BILL ANALYSIS                                                                                                                                                                                                    Ó

          |SENATE RULES COMMITTEE            |                        AB 447|
          |Office of Senate Floor Analyses   |                              |
          |(916) 651-1520    Fax: (916)      |                              |
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                                   THIRD READING 

          Bill No:  AB 447
          Author:   Maienschein (R), et al.
          Amended:  6/30/15 in Senate
          Vote:     21  

           SENATE INSURANCE COMMITTEE:  6-1, 7/8/15
           AYES:  Roth, Glazer, Hall, Hernandez, Liu, Wieckowski
           NOES:  Gaines
           NO VOTE RECORDED:  Berryhill, Mitchell

           ASSEMBLY FLOOR:  75-4, 6/4/15 - See last page for vote

           SUBJECT:   Property insurance: discrimination

          SOURCE:    California Coalition for Rural Housing
                     Housing California 
                     Western Center on Law and Poverty

          DIGEST:  This bill 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 insurance, 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  


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          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.

           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)  Requires, under the Insurance Rate Reduction and Reform Act  
              (Proposition 103, as approved by the voters in 1988),  
              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 apartment buildings, from failing or  
              refusing to accept an application for insurance, issue a  
              policy to an applicant for insurance, or cancel a policy  
              based on the following characteristics:

              a)    The level or source of income of an individual or  


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                                                                    Page  3

                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 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 an insurer is not prohibited from failing or  
              refusing to accept an application, issuing, canceling or  
              failing to renew, a policy as a result of underwriting based  
              on any and all factors other than those expressly  


          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 Proposition 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.  


                                                                     AB 447  
                                                                    Page  4

          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  

          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. 

          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.   
          Similar state and local government programs that are similar in  
          purpose are also included in this bill.


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          Nothing in AB 447 prevents an insurance company from  
          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 not offer insurance to  
          the category of properties that allow subsidized tenants.  This  
          bill was prompted in part by one company that has refused to  
          offer an apartment policy product to owners of 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 is whether an insurer should be able to  
          treat similarly situated properties differently based 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. 

          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:NoLocal:    No

          SUPPORT:   (Verified7/9/15)

          California Coalition for Rural Housing (co-source)
          Housing California (co-source)
          Western Center on Law and Poverty (co-source)
          California Apartment Association
          California Housing Consortium


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

          OPPOSITION:   (Verified7/9/15)

          American Insurance Association
          Association of California Insurance Companies

          ARGUMENTS IN SUPPORT:     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. This  
          serves as a disincentive for property owners to participate in  
          these important affordable housing programs, particularly in  
          high-cost California. 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 members to obtain significantly more  
          expensive coverage from non-admitted insurers or terminate their  
          participation in the Voucher program. The viability of the  
          Housing Choice Voucher Program is entirely dependent on the  
          availability of housing in the private market.

          ARGUMENTS IN OPPOSITION:     According to the American Insurance  
          Association, AB 447 forces property insurers to provide coverage  
          of rental properties without the ability to properly evaluate  
          risk.  Restrictions and limitations on underwriting adversely  


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                                                                    Page  7

          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. According to the  
          Association of California Insurance Companies, absent an  
          availability crisis, and with rates approved by the California  
          Department of Insurance, it seems inappropriate to place  
          restrictions on a company's underwriting ability.
          ASSEMBLY FLOOR:  75-4, 6/4/15
          AYES:  Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom,  
            Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang,  
            Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle,  
            Daly, Dodd, Eggman, Frazier, Cristina Garcia, Eduardo Garcia,  
            Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley,  
            Harper, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer,  
            Kim, Lackey, Linder, Lopez, Low, Maienschein, Mathis, Mayes,  
            McCarty, Medina, Melendez, Mullin, Nazarian, O'Donnell, Olsen,  
            Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas,  
            Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner,  
            Waldron, Weber, Wilk, Williams, Wood, Atkins
          NOES:  Beth Gaines, Gallagher, Levine, Patterson
          NO VOTE RECORDED:  Obernolte

          Prepared by:Erin Ryan / INS. / (916) 651-4110
          8/20/15 16:20:41

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