California Legislature—2015–16 Regular Session

Assembly BillNo. 1072


Introduced by Assembly Member Daly

February 27, 2015


An act to repeal and add Chapter 10A (commencing with Section 11400) of Part 2 of Division 2 of the Insurance Code, relating to insurance.

LEGISLATIVE COUNSEL’S DIGEST

AB 1072, as introduced, Daly. Insurance: firefighters or police officers’ benefit and relief associations.

(1) Existing law generally provides for the regulation of insurers by the Department of Insurance pursuant to laws set forth in the Insurance Code. Existing law authorizes the Insurance Commissioner to make certain examinations, investigations, and prosecutions and, upon making a determination of the existence of certain conduct, conditions, or grounds, to issue orders reasonably necessary to correct, eliminate, or remedy the conduct, conditions, or grounds. Existing law also prohibits insurers from engaging in unfair or deceptive acts or practices, including advertising insurance that an insurer will not sell. A violation of that prohibition is a misdemeanor.

Existing law exempts from the requirements set forth in the Insurance Code firemen’s, policemen’s, and peace officers’ benefit and relief associations that comply with specified criteria, including, among other things, a requirement that the membership consist solely of peace officers, members of police or fire departments, and emergency medical personnel employed by fire departments, as specified. Existing law prohibits an association from operating or doing business in the state without a certificate of authority, and imposes a filing fee of $590 for the application for that certificate.

This bill would repeal those provisions and would enact new provisions governing those entities. Among other things, the bill would revise requirements governing membership, by authorizing these associations to consist of a majority of the members described above.

The bill would also impose new reporting, reserve, and disclosure requirements upon certain associations that offer long-term benefits, as defined. The bill would authorize the commissioner to examine the operations, affairs, transactions, conduct, and financial condition of an association, and to carry out other enforcement duties with respect to these associations. The bill would require these associations to pay a filing fee of $590 for the application for the certificate, and an annual fee of $350, thereby imposing taxes, and would require these associations to pay $347 for filing financial information. The bill would also make these associations subject to the prohibitions against unfair or deceptive acts or practices. By expanding the scope of a crime, the bill would impose a state-mandated local program.

(2) The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

(3) This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIII A of the California Constitution, and thus would require for passage the approval of 23 of the membership of each house of the Legislature.

Vote: 23. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.

The people of the State of California do enact as follows:

P2    1

SECTION 1.  

Chapter 10A (commencing with Section 11400)
2of Part 2 of Division 2 of the Insurance Code is repealed.

3

SEC. 2.  

Chapter 10A (commencing with Section 11400) is
4added to Part 2 of Division 2 of the Insurance Code, to read:

 

P3    1Chapter  10A. Firefighters’, Police Officers’, or Peace
2Officers’ Benefit and Relief Associations
3

3 

4Article 1.  Definitions and Scope
5

 

6

11400.  

(a) For purposes of this chapter, the following
7definitions apply:

8(1) “ERISA” refers to the Employee Retirement Income Security
9Act of 1974 (Public Law 93-406).

10(2) “Long-term benefits” means scheduled member benefits
11that are eligible to be paid for a period exceeding one year in
12duration. These benefits include, without limitation, any benefit
13providing coverage for loss of income as a result of disability, as
14described in Section 799.01, or for long-term care insurance, as
15defined in Section 10231.2, or any similar coverage or benefit
16providing for payments which may last for a period longer than
17one year.

18(b) Firefighters’, police officers’, or peace officers’ benefit and
19 relief associations now existing, or which may be formed on and
20after January 1, 2016, for the purpose of aiding their members or
21dependents of their members in case of sickness, accident, distress,
22or death, shall be subject to the provisions of this chapter.

23(c) An association that offers benefits, and that operates in, and
24accepts members as described in Section 11403 only from a single
25government entity, shall comply with this article, but is not subject
26to Article 2 (commencing with Section 11408). If an association
27operates strictly in accordance with this article, it shall not be
28subject to any other provision of this code, nor to any law of this
29state relating to insurance, whether now existing or hereafter
30enacted, except as expressly provided in this chapter.

31(d) (1) An association that either offers long-term benefits, or
32operates in and accepts members as described in Section 11403
33from more than one government entity, or that does both, shall
34comply with this chapter, except that the association may receive
35support from bona fide employee organizations which represent
36a majority of 50 percent of the membership plus one member of
37the association’s members in negotiations with their employers.

