BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2015-2016 Regular Session
AB 1131 (Dababneh)
Version: June 29, 2015
Hearing Date: July 14, 2015
Fiscal: Yes
Urgency: No
TMW
SUBJECT
Insurance: electronic transmission
DESCRIPTION
This bill, until January 1, 2021, would authorize an insurer,
agent, broker, or any other person required to be licensed by
the California Department of Insurance, to send individual life
insurance and annuity records by electronic transmission. This
bill would expand the scope of electronic notice provisions
under the California Uniform Electronic Transactions Act (UETA)
by allowing the above licensees to send a life insurance or
annuity written record by electronic transmission, if not
specifically excluded under UETA, and if the licensee meets
specified requirements. This bill would also require the
Insurance Commissioner to submit a report, as specified.
BACKGROUND
In 1999, based on the model law proposed by the National
Conference of Commissioners on Uniform State Laws (NCCUSL) to
set rules by which electronic commerce may be conducted across
the country, California enacted the Uniform Electronic
Transactions Act (UETA). (SB 820 (Sher, Ch. 428, Stats. 1999).)
One of the critical motivators for enacting a law validating
electronic records was the Statute of Frauds, which requires
that certain contracts be in writing.
In California, the Statute of Frauds is codified at Section 1624
of the Civil Code, which expressly states that certain contracts
are invalid (i.e. unenforceable) unless they, or some note or
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memorandum thereof, are in writing and subscribed by the party
to be charged or by the party's agent. Such contracts include,
for example, an agreement that by its terms is not to be
performed within a year from the making thereof; an agreement
for the leasing for a longer period than one year, or for the
sale of real property, or of an interest therein; or specified
contracts, promises, undertakings, or commitments to loan money
or to grant or extend credit, in an amount greater than
$100,000.
California's UETA provides that a record or signature may not be
denied legal effect or enforceability solely because it is in
electronic form, that a contract may not be denied legal effect
or enforceability solely because an electronic record was used
in its formation, and that an electronic record or signature
satisfies a requirement in the law that a record be in writing
or a signature be affixed or if a law provides consequences if
there is no record or signature.
UETA, however, does not apply to all contracts. For example,
expressly excluded from UETA are transactions that are subject
to a law governing the creation and execution of wills,
codicils, or testamentary trusts; specified transactions in the
Uniform Commercial Code, that were specifically drafted in
consideration of electronic records; and transactions subject to
a law that requires that specifically identifiable text or
disclosures in a record or a portion of a record be separately
signed, including initialed, from the record (such as real
estate transactions).
Various specified insurance transactions are prohibited from
UETA. However, beginning in 2009, specific insurance
transactions were removed from UETA's prohibited statute list,
thereby authorizing these transactions to be made
electronically. AB 328 (C. Calderon, Chapter 433, Statutes
2009) authorized electronic transmission of certain notices that
otherwise would require a mailing, upon agreement by the
policyholder to receive the electronic communication, including
notice of reasons for refusal to issue a good driver policy
pursuant to Proposition 103, notice of the reasons for
cancelling an automobile insurance policy, notice of the right
of a homeowner to purchase earthquake coverage from or as
arranged by the homeowner's insurer, or the proof of mailing
this notice, and the standard residential property insurance
disclosure that sets forth the various types of homeowners'
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insurance policies.
Then in 2013, SB 251 (Calderon, Chapter 369, Statutes of 2013)
removed from the prohibited statutes list under UETA and
authorized electronic transmission of certain notices pertaining
to workers' compensation insurance, the offer of renewal
required for personal auto, real and personal property, and
liability insurance policies, the notice of conditional renewal
for commercial insurance policies, and the offer of renewal and
certain disclosures related to earthquake insurance, so long as
the insurer complies with the specified provisions of UETA and
additional procedures and standards. SB 251 requires the
Department of Insurance to submit a report, on or before January
1, 2018, to the Governor and to the Committees of the Senate and
Assembly having jurisdiction over insurance and the judiciary,
regarding the impact and implementation of the authorization of
the electronic transmission of certain insurance renewal offers,
notices, or disclosures, as specified. SB 251 sunsets on
January 1, 2019.
