BILL ANALYSIS Ó
SENATE INSURANCE COMMITTEE
Senator Ronald Calderon, Chair
SB 251 (Calderon) Hearing Date: April 24, 2013
As Amended: April 17, 2013
Fiscal: No
Urgency: No
SUMMARY: Would authorize an insurer, with the consent of the
policy owner, to transmit electronically, in lieu of mail, the
offer of renewal required for personal auto, real and personal
property, and liability insurance policies; the notice of
conditional renewal for commercial insurance policies, and the
offer of renewal and certain disclosures related to earthquake
insurance so long as the insurer complies specified the
provisions of the Uniform Electronic Transactions Act and
additional procedures and standards as provided.
DIGEST
Existing law
1. Uniform Electronic Transactions Act (Civil Code Sections 1633.1
et seq.)
A. 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, unless excepted by
subdivision (c) of Section 1633.3 of the Civil Code, to be
provided by electronic transmission if each party has agreed
to conduct the transaction by electronic means, as provided;
and
B. Excepts from its provisions authorizing electronic
delivery the offer of renewal required by Insurance Code
Sections 663 for personal automobile insurance and 678 for
personal liability and property insurance; the notice of
conditional renewal of certain types of commercial insurance
required by Insurance Section 678.1; and the offer of coverage
or renewal for earthquake insurance or any related disclosure
required by Insurance Section 10086.
1. Earthquake Coverage Offer of Renewal and Notice of Change in
SB 251 (Calderon), Page 2
Terms and Conditions (Ins. Code § 10086)
A. Prohibits residential property insurer's insurers from
issuing or delivering property insurance without offering
earthquake coverage prior to, concurrent with, or within 60
days following the issuance or renewal of a residential
property insurance policy;
B. Requires that If the offer of earthquake 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;
C. 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
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
D. 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.
1. Personal Automobile Insurance (Ins. Code § 663)
A. Requires that before expiration of personal automobile
insurance policy, an insurer shall deliver to or mail to the
named insured, at the address shown on the policy, either a
written or verbal offer of renewal of the policy at least 20
days before expiration or a written notice of nonrenewal of
the policy at least 30 days before expiration; and
B. Provides that in the event that an insurer fails to give
the named insured either an offer of renewal or notice of
nonrenewal, the existing policy, with no change in its terms
and conditions, shall remain in effect for 30 days from the
date that either the offer to renew or the notice of
nonrenewal is delivered or mailed to the named insured.
1. Personal Liability, and Real and Personal Property Coverage
(Ins. Code § 678)
SB 251 (Calderon), Page 3
A. Requires that at least 45 days prior to policy expiration
of insurance covering loss or damage to specified real or
personal property or covering personal legal liability, an
insurer shall deliver to the named insured or mail to the
named insured at the address shown in the policy, either of
the following an offer of renewal of the policy stating any
reduction of limits or elimination of coverage or a notice of
nonrenewal of the policy; and
B. Provides that in the event an insurer fails to give the
named insured either an offer of renewal or notice of
nonrenewal:
i. The existing policy, with no change in its terms and
conditions, shall remain in effect for 45 days from the
date that either the offer to renew or the notice of
nonrenewal is delivered or mailed to the named insured; and
ii. A notice to that effect shall be provided by the
insurer to the named insured with the policy or the notice
of renewal or nonrenewal.
1. Commercial Property Coverage (Ins. Code § 678.1)
A. Requires that unless an insurer delivers or mails a notice
of nonrenewal on a policy of commercial property insurance,
the insurer, at least 60 days, but not more than 120 days, in
advance of the end of the policy period, shall:
i. Give notice of nonrenewal, and the reasons for the
nonrenewal, if the insurer intends not to renew the policy;
or
ii. Give notice that the insurer intends to condition
renewal upon reduction of limits, elimination of coverages,
increase in deductibles, or increase of more than 25
percent in the rate upon which the premium is based.