38(2) An association described in paragraph (1) shall also comply
39with Article 2 (commencing with Section 11408), except as
40otherwise provided in paragraph (3).

P4    1(3) An association that arranges at all times to have all long-term
2benefits provided completely and continuously by an insurer
3admitted in this state for the class of benefits offered shall not be
4subject to Article 2 (commencing with Section 11408).

5(e) The commissioner may take regulatory action pursuant to
6any remedy specified in this code against any association which
7fails to comply with the applicable provisions of this chapter.

8(f) The commissioner may adopt reasonable rules and
9regulations for the implementation and administration of this
10chapter.

11(g) This chapter shall not be construed in a manner that conflicts
12with ERISA. Associations governed by ERISA, as amended, shall
13also comply with this chapter, except to the extent that the
14association reasonably believes that compliance with this chapter
15would conflict or interfere with or unduly burden the association’s
16obligation to comply with ERISA.

17

11401.  

An association shall not operate or do business in this
18state without a certificate of authority. The commissioner shall
19issue a certificate of authority to an association unless he or she
20determines, after examination, that it does not comply with the
21applicable provisions of this chapter. The filing fee for the
22application for the certificate of authority shall be five hundred
23ninety dollars ($590). An association shall apply for a certificate
24no later than 18 months after its establishment or the effective date
25of this chapter, whichever is later. An association shall be permitted
26to operate or do business in this state during the first 18 months
27of its establishment and while its application for a certificate of
28authority is pending, provided the association complies in good
29faith with this chapter.

30

11402.  

The association may be incorporated or unincorporated,
31but, if incorporated, it shall neither issue nor be authorized to issue
32shares of stock.

33

11403.  

The membership of an association shall consist solely
34of the following or any combination thereof:

35(a) (1) A majority consisting of at least 50 percent of the
36membership plus one member of the association’s members of
37police departments of municipal or public corporations or districts.

38(2) Other associations that are each comprised of a majority
39consisting of at least 50 percent of the membership plus one
40member of police departments of municipal or public corporations
P5    1or districts that meet the eligibility criteria to participate in an
2association and that satisfy the criteria to participate in an
3association that intends to comply with the requirements of this
4chapter and has been admitted to participate by the association.

5(b) (1) A majority consisting of at least 50 percent of the
6membership plus one member of the association’s members of fire
7departments of municipal or public corporations or districts.

8(2) Other associations that are each comprised of a majority
9consisting of at least 50 percent of the membership plus one
10member of the association’s members of fire departments of
11municipal or public corporations or districts and that satisfy the
12criteria to participate in an association that intends to comply with
13the requirements of this chapter and has been admitted to
14participate by the association.

15(c) (1) A majority consisting of at least 50 percent of the
16membership plus one member of the association’s peace or law
17enforcement officers who are regular and salaried officers or
18employees of the state or of a single county or other political
19subdivision or public or municipal corporation.

20(2) Other associations that are each comprised of a majority
21consisting of at least 50 percent of the membership plus one
22member of the peace or law enforcement officers who are regular
23and salaried officers or employees of the state or of a single county
24or other political subdivision or public or municipal corporation
25and that satisfy the criteria to participate in an association that
26intends to comply with the requirements of this chapter and has
27been admitted to participate by the association.

28(d) (1) A majority consisting of at least 50 percent of the
29membership plus one member of the association’s persons who
30are emergency medical services personnel and employed by a fire
31department of a city, county, or district.

32(2) Other associations that are each comprised of a majority
33consisting of at least 50 percent of the membership plus one
34member of the peace or law enforcement officers who are
35emergency medical services personnel and employed by a fire
36department of a city, county, or district and that satisfy the criteria
37to participate in an association that intends to comply with the
38requirements of this chapter and has been admitted to participate
39by the association.

P6    1(e) A majority consisting of at least 50 percent of the
2membership plus one member of the association’s persons who at
3the time of becoming members of the association were qualified
4pursuant to subdivision (a), (b), (c), or (d).

5

11404.  

The association shall not pay or promise or agree to
6pay, either directly or indirectly, any consideration of any nature
7for the solicitation or procuring of members or applications for
8membership.

9

11405.  

The membership of the association who are eligible to
10vote shall elect the trustees or directors, or the governing body of
11the association, by whatever name their office is known or
12designated.

13

11406.  

Moneys or property directly or indirectly contributed
14to the association by its members shall not be paid out as benefits
15to any persons other than its members, their dependents, or
16beneficiaries nominated in writing by the members or as provided
17by a written plan document governing the payment of that benefit.

