BILL ANALYSIS                                                                                                                                                                                                    

                             Senator Richard Roth, Chair
                                2015 - 2016  Regular 

          Bill No:              AB 447        Hearing Date:    July 8,  
          |Author:    |Maienschein                                          |
          |Version:   |June 2, 2015    Amended                              |
          |Urgency:   |No                     |Fiscal:    |No               |
          |Consultant:|Erin Ryan                                            |
          |           |                                                     |
                    Subject:  Property insurance: discrimination.

           SUMMARY     Prohibits an insurer admitted to issue insurance policies  
          covering real property designed for human habitation, including  
          single family homes, condominiums and multiunit commercial  
          apartments, from failing or refusing to accept an application  
          for, issue a policy to an applicant for insurance, or cancel a  
          policy based on the source of income of residential tenants or  
          the receipt of housing assistance by tenants from the federal or  
          state government or from a local public entity, and prohibits  
          the insurer from requiring this information on the application  
          for insurance, as specified.
          Existing law
           1)  Prohibits an admitted insurer from using sex, race, color,  
              religion, ancestry, national origin, disability, medical  
              condition, genetic information, marital status, or sexual  
              orientation under conditions less favorable to the insured than  
              in other comparable cases, for purposes of accepting  
              applications for, issuing policies of, or cancelling policies of  
              property or commercial insurance.

           2)  Prohibits using any of these characteristics as a condition or  
              risk to justify charging a policyholder a higher rate, premium,  
              or charge for insurance.


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           3)  Prohibits applications for insurance, as specified, from  
              including any identification of, or requiring an applicant to  
              provide, any information as to these characteristics.

           4)  The Insurance Rate Reduction and Reform Act (Proposition 103,  
              as approved by the voters in 1988) (Prop. 103), requires  
              specified insurance rates to be approved by the Insurance  
              Commissioner (IC) prior to their use.

          This bill

            1)  Prohibits an insurer admitted in California to issue  
              insurance policies covering real property designed for human  
              habitation, including single family homes, condominiums and  
              multiunit commercial, from failing or refusing to accept an  
              application for, issue a policy to an applicant for  
              insurance, or cancel a policy based on the following  

               a.     The level or source of income of an individual or  
                 group of people residing or intending to reside upon the  
                 property to be insured, if they do not own the property;
               b.     The receipt of assistance, intended for housing,  
                 from the federal or state government, or from a local  
                 public entity, as defined, including "Section 8"  
                 vouchers, by an individual or group of people residing or  
                 intending to reside upon the property.

           2)  Prohibits an application for insurance, or a report  
              furnished by an insurer for use in determining eligibility  
              for insurance, from having any identification of, or  
              requirement to provide information as to the characteristics  
              in paragraph 1, above.

           3)  Provides that if a property is used for both residential  
              and commercial purposes, the insurer may consider the source  
              of income for the non-residential tenant in determining the  
              insurability of an applicant.

           4)  Specifies that nothing in the bill prohibits an insurer  
              from failing or refusing to accept an application, issuing,  
              canceling or failing to renew, a policy as a result of  


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              underwriting based on any and all factors other than those  
              expressly prohibited. 

          1.  Purpose of the bill    To prohibit insurers from using the  
              source of income of, or the use of state or federal housing  
              assistance by, tenants as a basis to decide whether to  
              accept an application by the property owner for property  
              insurance, because it is viewed as a discriminatory  

           2.  Background    Unlike in the highly regulated auto insurance  
              market, there are relatively few limitations on insurer  
              underwriting and pricing in the property insurance market.  
              Insurers must, however, submit their rates for prior  
              approval of the IC under Prop. 103.  Insurers may use a  
              variety of factors and characteristics to assess the risk  
              associated with insuring the property, including location,  
              structural condition, age, design, management of the  
              property, ownership, maintenance, hazards on the property,  
              tenants and tenant mix, presence of safety devices such as  
              fire and smoke alarms, lighting, sports facilities or  
              swimming pools. Some insurers look at the presence of  
              subsidized tenants as a factor in evaluating the property's  
              underwriting risk, and according to the proponents, some  
              insurers have not offered certain products, or cancelled  
              policies, because of the presence of subsidized tenants.
               As a matter of public policy, insurers are prohibited from  
              arbitrary and unreasonable discrimination against the  
              protected classes of the Unruh Civil Rights Act. Those  
              classes include age, ancestry, color, disability, genetic  
              information, marital status, national origin, race,  
              religion, sex, and sexual orientation. 

              The U.S. Supreme Court took a broad approach to housing  
              discrimination in its recent decision in Texas Department of  
              Housing and Community Affairs v. Inclusive Communities  
              Project, holding that under the federal Fair Housing Act it  
              is enough to show that minorities are negatively affected,  
              even if no intent to discriminate has been found. 