SB 251 (Calderon), Page 4
A. If an insurer fails to give timely notice of the
nonrenewal or conditional renewal, the policy of insurance
shall be continued, with no change in its terms or conditions,
for a period of 60 days after the insurer gives the notice.
This bill
1. Would authorize an insurer to send electronically offers of
renewal and conditional renewal for automobile and specified
property insurance so long as the insurer complies with
certain requirements in addition to those specified in UETA;
2. Would authorize an insurer to send the renewal notice
required to be made every other year and certain disclosures
related earthquake insurance to be sent electronically, so
long as the insurer complies with certain requirements in
addition to those specified in UETA;
3. Would also delete obsolete cross-references and make
conforming changes.
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
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live in areas with scarce postal services.
The author states that by authorizing the electronic
transmission of certain insurance documents, SB 251 provides
consumers greater access to the portability and convenience
of electronic documents; 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
Documents Affected by SB 251. This bill would allow an
insurer to send certain documents, as specified,
electronically in lieu of mailing, so long as the
requirements of UETA and this bill are met.
Earthquake Insurance. This bill would allow insurers to
send the biennial offers and other disclosure
electronically in lieu of mailing with the consent of the
policy owner of the residential property insurance.
i. Biennial Offers of 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 at the
inception of a residential property policy either
directly or through the California Earthquake Authority
(Ins. Code § 10083). The initial offer may be sent
electronically (AB 328 (C. Calderon), Chapter 433,
Statutes 2009 - this bill contains a clarification to
that effect), but existing law requires that the
insurer mail a subsequent offer every other year to
consumers who did not accept the initial offer. (Ins.
Code § 10086(b).)
ii. California Earthquake Authority Disclosure. If
coverage is purchased, but provided through the
California Earthquake Authority, additional disclosure
language is required to inform the purchasing consumer
that the CEA is not covered by the California Insurance
Guaranty Association (CIGA) and that if the CEA becomes
insolvent or unable to make claims, the policyholder
may be subject to an additional charge of up to 20% of
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the premium. (Ins. Code § 10086(a)(3).)
iii. Disclosure of Modified Terms and Conditions for
Earthquake Insurance. When an insurer offers a renewal
of earthquake coverage, 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. (Ins. Code § 10086(a)(2).)
Offers of Renewal . Property, liability, or casualty
coverage typically expires at the end of the term
(frequently at the end of a year). Unless the insurer
notifies the consumer that it does not intend to renew
coverage, an insurer must mail the policyholder an offer
of renewal that may or may not contain changes to the
terms or coverage.
i. Private Passenger Automobile Insurance.
Existing law requires a motor vehicle insurer to
provide a notice of renewal of a private passenger
automobile insurance policy at least 20 days prior to
the expiration of the policy. (Ins. Code § 663.).
ii. Property, Liability, and Other Casualty
Insurance. Requires an insurer that is renewing a
policy of property or other casualty insurance on risks
located in California to deliver a notice of renewal,
which must include notice of any changes in coverage or
premium, at least 45 days prior to the termination of
the policy. This requirement applies to an offer to
renew a policy of personal lines of property,
liability, or other casualty insurance (Ins. Code §
678) and the notice of conditional renewal for policies
of commercial lines that provide coverage for property,
liability, or other casualty types insurance. (Ins.
Code § 678.1.)
Notices of cancelation, termination, and nonrenewal are
not impacted by this bill and must be mailed. Failure of
the insurer to properly deliver a notice of renewal with
modified terms, cancelation or nonrenewal could leave
coverage remains in place under the existing terms until
a specified time after the document is properly sent or
delivered. (Ins. Code §§ 663(c), 678(b), 678.1(d).)
SB 251 (Calderon), Page 7
A. Electronic Transactions Law. The National
Conference of Commissioners on Uniform State Laws adopted
the UETA Model Act in 1999 establishing a consistent
interstate 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.). Congress drafted ESIGN to
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 (Civil Code § 1633.5.) 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 (Civil Code § 1633.3). 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.
iii. Construed to Facilitate E-Commerce (Civil Code §
1633.6). UETA should be construed and applied to
facilitate electronic transactions consistent with
other applicable law and with reasonable practices
concerning electronic transactions.