18

11407.  

The association shall be supported mainly by
19contributions from its members, whether in the form of fees, dues,
20assessments, or otherwise, and by donations made to it from time
21to time and from any investment earnings on those contributions.

22 

23Article 2.  Benefit and Relief Associations Providing Long-Term
24Benefits or Comprised of Multiple Government Subdivisions:
25Reserve Requirements
26

 

27

11408.  

An association that is subject to this article shall do all
28of the following:

29(a) Operate in accordance with sound actuarial principles, and
30be able to meet its obligation to provide the benefits that it promises
31to its members.

32(b) Establish and maintain appropriate loss and loss adjustment
33reserves determined by sound actuarial principles as provided in
34Section 11410 to adequately fund the present value of expected
35future payments provided that the reserve on all policies to which
36the method or basis applied is not less in the aggregate than the
37required reserves as determined in Section 11409 or as determined
38by a qualified actuary that satisfies the requirements of Section
3910489.15 and is based on the standards adopted by the Actuarial
40Standards Board.

P7    1(c) Maintain a contingency reserve of not less than 20 percent
2of the greater of the past 12 months’ premium or the expected
3annual premium for the next 12 months.

4(d) Hold all reserves and other funds for the payment and
5administration of benefits provided pursuant to this chapter in trust,
6to be used for the exclusive purpose for which they were intended,
7which may include necessary and reasonable administrative costs.

8

11409.  

(a) Reserves required by this article shall be invested
9as prescribed in this subdivision and subdivision (b). An association
10shall maintain at least 25 percent of the contingency reserve
11required by subdivision (d) of Section 11408 in investments
12specified in Article 3 (commencing with Section 1170) of Chapter
132 of Part 2 of Division 1 and in Section 1192.5.

14(b) The balance of the assets of the association in an amount
15equal to the reserves may be invested in assets permissible for
16investment by multiple employer welfare arrangements pursuant
17to subdivision (b) of Section 742.245.

18(c)  The commissioner may, after a hearing, by written order,
19require the disposal of any investment made pursuant to subdivision
20(b) if the association has failed to maintain cash or liquid assets
21sufficient to meet its claims and any other contractual obligations.

22

11410.  

(a) Each association that is subject to this article shall
23file with the commissioner, no later than the last day of the
2411-month period after the end of each calendar year, or the last
25day of the 11-month period after the end of each fiscal year not
26on a calendar year basis, or within 30 days of the filing of the
27association’s annual return with the United States Department of
28Labor, whichever is earlier, financial statements audited by a
29certified public accountant. Furthermore, no later than May 1 of
30every third calendar year or the first day of the fifth month after
31the end of each third fiscal year not on a calendar year basis,
32beginning January 1, 2014, an actuarial opinion shall be rendered
33by a qualified actuary that satisfies the requirements of Section
3410489.15. The opinion shall be based on standards adopted from
35time to time by the Actuarial Standards Board and on any
36additional standards that the commissioner may by regulation
37prescribe. For the purposes of this section, “qualified actuary”
38means a member in good standing of the American Academy of
39Actuaries who meets the requirements set forth in regulations of
40the commissioner.

P8    1(b) Each association that is subject to this article shall provide
2to its members a summary annual report within the meaning of
3ERISA detailing the association’s year-end financial condition.
4The report shall be provided to members in the time and manner
5required by ERISA. The association shall also provide a copy of
6the report to the commissioner.

7

11411.  

The commissioner or any persons designated by the
8commissioner shall have the power to examine the operations,
9affairs, transactions, conduct, and financial condition of an
10association, and for that purpose shall have access to all books,
11records, and documents that relate to the business of the association
12that is regulated by this chapter during the normal and regular
13business hours of the association, and may examine under oath its
14trustees, officers, agents, and employees in relation to the
15operations, affairs, transactions, conduct, and condition of the
16association. If, after a duly noticed hearing with the association
17during which the association is given a full and fair opportunity
18to address the written issues or concerns raised by the
19commissioner following his or her examination of the association’s
20operations, affairs, transactions, conduct, and financial condition
21of the association, the commissioner determines that the
22association’s operations, affairs, transactions, conduct, or financial
23condition do not comply with requirements of this chapter, the
24commissioner may apply any remedies authorized by this code.
25Examinations will be conducted at the expense of the department.

26

11412.  