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              The housing choice voucher program (Section 8) is the  
              federal government's major program for assisting very  
              low-income families, the elderly, and the disabled to afford  
              decent, safe, and sanitary housing in the private market.  
              Since housing assistance is provided on behalf of the family  
              or individual, participants are able to find their own  
              housing, including single-family homes, townhouses and  
              apartments. The participant is free to choose any housing  
              that meets the requirements of the program and is not  
              limited to units located in subsidized housing projects. A  
              family that is issued a housing voucher is responsible for  
              finding a suitable housing unit of the family's choice where  
              the owner agrees to rent under the program. Rental units  
              must meet minimum standards of health and safety and the  
              housing subsidy is paid to the landlord directly by the  
              public housing authority on behalf of the participating  
              family. The family then pays the difference between the  
              actual rent charged by the landlord and the amount  
              subsidized by the program. The role of the landlord in the  
              voucher program is to provide decent, safe, and sanitary  
              housing to a tenant at a reasonable rent. The dwelling unit  
              must pass the program's housing quality standards and be  
              maintained up to those standards as long as the owner  
              receives housing assistance payments.  State and local  
              government programs that proponents point to as similar in  
              purpose are also included in the bill.

              Proponents of this bill argue that some insurers have  
              discriminated against property owners who participate in  
              housing assistance programs, treating similarly situated  
              properties differently, or refusing to offer or renew  
              policies, simply because of the presence of tenants who have  
              availed themselves of legitimate government benefits. They  
              argue this serves as a disincentive for property owners to  
              participate in these important affordable housing programs,  
              particularly in high-cost California.

              Nothing in the bill prevents an insurance company from  
              properly underwriting the property for any and all risks, or  
              from declining to insure a property for any number of  
              reasons. The insurer would not, however, be able to simply  
              not offer insurance to the category of properties that allow  
              Section 8 tenants.  This bill was prompted in part by one  


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              company that has refused to offer an apartment policy  
              product to subsidized, public or government funded  
              complexes, claiming these properties present unknown,  
              complex, specialized or higher risk exposures.  It further  
              justified its position because the market is adequately  
              covered by surplus lines, specialty and niche insurers, risk  
              retention groups and other insurers that have particular  
              expertise with subsidized, public or government funded  
              housing. The insurer in that case had a standard apartment  
              insurance policy and apparently did no on-site  
              investigations or underwriting of a property prior to  
              issuing a policy if information provided on the application  
              met specified criteria. It should be noted that surplus  
              lines insurers are not admitted or licensed to offer  
              insurance in California, and this bill and the  
              anti-discrimination provision generally, applies only to  
              admitted insurers.

              The fundamental question raised by this bill is whether an  
              insurer should be able to treat similarly situated  
              properties differently based simply on the presence of  
              subsidized tenants.  The insurer would be able to use the  
              underwriting process to determine if the property actually  
              posed an unacceptable risk, for example if the building was  
              not properly maintained, if it posed higher safety concerns,  
              or if it had a history of claims. None of these conditions  
              or problems would be unique to subsidized housing. At the  
              same time, some insurers claim that insurers may have  
              particular expertise in the types of properties they have  
              chosen to insure.  They believe that any restrictions on  
              their ability to evaluate the type of property can eliminate  
              flexibility, skew underwriting, and result in market  

           3.  Support    Housing California has sponsored AB 447 to ensure  
              that a property owner would not be forced to discriminate  
              against tenants based on the source of their income. The  
              California Apartment Association (CAA) supports AB 447  
              because admitted insurers in California have ben refusing to  
              cover properties that accept Housing Choice Vouchers,  
              forcing CAA's members to obtain significantly more expensive  
              coverage from non-admitted insurers or terminate their  
              participation in the Voucher program. The viability of the  


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              Housing Choice Voucher Program is entirely dependent on the  
              availability of housing in the private market.

           4.  Opposition    According to the American Insurance  
              Association, AB 447 would force property insurers to provide  
              coverage of rental properties without the ability to  
              properly evaluate risk. Restrictions and limitations on  
              underwriting adversely affect the ability of carriers to  
              properly rate and make coverage determinations. Currently  
              there is market availability of insurance for multi-family  
              low-income or rent subsidized rental properties from  
              admitted insurers, surplus lines carriers, specialty and  
              niche carriers and risk retention groups. There is no need  
              to force property insurers to provide insurance without the  
              ability to consider all relevant factors that may affect the  
              risks being insured.

              The Association of California Insurance Companies opposes AB  
              447 because it prevents insurers from considering all  
              relevant information in the provision of coverage to owners  
              of residential rental property-in this case whether a  
              building owner has chosen to rent to tenants whose rents are  
              subject to subsidies. Absent an availability crisis, and  
              with rates approved by the department of Insurance, it seems  
              inappropriate to place restrictions on a company's  
              underwriting ability.

          California Coalition for Rural Housing (sponsor)
          Housing California (sponsor)
          Western Center on Law and Poverty (sponsor)
          California Apartment Association
          California Housing Consortium
          City of Berkeley Rent Stabilization Board
          Community Housing Works
          Downtown Women's Center
          First Place for Youth
          Housing Leadership Council of San Mateo County
          Law Foundation of Silicon Valley


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          LINC Housing
          Northern Circle Indian Housing Authority
          Path Ventures
          Project Sentinel
          Sacramento Homeless Organizing Committee
          San Diego County Apartment Association
          Skid Row Housing Trust
          American Insurance Association
          Association of California Insurance Companies

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