BILL ANALYSIS �
SENATE INSURANCE COMMITTEE
Senator Ronald Calderon, Chair
SB 251 (Calderon) Hearing Date: April 10, 2013
As Amended: March 18, 2013
Fiscal: No
Urgency: No
SUMMARY: Would apply the Uniform Electronic Transactions Act
(UETA) to, and authorizes an insurer to provide consumers the
option to receive by electronic delivery, the notice of renewal
of coverage for earthquake insurance that discloses changes in
terms and the offer of earthquake coverage required to be made
every other year. Would also conform the proof of mailing
requirements to UETA standards when those documents are sent
electronically.
DIGEST
Existing law
1. Authorizes any written notice required to be given or mailed to
any person by an insurer relating to any insurance on risks or
on operations in this state, with exceptions that include
documents required by Insurance Code Section 10086, to be
provided by electronic transmission if each party has agreed to
conduct the transaction by electronic means, as provided;
2. Prohibits residential property insurer's from issuing or
delivering property insurance without offering earthquake
coverage. The offer of coverage is authorized to be made prior
to, concurrent with, or within 60 days following the issuance or
renewal of a residential property insurance policy. If the offer
of coverage is mailed to the named insured or applicant, it is
required to be mailed to the mailing address shown on the policy
of residential property insurance or on the application;
3. Authorizes an earthquake insurer, at any renewal, to modify the
terms and conditions of an existing policy, rider, or
endorsement, and that if the insurer modifies the terms and
conditions of an existing policy, rider, or endorsement, the
insurer is required to provide the insured with the renewal
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notice in a stand-alone disclosure document stating the changes
in the terms and conditions of the insured's existing policy,
rider, or endorsement; and
4. Provides that, if an offer of earthquake coverage is not
accepted, the insurer or any affiliated insurer is required to
offer earthquake coverage every other year in connection with
any continuation, renewal, or reinstatement of the policy
following any lapse, or with respect to any other policy that
extends, changes, supersedes, or replaces the policy of
residential property insurance.
This bill
1. Would authorize the renewal notice for earthquake coverage
and the offer of earthquake coverage required to be made
every other year to be made electronically, as provided;
2. Would also delete obsolete cross-references and make
conforming changes to Civil Code Section 1633.3.
COMMENTS
1. Purpose of the Bill . According to the author, California
adopted its version of the Uniform Electronic Transactions
Act (UETA) in 1999, just after its adoption by the National
Conference of Commissioners on Uniform State Laws. UETA
grants electronic signatures and records legal equality with
paper and ink documents. California, however, excluded many
documents, including some insurance documents. This had the
practical effect denying consumers the option to choose to
receive electronic versions of documents related to home,
auto, commercial and earthquake policies that must otherwise
be sent by postal service.
Although technology has greatly improved and many consumers
have come to rely on electronic transmission, several
insurance documents remain exempted from UETA, potentially
harming consumers whose circumstances are better served
through electronic communications. Forcing consumer to rely
on the postal service unfairly discriminates against
consumers that travel or change addresses frequently, or who
live in areas with scarce postal services.
SB 251 (Calderon), Page 3
SB 251 would authorize the electronic transmission of the
renewal notice of earthquake coverage (including the
disclosure related to California Earthquake Authority
coverage) and the offer of coverage required to be made
every other year (after the initial offer was rejected).
This bill represents another step forward in conforming
California law to national and interstate policy,
eliminating unnecessary paper consumption, and providing
consumers greater choice in managing their personal records
and transactions.
2. Background
A. Earthquake Coverage. Most residential insurance
policies do not cover earthquake coverage. In order to
encourage consumers to purchase earthquake damage
protection, all residential property insurance companies
must offer earthquake coverage. Not all insurers offer
earthquake insurance, but work in tandem with the
California Earthquake Authority (CEA) to provide coverage
by processing CEA policy applications, renewals, invoices,
and payments, and handle all CEA claims; in these
instances, the CEA provides the actual insurance coverage.
A recent L.A. Times article estimates that about 17% of
homeowners carry earthquake insurance (or 83% remain
uninsured), while United Policyholders states that 90% of
homes in California are uninsured for earthquake losses.
Insurers providing earthquake coverage, either directly or
through the CEA, must mail the following documents to the
consumers. Nothing in California law requires a return
receipt or certified mail.
i. Subsequent Offers of Earthquake Coverage .
