BILL ANALYSIS Ó
SENATE COMMITTEE ON INSURANCE
Senator Richard Roth, Chair
2015 - 2016 Regular
Bill No: AB 1131 Hearing Date: July 8,
2015
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|Author: |Dababneh |
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|Version: |June 29, 2015 Amended |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Hugh Slayden |
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Subject: Insurance: electronic transmission.
SUMMARY Permits life insurance carriers, agents and brokers to send
documents and conduct transactions related to life insurance and
annuities electronically.
DIGEST
Existing law
1) Codifies the Uniform Electronic Transactions Act (UETA)
which provides that a record or signature cannot be denied
legal effect or enforceability because it is in electronic
form provided that the transaction complies with specified
standards and principles.
2) Exempts types of transactions or classes of records related
to specified Insurance Code sections from being conducted
under UETA.
This bill
1) Applies UETA to the following:
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a. Notices included or attached to individual policies
or annuities that disclose the period in which the
applicant has the right to return the policy without
penalty ("free look period") (Ins. Code §§ 786, 10127.7,
10127.9, 10127.10.)
b. A notice of premium increase for individual
policies. (Ins. Code § 10113.7.)
c. Notices and signed statements regarding replacement
policies and annuities. (Ins. Code §§ 10509.4 and
10509.7.)
2) Defines "licensee" as an insurer, agent, broker, or any
other person who is required to be licensed by California
Department of Insurance (CDI).
3) Requires the licensee to document the consumer's consent to
engage in electronic transactions, as specified, and retain
documentation while the policy is in force and at least five
years thereafter.
4) Requires a licensee to disclose to the consumer the
following:
a) The option to receive records electronically is
voluntary.
b) The consumer may opt-out at any time and a
description of the opt-out process.
c) A description of the documents to be received
electronically.
d) The process to change the consumer's email address.
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e) The licensee's contact information, including phone
number and Internet Web site address.
5) Requires the licensee to provide, upon request of the
consumer, a hard copy of any life insurance document free of
charge once per year.
6) Requires that the consumer's email address be placed on the
consent disclosure and, if provided, an annual statement.
7) Prohibits charging a fee or offering a discount based on a
consumer's willingness to accept electronic documents.
8) Requires the licensee to confirm the email address of any
consumer who elected to receive life insurance documents
electronically if more than 12 months have elapsed since the
last electronic communication with the consumer.
9) Requires the insurer to follow-up with the consumer within
five business days, as specified, if the licensee receives
information that the record was not received.
10) Establishes that the following records, if not excluded
from UETA, may be sent electronically if not otherwise
prohibited by law:
a) Records sent by first class or regular mail.
b) Records not subject to a particular delivery method.
c) Records sent in compliance with the Insurance
Information and Privacy Protection Act (Ins. Code §§
Section 791 et seq.)
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11) Establishes that the following records, if not excluded
from UETA, may be sent electronically if not otherwise
prohibited by other law if the licensee maintains a system
or process that can demonstrate actual receipt of a
document:
a) Records sent by registered or certified mail.
b) Records sent by any method requiring return receipt
or signed written receipt of delivery, or other method of
delivery evidencing actual receipt by the person.
c) Notices of termination or nonrenewal.
12) Provides that acceptable proof of actual receipt includes
any of the following:
a) An electronic receipt returned by the consumer or
electronic signature executed by the consumer.
b) A confirmation receipt or some other evidence that
the person received the email in his or her email account
and opened the email.
c) Evidence demonstrating that the person logged onto
the licensee's secure Internet Web site and downloaded,
printed, or otherwise acknowledged receipt of the record.
13) Provides that even if a life insurance transaction is
excluded from UETA by Section 1633.3(b)(4) of the Civil Code
(documents that must be separately signed), any statutory
requirement for a separate acknowledgment, signature, or
initial may be transacted using an electronic signature or
by electronic transaction, so long as the requirement is not
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specifically excluded from UETA by Civil Code Section
1633(c) and the licensee complies with all applicable
provisions of this bill.
14) Requires the licensee to send a hardcopy of any document
for which a written acknowledgment of receipt is required if
the licensee cannot demonstrate that the electronic document
was actually received.
