BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON INSURANCE
                             Senator Richard Roth, Chair
                                2015 - 2016  Regular 

          Bill No:              AB 499        Hearing Date:    June 22,  
          2016
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          |Author:    |Cooley                                               |
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          |Version:   |June 9, 2016                                         |
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          |Urgency:   |No                     |Fiscal:    |No               |
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          |Consultant:|Erin Ryan                                            |
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                 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;








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           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  








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              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  








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              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  








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              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.  









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          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

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