Insurers are required to make an initial offer of
coverage (Ins. Code � 10083). (UETA already applies to
the initial offer of coverage; Section 3 of the bill
clarifies existing law). While the initial offer may
be sent electronically, existing law requires that
subsequent offers to consumers who have either rejected
the initial offer or were nonresponsive must be mailed
every other year.
ii. Offers of Coverage with Modified Terms . When an
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insurer offers a renewal, but has modified the terms
and conditions of the policy, the insurer must provide
the consumer with a standalone disclosure document
stating the changes in the terms and conditions
relative to the existing policy.
A. Electronic Transactions Law. The National
Conference of Commissioners on Uniform State Laws adopted
the UETA in 1999 establishing a consistent policy for
electronic transactions. (On a historical note, former
California Legislative Counsel Bion M. Gregory sat on the
drafting committee.) California enacted UETA that same
year.
In 2000, President Bill Clinton signed the Electronic
Signatures in Global and National Commerce Act (ESIGN)
(15 U.S.C. 7001 et seq.). Federal law typically allows
the states to regulate the business of insurance under
the McCarran-Ferguson Act of 1945 (15 U.S.C.A. � 1011 et
seq.); Congress drafted ESIGN to specifically apply to
insurance and preempts any state law not substantially
similar to the UETA Model Act. Forty-seven states have
adopted some version of UETA.
Generally speaking, UETA provides that any transaction
not otherwise exempted from UETA may be conducted
electronically subject to specific rules and standard.
Major principles governing UETA include:
i. Preservation of Choice & Requirement for
Agreement . All parties must agree to conduct the
transactions electronically. All parties must "opt-in"
and any may "opt-out" from conducting further
transactions electronically. This rule may not be
varied by agreement.
ii. Governs Procedure, Substantive Law Continues to
Apply . Transactions subject to UETA remain subject to
any other applicable substantive law. For instance, if
a document is required to be mailed within 30 days,
that deadline remains in force.
SB 251 (Calderon), Page 5
iii. Construed to Facilitate E-Commerce . UETA should
be construed and applied to facilitate electronic
transactions consistent with other applicable law and
with reasonable practices concerning electronic
transactions.
iv. Electronic Writings and Signatures Validated . A
record or signature cannot be denied legal effect or
enforceability because it is in electronic form.
v. Send/Receipt Rules Appropriate for E-Commerce .
Specifies the electronic conditions by which an
electronic record is considered to have been "sent" and
"received." The UETA drafting committee explains that
to be "sent" under UETA, the electronic information be
properly addressed or otherwise directed to the
recipient - there must be specific information which
will direct the record to the intended recipient (a
mass email does not satisfy this definition). The
record will be considered sent once it leaves the
control of the sender, or comes under the control of
the recipient. Records sent through e-mail or the
internet will pass through many different server
systems. Accordingly, the critical element when more
than one system is involved is the loss of control by
the sender. A record is "received" when it enters the
system which the recipient has designated or uses and
to which it has access, in a form capable of being
processed by that system, it is received.
vi. Substantive Laws Requiring a Writing . If a law
requires a person to provide information in writing to
another, that requirement is satisfied if the
information is provided in an electronic record capable
of retention by the recipient at the time of receipt.
If a sender inhibits the ability of a recipient to
store or print an electronic record, the electronic
record is not enforceable against the recipient.
vii. Other Substantive Law Applies if Sender Knows
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Record not Sent/Received . If a person is aware that an
electronic record purportedly sent or received as
provided by UETA was not actually sent or received, the
legal effect of the sending or receipt is determined by
other applicable law.
viii. Special Record Handling Rules . If a law other
than UETA requires special mailing or special
formatting rules, then the record shall be transmitted
by the method specified in the other law. The record
shall contain the information formatted in the manner
specified in the other law. (ESIGN requires that if a
state law enacted prior to ESIGN requires a record to
be provided by a method that requires verification or
acknowledgment of receipt, the record may be provided
electronically if the method also provides verification
or acknowledgment of receipt.)
ix. Satisfaction of Record Retention Rules and
Evidentiary/Audit Requirements . Requires that
electronic records that must be retained must
accurately reflect the information set forth in the
record at the time it was first generated in its final
form as an electronic record or otherwise, and the
electronic record be accessible for later reference.
x. Exclusions . The Model Act excludes numerous
classes of transactions, including, but not limited to:
wills, codicils or testamentary trusts and specified
transactions in the Uniform Commercial Code.