15) Requires the Insurance Commissioner (IC) to report to the
Governor and the Legislature regarding the impact and
implementation of the bill on or before January 1, 2020.
16) Permits CDI to suspend the authority of a licensee to
transmit life insurance records electronically if CDI can
establish a pattern or practice that demonstrates a lack of
compliance with the provisions of this bill.
17) Sunsets the bill effective January 1, 2021.
COMMENTS
1. Purpose of the bill According to the author, AB 1131 will
further modernize California's electronic commerce
("e-commerce") law for life insurance and annuities which
are otherwise authorized pursuant to California's version of
the UETA, the California Insurance Code, and the federal
ESIGN framework. Specifically, this bill will allow certain
insurers to transact specified insurance related business
electronically in lieu of mailing them with the prior opt-in
consent of the consumer so long as the insurer complies with
the specified provisions of state and federal law and
additional procedures and standards.
2. Background Every day, countless electronic transaction
occur via email, facsimile, smart phone applications, web
pages, and other digital forums. The technology works
behind the scenes to facilitate contracts, sales, and other
commercial activity, but it is the law that makes agreements
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"real" and enforceable. Some types of agreements are only
enforceable if they are in writing. Not too long ago,
"writing" meant ink and paper and it was not clear whether
the law recognized agreements formed and memorialized
electronically.
In 1999, the National Conference of Commissioners on Uniform
State Laws (NCCUSL) adopted the model UETA to establish
consistent interstate rules for electronic transactions. SB
820 (Sher), Chapter 428, Statutes of 1999, enacted
California's version of UETA almost immediately afterward.
The following year, Congress enacted the Electronic Records
and Signatures in Global and National Commerce Act (ESIGN),
in part, to encourage the states to adopt UETA in its
broadest form and facilitate e-commerce among the states.
ESIGN's preemption provisions bind states that fail to adopt
UETA or laws similar to it; ESIGN's practical effect is to
establish UETA as the universal standard.
Back in 1999, many consumers lacked access to, and
understanding of e-commerce, and electronic delivery was
seen as unreliable. This led to California adopt numerous
exceptions to UETA, including many insurance-related
documents. Since then, the growing use of electronic
devices has made e-commerce inevitable. Many consumers have
grown to depend on its flexibility and portability. In
fact, postal mail might serve some consumers poorly,
including students, frequent travelers, and others who "live
away from home."
Both UETA and ESIGN establish the fundamental principle that
a record or signature cannot be denied legal effect or
enforceability because it is in electronic form if both
parties agree. This means that, with some exceptions, if
the parties agree to use an electronic format involving a
transaction that requires something "in writing," the law
will treat the electronic format as if it occurred using
hardcopy (provided UETA standards are met). This bill
addresses some of the exceptions specific to life insurance.
Uniform Electronic Transactions Act. UETA establishes
ground rules for parties engaging in e-commerce. The most
important rule is that engaging in electronic forms is
voluntary. This rule allows the consumer to weigh the
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benefits and risks of engaging in e-commerce and choose what
is best for them based on their lifestyle and experience.
UETA also recognizes that the underlying law might treat
certain transactions with special consideration. For
instance, UETA leaves undisturbed provisions that call for a
document to be sent within 30 days or specified formatting
rules (such as a 12-point font). But UETA does not impose
obligations on either party greater than that imposed by the
underlying law and specifically provides that a record may
be received even if no individual is aware of its receipt.
The NCCUSL drafting committee of UETA explains: "As in the
paper world, obligations to send do not impose any duties on
the sender to assure receipt, other than reasonable methods
of dispatch." (Uniform Electronic Transactions Act (1999)
with Prefatory Note and Comments, Comments to Section 3, p.
19.)
Still, some concepts from the paper world do not translate
easily into the digital. For instance, UETA must provide
default definitions of "send" and "receive." The UETA
drafting committee explains that to be "sent" under UETA,
the electronic information must be properly addressed or
otherwise directed to the recipient (a general broadcast
message would not suffice). The record will be considered
sent once it leaves the control of the sender or comes under
the control of the recipient. Records sent through e-mail
or the Internet will pass through many different server
systems; when more than one system is involved the sender
must lose control of the document. A record is "received"
when it enters the system which the recipient has designated
or uses and to which it has access, in a form capable of
being processed by that system. In other words, the system
designated by the recipient receives that document, but,
just like standard mail, recipients may not know it until
they check their mailbox.