This bill now seeks to permit the electronic transmission of
specified records related to individual life insurance and
annuity contracts, as specified.
This bill was heard by the Senate Insurance Committee on July 8,
2015, and was approved by a vote of 8-0.
CHANGES TO EXISTING LAW
Existing federal law , the Electronic Signatures in Global and
National Commerce Act (E-SIGN), generally provides for the
transmission of electronic signatures, but does not apply to a
contract or other record that is governed by: (1) a statute,
regulation, or other rule of law governing the creation and
execution of wills, codicils, or testamentary trusts; (2) a
state statute, regulation, or other rule of law governing
adoption, divorce, or other matters of family law; or (3) the
Uniform Commercial Code, as in effect in any State, as
specified. (15 U.S.C. Secs. 7001, 7003(a).)
Existing federal law also excludes the following specific
transactions from electronic transmission: (1) court orders or
notices, or official court documents (including briefs,
pleadings, and other writings) required to be executed in
connection with court proceedings; (2) any notice of (A) the
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cancellation or termination of utility services (including
water, heat, and power), (B) default, acceleration,
repossession, foreclosure, or eviction, or the right to cure,
under a credit agreement secured by, or a rental agreement for,
a primary residence of an individual, (C) the cancellation or
termination of health insurance or benefits or life insurance
benefits (excluding annuities), or (D) recall of a product, or
material failure of a product, that risks endangering health or
safety; or (3) any document required to accompany any
transportation or handling of hazardous materials, pesticides,
or other toxic or dangerous materials. (15 U.S.C. Sec.
7003(b).)
Existing law , the Uniform Electronic Transactions Act (UETA),
generally authorizes the transaction of business, commerce and
contracts by electronic means. (Civ. Code Sec. 1633.1.) UETA
does not apply to transactions that are subject to certain laws,
such as laws governing the creation and execution of wills,
codicils, or testamentary trusts. (Civ. Code Sec. 1633.3(a).)
In addition, UETA does not apply to specific transactions
described under various statutes, including:
notices that disclose the period in which the applicant has
the right to return the policy without penalty ("free look
period") included or attached to the following:
o individual and group disability insurance policies and
certificates, and all group life insurance or annuity
policies and certificates offered for sale to individuals
age 65 or older in California (under Ins. Code Sec. 786);
o individual life insurance policies with a face value of
$10,000 or less (under Ins. Code Sec. 10127.7);
o individual life insurance policies issued on and after
January 1, 1990 (under Ins. Code Sec. 10127.9); and
o individual life insurance and individual annuity
contracts that are initially delivered or issued for
delivery to a senior citizen in California on and after
July 1, 2004 (under Ins. Code Sec. 10127.10);
a notice of premium increase for individual life insurance
policies (Ins. Code Sec. 10113.7); and
notices and signed statements regarding replacement life
insurance and annuity policies (under Ins. Code Secs. 10509.4,
10509.7). (Civ. Code Sec. 1633.3(b).)
Existing law provides that UETA applies only to a transaction
between parties each of which has agreed to conduct the
transaction by electronic means, as specified. (Civ. Code Sec.
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1633.5(b).)
Existing law provides that, except as otherwise provided in
UETA, the effect of any of its provisions may be varied by
agreement. (Civ. Code Sec. 1633.5(d).)
Existing law sets forth certain principles governing the legal
effect of conducting transactions electronically as follows:
a record or signature may not be denied legal effect or
enforceability solely because it is in electronic form;
a contract may not be denied legal effect or enforceability
solely because an electronic record was used in its formation;
if a law requires a record to be in writing, an electronic
record satisfies the law; and
if a law requires a signature, an electronic signature
satisfies the law. (Civ. Code Sec. 1633.7.)
Existing law provides that an electronic record or electronic
signature is attributable to a person if it was the act of the
person, which may be shown in any manner, including a showing of
the efficacy of any security procedure applied to determine the
person to which the electronic record or electronic signature
was attributable. (Civ. Code Sec. 1633.9(a).)
Existing law provides that the effect of an electronic record or
electronic signature attributed to a person is determined from
the context and surrounding circumstances at the time of its
creation, execution, or adoption, including the parties'
agreement, if any, and otherwise as provided by law. (Civ. Code
Sec. 1633.9(b).)
