of the condominium, as it relates to
30the earthquake loss assessment coverage offered by the authority.

31(c) The panel shall submit to the board, and the board shall
32approve, rates for earthquake loss assessment coverage that
33reasonably balance the earthquake loss assessment coverages
34offered and the potential exposure to earthquake loss resulting
35from an earthquake loss assessment policy as compared to the
36coverages offered and the potential exposure to earthquake loss
37resulting from residential property other than individual
38condominium policies.

39(d) It is the intent of the Legislature, to the extent practicable,
40that rates charged by the authority to condominium loss assessment
P27   1policyholders and residential property owner policyholders are
2treated equitably, and that a proportionate share of the premium
3is paid for potential exposure to loss, to the authority.

4(e) Nothing in this section shall prohibit a participating or
5nonparticipating insurer from offering a condominium earthquake
6loss assessment policy for different amounts of coverage other
7than those offered by the authority.

8(f) This section shall become operative on July 1, 2015.

end insert
9begin insert

begin insertSEC. 11.end insert  

end insert

begin insertSection 10089.28 of the end insertbegin insertInsurance Codeend insertbegin insert is amended
10to read:end insert

11

10089.28.  

(a) All policies of residential earthquake insurance
12provided by the authority shall be written by the authority.
13Authority policies shall be marketed and policyholders serviced
14by the participating insurer that writes the underlying policy of
15residential property insurance, and participating insurers shall be
16reasonably compensated for the claims and policyholder services
17they provide on behalf of the authority. Authority services may be
18performed on behalf of the authority in any reasonable manner by
19the participating insurer that is in compliance with statutory,
20regulatory, and case laws regarding claims handling practices;
21provided, however, where the authority has promulgated specific
22procedures to govern its operations, the participating insurer shall
23conform its practices to those procedures. The authority procedures
24shall comply with statutory, regulatory, and case law governing
25claims handling practices. Nothing in this provision shall be
26deemed or construed to affect any duty or liability of the authority
27or participating carrier as set forth in paragraphs (2) and (3) of
28subdivision (e) of Section 10089.7.

29(b) The participating insurer shall notify each of its insureds
30that the authority is the provider of earthquake coverage under the
31policy. The form and method of notice shall meet standards
32established by the commissioner by regulation. The authority shall
33provide to participating insurers appropriate applications and forms
34and shall maintain records of all policies written, moneys received,
35and claims paid.

36(c) The duty of an agent or broker to investigate the financial
37condition of the authority before placement of insurance shall be
38the same as the duty of an agent or broker to investigate the
39financial condition of an admitted insurer before placement of a
40policy of insurance.

begin insert

P28   1(d) This section shall remain in effect only until July 1, 2015,
2and as of that date is repealed, unless a later enacted statute, that
3is enacted before July 1, 2015, deletes or extends that date.

end insert
4

begin deleteSEC. 9.end delete
5begin insertSEC. 12.end insert  

Section 10089.28 is added to the Insurance Code, to
6read:

7

10089.28.  

(a) All policies of residential earthquake insurance
8provided by the authority shall be written by the authority.
9Authority policies shall be marketed and policyholders serviced
10by the participating insurer that writes the underlying policy of
11residential property insurance, and participating insurers shall be
12reasonably compensated for the claims and policyholder services
13they provide on behalf of the authority. Authority services may be
14performed on behalf of the authority in any reasonable manner by
15the participating insurer that is in compliance with statutory,
16regulatory, and casebegin delete lawsend deletebegin insert lawend insert regarding claims handling practices;
17provided, however, where the authority has promulgated specific
18procedures to govern its operations, the participating insurer shall
19conform its practices to those procedures. The authority procedures
20shall comply with statutory, regulatory, and case law governing
21claims handling practices. Nothing in this provision shall be
22deemed or construed to affect any duty or liability of the authority
23or participating carrier as set forth in paragraphs (2) and (3) of
24subdivision (e) of Section 10089.7.

25(b) Concurrent with the issuance or renewal by the authority of
26a residential earthquake insurance policy, the participating insurer
27shall provide the following disclosure to the insured in 14-point
28boldface type:

29

30“California Earthquake Authority Policy Disclosure

31You have purchased a California Earthquake Authority (CEA)
32earthquake insurance policy, which can help you cover the cost of
33repairing damage to your property and possessions caused by an
34earthquake.

35The CEA is not part of your homeowners’ insurance company.

36Please keep in mind these important things about your CEA
37insurance policy:

381. CEA policy coverages are different from the coverages
39provided in yourbegin delete homeownersend deletebegin insert homeowners’end insert insurance policy. For
40example, this policy does not cover earthquake damage to
P29   1swimming pools, and it may provide more limited coverage for
2chimneys, outbuildings, and masonry fences. These are examples
3of possible differences between your CEA policy and your
4homeowners’ policy, and you should consult your CEA policy to
5understand the types of losses that are limited or excluded and
6those that are covered.

72. If CEA’s liability for earthquake losses exceeds the CEA’s
8available resources the CEA may reduce its payment to you or pay
9you in installments. This policy is not covered by the California
10Insurance Guaranteebegin delete Associationend deletebegin insert Association,end insert andbegin delete thereforeend delete
11begin insert therefore,end insert the California Insurance Guarantee Association will not
12pay your claims if the CEA becomes insolvent and is unable to
13make payments as promised.