Insurance E-commerce. Since so many insurers cross state
lines, consistent e-commerce rules play an important role in
the industry. Although federal law usually respects
state-based insurance regulation, Congress specifically
intended ESIGN to apply to insurance. There is evidence to
suggest that the insurance industry as a whole tends to use
good practices that increase the reliability of e-delivery,
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especially email, such as monitoring "undeliverable" emails,
coordinating with email providers to avoid spam filtering,
and taking active measures to ensure that contact
information is accurate. Return Path studies inbox
placement rates and measures how frequently commercial email
reaches the inbox rather than spam folder or just
disappears. In its Inbox Placement Benchmark Report 2014,
Return Path estimates general inbox placement rates for the
U.S.A. at 87%, but a placement rate of 92% for the insurance
industry as a whole (the rate is higher when counting actual
junk mail properly delivered to a spam folder).
Nonetheless, insurers cannot control many of the factors
that might make e-delivery problematic, such as whether the
recipient's information system provides accurate delivery
feedback. For this reason, insurance legislation applying
UETA to insurance transactions tends to focus on reinforcing
consumer consent requirements, providing detailed
disclosures, and encouraging best practices.
While UETA establishes the legal effect of an electronic
document, two bills, Chapter 433, Statutes 2009 (AB 328, C.
Calderon) and Chapter 369, Statutes of 2013 (SB 251, R.
Calderon) established specific procedural and substantive
guidelines. These bills set up differing sets of
obligations based on whether a document merely provides
information for future reference or whether the information
may prompt the insured to act.
AB 328 authorized electronic transmission of
informational-only type documents such as the notice of
reasons for refusal to issue a good driver policy, notice of
the reasons for cancelling an automobile insurance policy,
and others. Pursuant to AB 328, an affidavit of the person
who sent the record stating the relevant facts provides
satisfactory evidence that the record was mailed, for the
purposes of the Insurance Code, absent evidence to the
contrary. The affidavit establishes an evidentiary
presumption similar to the evidentiary "mailbox rule" (if
mail is given to the U.S. Postal service, it is presumed to
be delivered). But AB 328 also prohibits insurers from
engaging in willful ignorance by imposing an obligation on
the insurer to monitor whether the record was sent as
defined by UETA. The additional obligation only impacts the
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legal effect of the record if the insurer receives
information that the record was not, in fact, sent.
SB 251 authorized insurers to transmit electronically more
sensitive documents that could impact a consumer's legal
rights, including offers of renewal for property and
casualty lines that may involve changes to the policy.
Along with heightened requirements to document and obtain
consent, SB 251 requires an insurer to maintain a process or
system that can demonstrate that the document was both sent
and received, as defined under UETA, by the information
system designated by the consumer. The insurer must
follow-up within two business days if it has a reason to
believe that the message was not received. Again, an
affidavit that the document was sent creates a presumption
that the document was properly mailed. But here the
affidavit may be even more important because many
information systems, such as email services, used by
consumers do not provide feedback on receipt. Without the
affidavit, the insurer might have to prove receipt using
information it might not be able to obtain; such a burden
exceeds the requirements of underlying law, is inconsistent
with UETA, and may be preempted under ESIGN (which only
requires acknowledgment or verification if the substantive
law does as well). In the absence of feedback, SB 251
establishes a presumption that the record was properly sent
using the affidavit, unless the insurer receives information
to the contrary. But it also requires the insurer to
actively monitor the status of delivery and follow-up if
necessary. Consistent with UETA, SB 251 does not require
insurers to assure delivery, but it does not permit an
insurer to send a record and avoid or ignore potential
warning signs that the record was not delivered.
SB 251 also added new consumer protections that have been
mirrored in AB 1131. The insurer must:
Include the insured's email address on the policy
declaration page.
Provide one printed copy of any of the documents free
of charge every year upon request.