SB 251 (Calderon), Page 8
iv. Electronic Writings and Signatures Validated
(Civil Code § 1633.7). 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
(Civil Code § 1633.15). 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; when more than one system is
involved the sender must lose control of the document.
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.
vi. Substantive Laws Requiring a Writing (Civil Code
§ 1633.8). 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
Record not Sent/Received (Civil Code § 1633.15). 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.
SB 251 (Calderon), Page 9
viii. Special Record Handling Rules (Civil Code §
1633.11). 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 (Civil Code § 1633.12).
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 (Civil Code § 1633.3). 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 have been
raised related to the reliability of electronic mail.
The issue has persisted since the drafting of UETA. The
drafters of the Model Act provide some guidance as to how
UETA is designed to handle this concern.
The preservation of existing safeguards [in
UETA], together with the ability to opt out of
the electronic medium entirely, demonstrate the
SB 251 (Calderon), Page 10
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.
(Comments to Section 3.)
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.
Additional Consumer Protections Added by Recent
Amendments. Recent amendments added additional
procedures and requirements in addition to those provided
under UETA including:
i. Record of Consent. The insured must follow
specific procedures to document and retain evidence of
the consent of the insured.
ii. Additional Disclosures. The insurer must
disclose, describe, or provide: that the "opt in" to
receive the document by electronic transmission is
voluntary; that the insured may opt out at any time and
the process to do so; the document to be sent
electronically; the process or system to report a
change or correction in the insured's email address;
and the insurer's contact information.
iii. Record of Electronic Address. The insurer must
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include the insured's email address on the policy
declaration page.
iv. Free Hardcopy on Request. The insured may
request one printed copy of any of the documents free
of charge.
v. Heightened Standard for Transmission.
Generally, under UETA, a document must only be sent
unless otherwise specified. (Civil Code § 1633.8(a).)
This bill requires the insurer to maintain a process or
system that can demonstrate that the document provided
electronically was both "sent" and "received" as
defined by UETA. (See Civil Code § 1633.15.) The
insurer must retain this information while the policy
is in force and for five years thereafter to show that
the document was sent by the applicable statutory
regular mail delivery deadlines and ultimately received
electronically.
vi. Follow-up for Delivery Failure. If the insurer
receives information indicating that the document was
not received by the insured (such as failure of
delivery notice provided by many email services), the
insurer shall, within two business days, either contact
the insured to confirm contact information and
successfully resend the document electronically or send
the document by regular mail. (See also Civil Code §
1633.15(g).)
vii. Administrative Remedy. Allows the Department of
Insurance to suspend the insurer from providing
documents by electronic transmission if there is a
pattern or practices that demonstrate the insurer has
failed to comply with these requirements.
A. 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
SB 251 (Calderon), Page 12
records that accord "greater legal effect to, the
implementation or application of specific technology or
technical specification for performing the functions of
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, a
growing number of 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.
Although it is not clear if insurers have used mobile
applications to provide mandatory notices pursuant to
UETA yet, mobile apps function as a powerful tool for
effective and confirmed delivery of these notices.
1. Arguments in 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 (Calderon), Page 13
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.
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. Prior and Related Legislation
SB 1212 (R. Calderon), 2011-12 Legislative Session. Would
have authorized an insurer to transmit electronically
specified offers of renewal for automobile, property, or
commercial insurance, as well as certain liability
insurance, and notices related to earthquake coverage.
SB 251 (Calderon), Page 14
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, 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, enacted
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)
Pacific Association of Domestic Insurance Companies
Personal Insurance Federation of California
State Farm Insurance Company
Oppose
Consumer Attorneys of California
United Policyholders
SB 251 (Calderon), Page 15
Consultant: Hugh Slayden, (916) 651-4110