Existing law only applies to a transaction that all parties have
agreed to conduct electronically. (Civ. Code Sec. 1633.5(b).)
Existing law provides that agreement is determined from the
context and surrounding circumstances, including the parties'
conduct. (Id.) Except for a separate and optional agreement
whose primary purpose is to authorize a transaction to be
conducted electronically, an agreement to conduct a transaction
by electronic means may not be contained in a standard form
contract that is not an electronic record. (Id.) An agreement
in such a standard form contract may not be conditioned on an
agreement to conduct transactions by electronic means. (Id.)
Further, an agreement to conduct a transaction electronically
may not be inferred solely from the fact that a party has used
electronic means to pay an account or register a purchase or
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warranty. (Id.) Existing law provides that these provisions
may not be varied by agreement. (Id.)
Existing law allows a party that agrees to conduct a transaction
electronically to refuse to conduct other transactions by
electronic means. (Civ. Code Sec. 1633.5(c).) If a seller
sells goods or services by both electronic and non-electronic
means and a buyer purchases the goods or services by conducting
the transaction electronically, the buyer may refuse to conduct
further transactions regarding the goods or services by
electronic means. (Id.) Existing law provides that these
provisions may not be varied by agreement. (Id.)
Existing law provides that a party to an agreement to conduct a
transaction electronically may satisfy a law requiring that
information be provided, sent, or delivered by one person to
another in writing by providing, sending, or delivering the
information in an electronic record capable of retention by the
recipient at the time of receipt. (Civ. Code Sec. 1633.8(a).)
Existing law provides that an electronic record is not capable
of retention by the recipient if the sender or its information
processing system inhibits the ability of the recipient to print
or store the electronic record. (Id.)
Existing law provides that if a law other than UETA requires
that a notice of the right to cancel be provided or sent, an
electronic record may not substitute for a writing under that
other law unless, in addition to satisfying the requirements of
that other law and UETA, the notice of cancellation may be
returned by electronic means. (Civ. Code Sec. 1633.16.)
Existing law provides that this provision may not be varied by
agreement. (Id.)
Existing law provides for the issuance of life insurance, which
includes insurance upon the lives of persons or appertaining
thereto, and the granting, purchasing, or disposing of
annuities. (Ins. Code Sec. 101.)
Existing law , the Insurance Information and Privacy Protection
Act (IIPPA), requires insurers to send specified privacy notices
to insurance policy holders in writing with all of the following
information:
whether personal information may be collected from persons
other than the individual or individuals proposed for
coverage;
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the types of personal information that may be collected and
the types of sources and investigative techniques that may be
used to collect such information;
the types of disclosures to additional parties, as specified,
and the circumstances under which the disclosures may be made
without prior authorization, except that only those
circumstances need be described which occur with such
frequency as to indicate a general business practice;
a description of the rights to access, correct, or delete
recorded personal information about the individual and the
manner in which the rights may be exercised; and
that information obtained from a report prepared by an
insurance-support organization may be retained by the
insurance-support organization and disclosed to other persons.
(Ins. Code Sec. 791.04(b).)
Existing law , in lieu of the above notice, authorizes the
insurance institution or agent to provide an abbreviated notice
informing the insurance applicant or policyholder of the
following:
personal information may be collected from persons other than
the individual or individuals proposed for coverage;
such information as well as other personal or privileged
information subsequently collected by the insurance
institution or agent may in certain circumstances be disclosed
to third parties without authorization;
a right of access and correction exists with respect to all
personal information collected; and
the notice prescribed above will be furnished to the applicant
or policyholder upon request. (Ins. Code Sec. 791.04(c).)
Existing law provides that, unless expressly otherwise provided,
any notice relating to insurance required to be given to any
person may be given by mailing notice, postage prepaid,
addressed to the person to be notified at his or her residence
or principal place of business in California. (Ins. Code Sec.
38.) Further, the affidavit of the person who mails the notice,
stating the facts of such mailing, is prima facie evidence that
the notice was thus mailed. (Id.)