California added its own exclusions, including those
specific to property and casualty insurance.
Currently, exclusions include documents relating to the
renewal and termination of policies. (Ins. Code ��
662, 663, 664, 667.5, 673, 677, 678, and 678.1.)
A. Reliability of Transmission. Concerns by some
consumer groups have been raised related to the
reliability of electronic mail and whether the consumers
may be unaware that they have received a notice that a
document has been delivered to their online account
portal. In particular, these concerns include
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interference by "Spam "blockers, an inbox that has
exceeded its limit, outdated email accounts, and changes
in designated recipients to handle the insurance
documents (such as a new employee that has been
designated to handle insurance-related activities).
Many of these concerns relate to consumer behavior and
email services outside of the control of the insurer.
Insurers, however, can engage in various practices to
increase the reliability of electronic transmission
including monitoring "undeliverable" emails, coordinating
with email providers to avoid Spam filtering, and taking
active measures to ensure that contact information is
accurate.
The drafters of the Model Act appear to favor allowing
consumers to assume the risk of their own preferred
delivery methods. The drafters state in their comments
to Section 3 of the Model Act:
The preservation of existing safeguards [in UETA],
together with the ability to opt out of the electronic
medium entirely, demonstrate the lack of any need
generally to exclude consumer protection laws from the
operation of this Act. Legislatures may wish to focus any
review on those statutes which provide for post-contract
formation and post-breach notices to be in paper.
However, any such consideration must also balance the
needed protections against the potential burdens which
may be imposed. Consumers and others will not be well
served by restrictions which preclude the employment of
electronic technologies sought and desired by consumers.
B. Types of Electronic Transactions. The drafters of
UETA and ESIGN designed the language to accommodate
different types of existing and potential technology.
ESIGN specifically preempts state laws that specifies
alternative procedures or requirements of electronic
records that accord "greater legal effect to, the
implementation or application of specific technology or
technical specification for performing the functions of
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creating, storing, generating, receiving, communicating,
or authenticating electronic records or electronic
signatures[.]" (15 U.S.C. 7002(a)(1)(2)(A)(ii).)
Insurers may use any number of currently existing
technologies, including email, facsimile, text messaging,
or smartphone or tablet application. Smartphone or
tablet applications are a potentially powerful and
growing means that an insurer could communicate with
consumers. Last year, AB 1708 (Gatto) provided that a
motorist may present proof of insurance to police during
a traffic stop. In order to provide this service, some
insurers have developed mobile applications that provide
access to the digital proof of insurance, send the
consumer notifications, offer access to coverage terms,
assists in filing claims, etc. Insurers with
applications currently available include: Progressive,
Nationwide, Farmers, State Farm, etc.
1. Support
The bill's sponsor, the Association of California Insurance
Companies explains that SB 251 is a necessary public policy
step as California and the rest of the nation continue to
move towards electronic or paperless transactions. ACIC
cites the 2012 US Auto Insurance Study (June 2012) by J.D.
Powers and Associates that states:
Among customers who utilize multiple contact channels to
resolve an issue, 40% of Gen Y customers begin online,
further underscoring their preference to seek answers to
their questions via this channel. In contracts, the most
frequent starting point for Boomers (born from 1946-1964,
who have used multiple channels to resolve an issue, is
their agent (40%).
ACIC argues that California's current law is outdated to
accommodate the Gen Y customer demand cited in that study.
SB 251 gives Gen Y consumers the choice to "opt-in." ACIC
also points out that California is only one of three states
in the nation that continues to have a statute that
expressly disallows insurers form providing notice or
documents related to policy renewal or conditional renewal
by electronic transmission.
SB 251 (Calderon), Page 9
2. Opposition
A. United Policyholders states that nearly 90% of homes
in California are uninsured for earthquake losses and
believes that SB 251 will decrease the likelihood that
homeowners will receive and accept the offer to buy
earthquake insurance if the notice is only made
electronically.
B. Consumer Attorneys of California (CAOC) and United
Policyholders oppose the bill expressing concerns that
actual receipt of emailed documents can be compromised by:
(1) SPAM blockers that filter out legitimate business
messages; (2) the actions of people who change their email
addresses or service providers but do not know who to
notify the insurance company of their new email address;
(3) technological problems, such as when a computer server
is down when an important email message is sent; and (4)
the real threat of computer viruses or scams that makes
consumers reluctant to open emails from senders not
immediately recognizable.