(a) Upon reasonable request of the commissioner, and
27at reasonable intervals as prescribed by him or her, any association
28that reasonably appears to the commissioner to require immediate
29regulatory attention based on written evidence or other information
30shall provide to the commissioner supplemental accounting,
31financial, and actuarial information. The commissioner shall
32provide all written evidence or other information that forms the
33basis of the commissioner’s request to an association at the time
34the request is made. The commissioner may request that an
35association select and retain an independent certified public
36accountant, a certified public accountant corporation, an actuarial
37corporation, or an independent actuary satisfactory to the
38commissioner, if the association has not already retained experts
39of this type who meet the then-current regulatory standards of the
40actuarial society. The commissioner, at the expense of the
P9    1association, may select or retain an independent certified public
2accountant, a certified public accountant corporation, an actuarial
3corporation, or an independent actuary, if the association does not
4within a reasonable time make the selection as requested by the
5commissioner.

6(b) The provisions of Sections 925.1 to 925.4, inclusive, shall
7apply to all proceedings under this section.

8

11413.  

Books, records, and documents pertaining to the
9business of an association that is subject to this article shall be
10maintained either by the association or by its administrator if any,
11or both, for a period of five years after the end of the year when
12the transaction evidenced thereby ends. “Administrator,” as used
13in this section, has the same meaning as that contained in Section
141002(16)(A) of Title 29 of the United States Code.

15

11414.  

An association that is subject to this article shall not
16avoid the applicability of this article by making statements in any
17contract for benefits, or by any other means, to the effect that
18payment of benefits to any member when eligible for benefits
19based on the date of injury (and provided the member has satisfied
20the association’s reasonable claims procedure) is contingent upon
21the availability of assets, moneys, or other financial resources
22sufficient to make the payment. This article does not provide for
23the vesting of any benefit that is not already in pay status and does
24not affect an association’s right to amend or terminate a plan in
25whole or in part.

26

11415.  

(a) All contracts that are not regulated by the
27department for benefits, and certificates evidencing coverage
28thereunder, shall include the following disclosure, in capital letters
29and in a minimum of 12-point font:


31THE ASSOCIATION DOES NOT PARTICIPATE IN ANY
32OF THE INSURANCE GUARANTEE FUNDS CREATED BY
33CALIFORNIA LAW. THEREFORE, THESE FUNDS WILL
34NOT PAY YOUR CLAIMS OR PROTECT YOUR BENEFITS
35IF THE ASSOCIATION BECOMES INSOLVENT AND IS
36UNABLE TO MAKE PAYMENTS AS PROMISED.

37THE ASSOCIATION IS NOT REGULATED BY THE STATE
38OF CALIFORNIA TO THE SAME EXTENT AS INSURERS
39THAT PARTICIPATE IN ANY OF THE INSURANCE
40GUARANTEE FUNDS CREATED BY CALIFORNIA LAW,
P10   1AND ARE LICENSED UNDER OTHER PROVISIONS OF THE
2CALIFORNIA INSURANCE CODE.


4(b) An association shall, upon written request from any member,
5provide to that member a copy of the contract for benefits,
6certificate evidencing coverage, or other plan document that
7describes the benefits being provided to that member, within 30
8days of the request.

9(c) Members shall be given notice of any material benefit plan
10amendment within the time and in the manner required for
11Summary Material Modifications under ERISA.

12(d) If an association maintains an Internet Web site, the
13association shall provide an electronic link within that Internet
14Web site where both members and prospective members can see
15the most current benefit plan documents and the most recent
16certified audited financial statements that the association is required
17to file with the United States Department of Labor, Internal
18Revenue Service, or the Franchise Tax Board.

19

11416.  

(a) An association that elects to cease operation in this
20state shall be governed by and comply with the provisions of
21Sections 1070 to 1076, inclusive.

22(b) Notwithstanding subdivision (a), if an association is a
23tax-exempt voluntary employee benefit association (VEDA), it
24shall cease operations in accordance with the rules applicable to
25VEDA’s and ERISA plans.

26

11417.  

An association shall owe and pay the following annual
27fees, in addition to any other remuneration required by law:

28(a) An annual fee of three hundred fifty dollars ($350) in
29advance, that shall be due on each March 1, and shall be delinquent
30on and after April 1.

31(b) An annual fee of three hundred forty-seven dollars ($347)
32for filing of financial information, due when the information is
33filed pursuant to Section 11410.

34

11418.  

The commissioner may exercise stop order power over
35an association that is subject to this article, pursuant to Sections
361065.1 to 1065.7, inclusive.

37

11419.  