Existing law authorizes a written notice to be provided
electronically, as specified, relating to the following
transactions:
any insurance on risks or on operations in California
regarding workers' compensation insurance (under Ins. Code
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Sec. 1851(f));
written offers to renew or nonrenew an automobile policy
(under Ins. Code Sec. 663);
renewal offers and notices of nonrenewal of real or personal
property or personal injury policies (under Ins. Code Sec.
678);
commercial policy nonrenewal or conditional renewal notices
(under Ins. Code Sec. 678.1); and
notices of modified earthquake coverage at renewal (under Ins.
Code Sec. 10086). (Ins. Code Sec. 38.5(a).)
Existing law requires insurers to maintain a system for
electronically confirming a policyholder's decision to opt in to
an agreement to conduct transactions electronically and a system
that will allow the policyholder to electronically opt out of
the agreement to conduct business electronically, as specified
under UETA. (Ins. Code Sec. 38.8.)
This bill would remove the following insurance transactions from
the list of prohibited statutes, thereby authorizing the
electronic transmission of the following records:
notices that disclose the period in which the applicant has
the right to return the policy without penalty ("free look
period") included or attached to the following:
o all group life insurance or annuity policies and
certificates offered for sale to individuals age 65 or
older in California (under Ins. Code Sec. 786);
o individual life insurance policies with a face value of
$10,000 or less (under Ins. Code Sec. 10127.7);
o individual life insurance policies issued on and after
January 1, 1990 (under Ins. Code sec. 10127.9);
o individual life insurance and individual annuity
contracts that are initially delivered or issued for
delivery to a senior citizen in California on and after
July 1, 2004 (under Ins. Code Sec. 10127.10);
notice of premium increases for individual life insurance
policies (Ins. Code Sec. 10113.7); and
notices and signed statements regarding replacement life
insurance and annuity policies (under Ins. Code Secs. 10509.4,
10509.7). (Civ. Code Sec. 1633.3(b).)
This bill would authorize any written record required to be
given or mailed to any person by a licensee relating to the
business of life insurance, which includes insurance annuities,
may, if not prohibited by UETA, be provided by electronic
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transmission if each party has agreed to conduct the transaction
by electronic means pursuant to UETA, and if the licensee
complies with the provisions of this bill.
This bill would provide that a valid electronic signature would
be sufficient for any provision of law requiring a written
signature.
This bill , for the electronic transmission provisions enacted by
this bill, would apply the definitions under UETA, and provide
that the term "licensee" means an insurer, agent, broker, or any
other person who is required to be licensed by the Department of
Insurance (department).
This bill , in order to transmit a life insurance record
electronically, would require a licensee to comply with all of
the following:
a licensee, or licensee's representative, acquires the consent
of the person to opt in to receive the record by electronic
transmission, and the person has not withdrawn that consent,
prior to providing the record by electronic transmission; a
person's consent may be acquired verbally, in writing, or
electronically, and if consent is acquired verbally, the
licensee would be required to confirm consent in writing or
electronically, and the licensee would be required to retain a
record of the person's consent to receive the record by
electronic transmission with the policy information so that it
is retrievable upon request by the department while the policy
is in force and for five years thereafter;
a licensee discloses, in writing or electronically, to the
person all of the following:
o the opt in to receive the record by electronic
transmission is voluntary;
o that the person may opt out of receiving the record by
electronic transmission at any time, and the process or
system for the person to opt out;
o a description of the record that the person will receive
by electronic transmission;
o the process or system to report a change or correction
in the person's email address; and
o the licensee's contact information, which includes, but
is not limited to, a toll-free number or the licensee's
Internet Web site address;
the opt-in consent disclosure would be authorized to be set
forth in the application or in a separate document that is
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part of the policy approved by the Insurance Commissioner
(commissioner) and would be required to be bolded or otherwise
set forth in a conspicuous manner, and require the person's
signature to be set forth immediately below the opt-in consent
disclosure; if the licensee seeks consent at any time prior to
the completion of the application, the consent and signature
would be required to be obtained before the application is
completed, but the person has not opted in at the time the
application is completed, the licensee may receive the opt-in
consent at any time thereafter, pursuant to the same opt in
requirements that apply at the time of the application, and
the licensee would be required to retain a copy of the signed
opt-in consent disclosure with the policy information so that
each is retrievable upon request by the department while the
policy is in force and for five years thereafter;
the email address of the person who has consented to