C. In addition CAOC argues that the bill could lead to
confusion between insurers, agents and insureds over
whether the renewal was received. Agents, brokers and
insurers could be faced with a tremendous amount of
paperwork, administrative procedures and customer service
issues as a result of questions surrounding whether or not
a renewal was received.
1. Questions and Comments
A. Postal service favors consumers with relatively stable
addresses with robust postal service, such as long-time
homeowners and people who travel infrequently. Do
consumer protection statutes that require hardcopy
transactions prejudice mobile consumers that travel or
change addresses frequently (such as students or persons
that travel for long stretches for work) or live in areas
with fewer postal services?
B. Some consumer advocates argue that consumers are more
likely to receive offers of earthquake coverage and more
likely to purchase earthquake insurance if they receive
SB 251 (Calderon), Page 10
these offers by mail. A recent L.A. Times Article
published on February 25, 2013, titled Rethinking Your
Stance on Earthquake Coverage estimates that only 17% of
California homeowners have earthquake insurance. It also
discusses several factors likely considered when deciding
whether to purchase earthquake insurance: the amount of
equity the owner has in the home; premium, deductibles,
and coverage; belief that the government will provide
benefits in case of a catastrophe, etc. If only 17% of
homeowners purchase insurance when this offer is required
to be sent by mail delivery, what is a realistic
probability that the method of transmission ultimately
influences a consumer's choice whether or not to purchase
coverage?
1. Suggested Amendments
A. The author indicates that stakeholders have carried on
extensive negotiations with the Department of Insurance
related to establishing heightened standards for more
sensitive documents. Committee staff recommends
amendments consistent with UETA and ESIGN that establishes
standards for sending and receiving of electronic editions
of policy renewals so that if delivery fails, the insurer
would be likely to receive notice and would follow-up
appropriately.
B. Assuming that the author, stakeholders, and the
Department of Insurance reach an agreement on standards
related to the sending and receiving of electronic
transmission, committee staff recommends expanding the
scope of the bill to cover additional documents (not
including cancelations and nonrenewal) including offers of
renewal for auto and residential insurance policies (Ins.
Code �� 663(a)(1) and 678(a)(1)), and notices of
conditional renewal for commercial policies (Ins. Code �
678.1(c)).
SB 251 (Calderon), Page 11
1. Prior and Related Legislation
SB 1212 (R. Calderon), 2011-12 Legislative Session. Would
have authorized an insurer to transmit electronically offers
of renewal of automobile, property, or commercial insurance,
as well as certain liability insurance, and subsequent
offers of earthquake coverage or renewal.
AB 328 (C. Calderon), Chapter 433, Statutes 2009, authorized
electronic transmission of certain notices that otherwise
would require a mailing, upon agreement by the policyholder
to receive the electronic communication in lieu of regular
mail, including notice of reasons for refusal to issue a
good driver policy pursuant to Proposition 103, notice of
the reasons for cancelling an automobile insurance policy,
notice of the right of a homeowner to purchase earthquake
coverage from or as arranged by the homeowner's insurer, or
the proof of mailing this notice, and the standard
residential property insurance disclosure that sets forth
the various types of homeowners' insurance policies.
SB 820 (Sher), Chapter 428, Statutes of 1999, enacting
California's Uniform Electronic Transactions Act.
SB 1124 (Vasconcellos), Chapter 213, Statutes of 1999,
validates brokerage agreements between a customer and a
broker dealer, if it is electronically sent back by an
applicant and it is accompanied by a digital signature, as
defined.
SB 367 (Dunn), Chapter 514, Statutes of 1999, establishes
the manner in which documents electronically filed with the
court would be given legal effect, allow parties and the
court in specified types of cases to agree to file and serve
documents electronically, and direct the Judicial Council to
develop rules regarding electronic filing and service of
documents for use by all courts by January 2001.
POSITIONS
Support
Association of California Insurance Companies (Sponsor)
Personal Insurance Federation of California
State Farm Insurance Company
SB 251 (Calderon), Page 12
Oppose
Consumer Attorneys of California
United Policyholders
Consultant: Hugh Slayden, (916) 651-4773