BILL ANALYSIS Ó SENATE COMMITTEE ON INSURANCE Senator Richard Roth, Chair 2015 - 2016 Regular Bill No: AB 499 Hearing Date: June 22, 2016 ----------------------------------------------------------------- |Author: |Cooley | |-----------+-----------------------------------------------------| |Version: |June 9, 2016 | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |No |Fiscal: |No | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant:|Erin Ryan | | | | ----------------------------------------------------------------- Subject: Insurance: earthquake: mandatory offer SUMMARY Eliminates the presumption of delivery of the mandatory offer of earthquake insurance disclosure form if the applicant for homeowners' insurance does not return a signed acknowledgement of receipt within 60 days of the date it was provided; revises the requirement for a stand-alone notice of changes in the terms and conditions of an earthquake insurance policy at renewal to only require the stand-alone notice if the modifications reduce or substantially differ from the coverage previously provided; establishes a consistent proof of mailing or delivery presumption for any offer, disclosure, or document required to be delivered under statutes governing the mandatory offer or renewal of earthquake insurance; and makes other technical and clarifying changes. DIGEST Existing law 1. Provides that no homeowners' insurance policy may be offered or sold in California unless the homeowner is offered earthquake coverage, either as part of the homeowners' policy, or as a separate policy; 2. Requires all earthquake insurance policies to meet specified minimum coverages, as defined; AB 499 (Cooley) Page 2 of ? 3. Requires the offer of earthquake insurance to be made prior to, concurrent with, or within 60 following the issuance or renewal of a homeowners' insurance policy; 4. Establishes a conclusive presumption that the insurer, agent or broker complied with the offer disclosure requirement if it delivers the offer and the homeowner does not return the signed acknowledgement of receipt within 60 days of the date it was provided; 5. Establishes a conclusive presumption that the insured elected not to accept the coverage if the insurer establishes proof of mailing or delivery of the offer and the insured has not accepted coverage within 30 days from date of mailing or delivery; 6. When a homeowner has not purchased earthquake coverage pursuant to the mandated offer, requires the insurer to notify the homeowner that the homeowners' policy does not include earthquake coverage, offer such coverage and provide such a notice of non-coverage on at least an every other year basis prior to or concurrent with renewal of the homeowners' insurance policy; 7. Provides that if an offer of earthquake coverage is accepted, the coverage will be continued at the applicable rates and conditions for the policy term provided it is not terminated by the insured or insurer; 8. Allows the insurer to modify the terms and conditions of an existing policy at renewal if the terms and conditions meet the minimum coverages required by law if the insurer provides the insured the changes in the terms and conditions of the policy in a stand-alone disclosure document; 9. Provides that proof of mailing or delivery of the disclosure in #8 establishes a conclusive presumption that the disclosure document was provided. This bill 1. Eliminates the presumption of delivery of the offer disclosure form if the applicant for homeowners' insurance AB 499 (Cooley) Page 3 of ? does not return a signed acknowledgement of receipt within 60 days of the date it was provided; 2. Provides that if an offer of earthquake insurance is not accepted, the insurer must offer earthquake insurance on an every other year basis in connection with any continuation, renewal, or reinstatement of the homeowners' insurance policy following any lapse, or with respect to any other policy that extends, changes, superseded, or replaces the residential property insurance policy; 3. Revises the requirement for a stand-alone notice of changes in the terms and conditions of an earthquake insurance policy at renewal to only require the stand-alone notice if the modifications reduce or substantially differ from the coverage previously provided; 4. Establishes a consistent proof of mailing or delivery presumption for any offer, disclosure, or document required to be delivered under statutes governing the mandatory offer of earthquake insurance; 5. Provides that if an offer, disclosure, or document required to be delivered is mailed by first class mail or is pursuant to rules governing the electronic delivery of insurance documents, there is a conclusive presumption the offer was made or document was delivered as required; 6. Provides that if a document is hand delivered to the insured, the insured's signed receipt creates a conclusive presumption; 7. Makes other technical and clarifying changes and adds contingent enactment language to address pending legislation that would change or renumber the provisions of Insurance Code §38.5 that allows for electronic transmission of insurance documents. COMMENTS 1. Purpose of the bill To clarify the sometimes conflicting presumptions regarding proof of delivery of various offers, notices and disclosures relating to the mandatory offer of AB 499 (Cooley) Page 4 of ? earthquake insurance at the time of application for a homeowners' insurance policy, renewal of the homeowners' insurance policy or renewal of an earthquake insurance policy without changing the underlying mechanics or consumer protections. 2. Background California requires all insurers offering homeowners' insurance in this state to also offer earthquake insurance. After the Northridge earthquake in 1994, the costliest natural disaster in the history of the state with more than $25 billion in property damage, many insurers simply stopped writing homeowners' insurance rather than offer earthquake coverage. As a result, the legislature created a "mini policy" that could be sold by any insurer to comply with the mandatory offer law: only earthquake loss due to structural damage need be covered, with a 15% deductible. Claims on personal property losses and "loss of use" are limited. It also created the California Earthquake Authority, which is regulated like a private insurance company by the California department of Insurance (CDI) even though it is a quasi-state agency. In order to comply with the mandatory offer law, there are specific notices and disclosures regarding earthquake insurance that must be provided at the time a homeowner applies for homeowners' insurance, when they renew their insurance, or if an insurer changes the terms or conditions of an earthquake insurance policy at the time of renewal of that policy. This bill was brought forward because after extensive review of these statutes by insurers and the CDI, it was determined that the use of the terms notice and disclosure was inconsistent, as were the provisions for establishing conclusive proof of delivery or receipt by the consumer as required by law. This bill is the result of that review and agreement between the CDI and insurers as reflecting a "clean-up" of the statute. These sections of law were amended by SB 251 (Calderon, Chap. 369, Statutes of 2013) to allow for the electronic delivery of documents, as provided by law. The bill also included a sunset date of January 1, 2019 for the changes it AB 499 (Cooley) Page 5 of ? made to the statute. This bill does not change the sunset date included in SB 251, but does provide alternate sections contingent on the enactment of AB 2591 that would change the electronic transmission statute cited in these sections. 3. Support The National Association of Mutual Insurance Companies and the Pacific Association of Domestic Insurance Companies support AB 499 because it is a common-sense "clean-up" bill that will resolve some ambiguity and inconsistency in the conclusive presumptions regarding delivery of consumer disclosures required in the mandatory offer, offer upon renewal of the homeowners' policy if the homeowner has not purchased earthquake insurance, and changes in terms of earthquake policies at time of renewal. 4. Opposition None received 5. Prior and Related Legislation AB 2591 (Dababneh) Consolidates and recasts the several standards applicable to electronic transactions applicable to insurance notices, in addition to those provided under the Uniform Electronic Transactions Act, and applies those standards and to additional insurance documents. AB 2064 (Cooley, Chap. 419, Statutes of 2014) Revised and recast statutory notice requirements relating to the mandatory offer of earthquake insurance. AB 2735 (Assembly Insurance Committee, Chap. 427, Statutes of 2014) Provided that if an insurer issues or causes to be issued a policy with earthquake coverages other than the specified coverages, but in accordance with an approved rate application, no further or other offer of earthquake coverage meeting the coverage and deductible requirements and no further or other notice of noncoverage is required by the insurer if a renewal of that policy is offered, and a written notice is provided with that renewal regarding additional earthquake coverage that is available. AB 499 (Cooley) Page 6 of ? POSITIONS Support Association of California Insurance Companies CSAA Insurance Group National Association of Mutual Insurance Companies Pacific Association of Domestic Insurance Companies Oppose None received -- END --