(a) An association shall continue to provide long-term
38benefits to any individual or entity that is no longer a member but
39became entitled to benefits prior to the end of membership, as if
P11   1that individual or entity remained a member, provided the member
2satisfied the association’s reasonable claims procedure.

3(b) Benefits may be limited to the duration of the benefit period,
4if any, or to payment of the maximum benefits, and may be subject
5to any policy waiting period, and all other applicable provisions
6of the policy consistent with this section, including any reasonable
7claims procedure.

8(c) An association may stop providing benefits to an individual
9or entity specified in subdivision (a) upon receipt of written
10confirmation from a successor association or admitted insurer that
11the individual or entity will begin receiving those benefits without
12lapse. Notwithstanding the foregoing, an association may reduce
13or coordinate the member’s benefit with the successor association’s
14plan or insurer’s policy if the association has a reasonable belief
15that the member is receiving or is eligible for benefits under the
16successor plan or insurance policy.

17(d) Notwithstanding any other provision of this chapter, any
18individual or entity that is no longer a member of the association,
19but, while still a member, paid all funds or contributions necessary
20to be entitled to paid-up, long-term benefits, shall be entitled to
21receive benefits as if that individual or entity remained a member,
22unless the obligation to pay those benefits is assumed by a
23successor association or admitted insurer.

24

11419.5.  

An association that is subject to this article is subject
25to the provisions of Sections 790 to 790.09, inclusive.

26

11419.6.  

(a) (1) Any individual or entity aggrieved by an
27action taken by an association regarding payment of benefits, or
28entitlement to benefits, or eligibility to participate in a plan
29sponsored by an association, may file a complaint or submit an
30inquiry to the commissioner pursuant to the applicable provisions
31of Sections 12921.1 to 12921.4, inclusive.

32(2) Notwithstanding paragraph (1), for an association whose
33plan provides benefits that are subject to this chapter that are also
34subject to ERISA, an individual or entity may not file a complaint
35or submit an inquiry regarding the payment of those benefits, or
36entitlement to benefits, or eligibility to participate in a plan
37sponsored by an association, to the commissioner until the
38individual or entity has exhausted the association’s internal claims
39and appeals procedure.

P12   1(b) An individual or entity may file a complaint or submit an
2inquiry to the commissioner regarding an association’s compliance
3with Section 11401, 11402, 11403, 11404, 11405, 11406, 11407,
411408, 11409, 11410, or 11415 pursuant to the applicable
5provisions of Sections 12921.1 to 12921.4, inclusive.

6

11419.7.  

If, upon sufficient complaint or inquiry as provided
7in subdivision (a) or (b) of Section 11419.6, the commissioner has
8good cause to believe that an association has violated any of the
9provisions of this chapter, the commissioner may hold a public
10hearing in connection with those violations. This hearing may be
11in accordance with the administrative adjudication provisions of
12the Administrative Procedure Act (Chapter 4.5 (commencing with
13Section 11400) of, and Chapter 5 (commencing with Section
1411500) of, Part 1 of Division 3 of Title 2 of the Government Code),
15and the commissioner shall have all the powers granted pursuant
16to these provisions. For any complaint or inquiry as provided in
17subdivision (a) of Section 11419.6 regarding the payment of
18benefits, or entitlement to benefits, the commissioner shall not
19have the power to direct the payment of any benefit to a member
20unless the terms of the plan governing the benefit expressly allows
21for that payment.

22

11419.8.  

If, after a hearing pursuant to Section 11419.7
23regarding a complaint or inquiry as provided in Section 11419.6
24and the administrative adjudication provisions of the
25Administrative Procedure Act (Chapter 4.5 (commencing with
26Section 11400) of, and Chapter 5 (commencing with Section
2711500) of, Part 1 of Division 3 of Title 2 of the Government Code),
28the commissioner finds that an association has violated the
29provisions of this chapter, the commissioner may, in addition to
30other penalties and remedies provided in this code, suspend or
31revoke, in whole or in part, the certificate of authority of any
32association granted pursuant to Section 11401.

33

SEC. 3.  

No reimbursement is required by this act pursuant to
34Section 6 of Article XIII B of the California Constitution because
35the only costs that may be incurred by a local agency or school
36district will be incurred because this act creates a new crime or
37infraction, eliminates a crime or infraction, or changes the penalty
38for a crime or infraction, within the meaning of Section 17556 of
39the Government Code, or changes the definition of a crime within
P13   1the meaning of Section 6 of Article XIII B of the California
2Constitution.



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