143. In certain cases, your CEA policy premium may be subject
15to future surcharges if the CEA’s obligations to pay earthquake
16losses rise to a pre-defined level. In that case, in addition to your
17annual premium you may be charged up to an additional 20% of
18that premium.”

19

20(c) The authority shall provide to participating insurers
21appropriate applications and forms and shall maintain records of
22all policies written, moneys received, and claims paid.

23(d) The duty of an agent or broker to investigate the financial
24condition of the authority before placement of insurance shall be
25the same as the duty of an agent or broker to investigate the
26financial condition of an admitted insurer before placement of a
27 policy of insurance.

begin insert

28(e) This section shall become operative on July 1, 2015.

end insert
begin delete
29

SEC. 10.  

Section 10089.41 of the Insurance Code is repealed.

30

SEC. 11.  

Section 10089.41 is added to the Insurance Code, to
31read:

32

10089.41.  

(a) Compliance with the provisions of Section
3310089.42 by a participating insurer shall also constitute compliance
34by that participating insurer with Chapter 8.5 (commencing with
35Section 10081).

36(b) If the authority ceases operation for any reason, including,
37but not limited to, the repeal of this chapter or insolvency of the
38authority, participating carriers shall be required to offer residential
39earthquake insurance coverage pursuant to Section 10081. The
40commissioner shall adopt a schedule in accordance with
P30   1subdivision (a) of Section 10089.35 to establish when participating
2carriers shall be required to offer coverage pursuant to Section
310081 to those policyholders for whom they write the underlying
4policies of residential property insurance.

5(c) If the authority ceases operation pursuant to a statute enacted
6by the Legislature, that statute shall determine the duty of
7participating insurers to provide earthquake insurance pursuant to
8Chapter 8.5 (commencing with Section 10081). Chapter 8.5
9(commencing with Section 10081) shall remain in effect unless
10specifically repealed by that statute.

end delete
11

begin deleteSEC. 12.end delete
12begin insertSEC. 13.end insert  

Section 10089.42 is added to the Insurance Code, to
13read:

14

10089.42.  

(a) A policy of residential property insurance shall
15not be issued, delivered, or renewed in this state, by any
16participating insurer unless the named insured is providedbegin delete notice
17ofend delete
begin insert information onend insert the availability of residential earthquake
18insurance from the authority within 60 days of issuance or renewal
19of the insured’s residential insurance policy. Thebegin delete noticeend deletebegin insert informationend insert
20 required by this subdivision shall do all of the following:

21(1) Notify the insured that the residential property insurance
22policy does not provide coverage for loss or damage caused by
23the peril of earthquake.

24(2) Disclose that the insured can apply at any time through the
25participating insurer for insurance issued by the authority that
26 covers loss or damage caused by the peril of earthquake.

27(3) Notify the insured that a policy of residential earthquake
28insurance from the authority provides different protection, and in
29some cases less protection, than the residential property insurance
30policy.

31(4) Inform the insured of the amounts of premium and deductible
32applicable to base-limits authority earthquake insurance coverage.

33(5) Direct the insured to an Internet Web site maintained by the
34participating insurer or by the authority, or jointly by both, where
35the insured can obtain premium estimates and information on
36additional earthquake insurance coverages, coverage limits,
37deductibles, and other policy and coverage features for a residential
38earthquake insurance policy from the authority.

39(6) Direct the insured to an Internet Web site or toll-free
40telephone number, or both, where the insured can be referred to
P31   1or speak with a representative or broker-agent of the participating
2insurer who can facilitate the preparation and receipt of an
3application for residential earthquake insurance written by the
4authority.

5(b) The participating insurer may, but shall not be required to,
6providebegin delete noticeend deletebegin insert the information requiredend insert under this section to any
7insured who has purchased through that participating insurer, and
8has in force, a residential earthquake insurance policy written by
9the authority.

10(c) The authority shall prepare forms ofbegin delete noticeend deletebegin insert the information
11requiredend insert
for use by participating insurers and submit them to the
12commissioner for approval. The commissioner shall approve a
13formbegin delete of noticeend delete if it accurately discloses the information required
14by subdivision (a).begin delete Forms of noticeend deletebegin insert The formsend insert are not required to
15be reproduced in identical form to the disclosures and advice set
16 forth in subdivision (a), and they may contain provisions additional
17to those set forth in subdivision (a) if the additional provisions do
18not conflict with this section.

19(d) (1) Thebegin delete noticeend deletebegin insert informationend insert required by this section may be
20made electronically pursuant to Section 38.5.

21(2) Proof of mailing of anybegin delete noticeend deletebegin insert informationend insert required by this
22section by first-class mail to a named insured at the mailing address
23shown on the policy or application, or proof consistent with Section
2438.5 that thebegin delete noticeend deletebegin insert informationend insert was sent to the named insured or
25applicant by electronic transmission, creates a conclusive
26presumption that thebegin delete noticeend deletebegin insert informationend insert required by this section
27was provided.

begin insert

28(e) This section shall become operative on July 1, 2015.

end insert


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