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Retain documentation related to the transaction while
the policy is in force and for five years thereafter.
SB 251 also authorizes CDI to suspend the insurer from
sending certain documents electronically if there is a
pattern or practice that demonstrates the insurer has failed
to comply with applicable requirements.
E-delivery of Life Insurance. Unlike prior insurance-related
e-commerce bills, this bill addresses life insurance only and
establishes standards for most, if not all, life insurance
transactions. Life insurance is a long-time commitment that may
involve significantly more premium over the life of the policy
when compared to other types of coverage. Also, unlike, auto or
homeowner's insurance, consumers do not switch carriers as
frequently.
This bill applies UETA to the following documents:
A notice of premium increase for individual policies
that must be delivered or mailed.
Notices and statements requiring the signature of
either the applicant or agent related to replacement
policies or annuities.
Life insurance policies and notices related to the
"free look period" that must be mailed or delivered with
proof of delivery (such as certified or registered mail).
Notices and transactions pursuant to the Insurance
Information and Privacy Protection Act
Consistent with UETA and ESIGN, this bill imposes duties for
electronic delivery based on the delivery method assigned by
substantive law. If a transaction or record, not excluded
from UETA, is required to be sent by first class mail,
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regular mail, or if substantive law does not provide for a
particular delivery method, the record may be sent
electronically so long as it complies with UETAs standards.
No additional procedures apply, including those provided in
AB 328 and SB 251.
Under this bill, if a record must be sent by certified or
registered mail, the insurer must obtain proof of "actual
receipt" to verify that the document was delivered and
specifies the type of evidence necessary to show compliance:
The person acknowledges receipt by returning an
electronic receipt or by executing an electronic
signature.
The record is made part of, or attached to, an email
sent to the email address and there is a confirmation
receipt or some other evidence that the person received
and opened the email.
The record is posted on the Internet Web site, and
there is evidence demonstrating that the person logged
onto the site and downloaded, printed, or otherwise
acknowledged receipt.
These standards deviate from UETA and ESIGN to the extent an
insurer must monitor responses by the consumer beyond
acknowledging receipt. However, the heightened standards
reflect the challenges of finding electronic delivery
equivalents to certified and registered mail. This raises
the issue of whether automatically generated delivery
receipts equivalent to paper delivery receipts signed by a
human being.
Only one transaction has been identified that requires
acknowledgment and would be subject to this provision. Most
Insurance Code provisions involving registered or certified
mail apply to the IC or a consumer, but current law requires
an insurer to deliver life policies to the owner in order to
start the "free look" period using a method providing proof
of delivery. However, this bill also treats notices of
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termination or nonrenewal with the same care as documents
sent by certified or registered mail. While inconsistent
with the underlying mailing requirement, even ESIGN does not
apply to notices of termination. Given the importance of
the documents, these enhanced standards could be viewed as
consistent with national standards.
1. Support The Association of California Life and Health
Insurance Companies explains that this bill will help
modernize California law to more clearly allow consumers to
receive and sign life insurance documents electronically.
2. Opposition
None received
3. Questions This bill is double-referred to the Committee on
Judiciary. Adoption of committee amendments may
unintentionally prejudice the bill given the upcoming
legislative deadlines. However, while this bill moves
forward, the author may wish to consider the following.
This bill characterizes the effects of Civil Code
Sections 1633.3 and 1633.8 as "prohibiting" electronic
transactions. Should these references be revised to read
that the effect of these sections is to "exclude
application of UETA" since UETA does not prohibit any type
of electronic transaction, but might leave the underlying
delivery method place based on those Civil Code sections?
(See proposed Ins. Code § Section 38.6(b)(6) and (7) and
(d).)
This bill addresses several contemporary forums of
e-commerce, but not all. Should relevant language be
revised to allow for more flexibility related to evolving
technologies? For example, should language that refers to
a website be modified to include a cell phone or tablet
application? (See proposed Ins. Code § Section
38.6(b)(7)(C).)
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POSITIONS
Support
Association of California Life and Health Insurance Companies
(sponsor)
Department of Insurance (sponsor)
American Council of Life Insurers
Oppose
None received
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