electronic transmission would be required to be set forth on
the consent disclosure, and if the person who consented
receives an annual statement, the email address of the person
who has consented must be set forth on that record;
the licensee would be required annually to provide one free
printed copy of any record described in this subdivision upon
request by the person;
if a licensee is otherwise required to transmit a record by
first class mail, regular mail, by an unspecified method of
delivery, or is a record that is required to be provided
pursuant to the IIPPA, and if the licensee is not otherwise
prohibited from transmitting the record electronically under
UETA, then the record could be transmitted by electronic
transmission if the licensee complies with all of the
requirements for the methods of sending electronic
transmissions under UETA;
notwithstanding UETA, if a licensee is otherwise required to
transmit a record by return receipt, registered mail,
certified mail, signed written receipt of delivery, or other
method of delivery evidencing actual receipt by the person,
and if the licensee is not otherwise prohibited from
transmitting the record electronically UETA and this bill,
then the licensee would be required to maintain a process or
system that demonstrates proof of delivery and actual receipt
of the record by the person consistent with this paragraph;
the licensee would be required to document and retain
information demonstrating delivery and actual receipt so that
it is retrievable, upon request, by the department at least
five years after the policy is no longer in force, and the
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record provided by electronic transmission would be treated as
if actually received if the licensee delivers the record to
the person in compliance with applicable statutory delivery
deadlines; a licensee may demonstrate actual delivery and
receipt by any of the following:
o the person acknowledges receipt of the electronic
transmission of the record by returning an electronic
receipt or by executing an electronic signature;
o the record is made part of, or attached to, an email
sent to the email address designated by the person, and
there is a confirmation receipt, or some other evidence
that the person received the email in his or her email
account and opened the email;
o the record is posted on the licensee's secure Internet
Web site, and there is evidence demonstrating that the
person logged onto the licensee's secure Internet Web site
and downloaded, printed, or otherwise acknowledged receipt
of the record; or
o if a licensee is unable to demonstrate actual delivery
and receipt, the licensee would be required to resend the
record by regular mail to the person in the manner
originally specified;
notwithstanding any other law, a notice of lapse, nonrenewal,
cancellation, or termination of any product under this bill
may be transmitted electronically if the licensee demonstrates
proof of delivery, as specified, and complies with the other
provisions for delivery in this bill;
if the record is not delivered directly to the electronic
address designated by the person but placed at an electronic
address accessible to the person, a licensee would be required
to notify the person in plain, clear, and conspicuous language
at the electronic address designated by the person that
describes the record, informs that person that it is available
at another location, and provides instructions to the person
as to how to obtain the record;
upon a licensee receiving information indicating that the
record sent by electronic transmission was not received by the
person, the licensee, within five business days, would be
required to either contact the person to confirm or update the
person's email address and resend the record by electronic
transmission, as specified, or resend the record initially
provided by electronic transmission by regular mail to the
insured at the address shown on the policy, as specified; if
the licensee sends the first electronic record within the time
period required by law and the licensee complies, as
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specified, the record sent would be treated as if mailed in
compliance with the applicable statutory regular mail delivery
deadlines;
the licensee would be prohibited from charging any person who
declines to opt in to receive a record through electronic
transmission from receiving a record electronically, and
prohibit the licensee from providing a discount or an
incentive to any person to opt in to receive electronic
records; and
the licensee would be required to verify a person's email
address via a paper writing sent by regular mail when more
than 12 months have elapsed since the licensee's last
electronic communication.
This bill , on or before January 1, 2020, would require the
commissioner to submit a report to the Governor and to the
committees of the Senate and Assembly having jurisdiction over
insurance and the judiciary, regarding the impact and
implementation of the authorization of the electronic
transmission of certain insurance renewal offers, notices, or
disclosures as authorized. The report would be required to
include input from insurers, consumers, and consumer
organizations, and include an assessment of the department's
experience pertaining to the authorization of the electronic
transmission of insurance renewals as authorized.
This bill , notwithstanding UETA, for any policy of life
insurance, as defined, would provide that any statutory
requirement for a separate acknowledgment, signature, or
initial, which is not expressly prohibited by UETA, may be
transacted using an electronic signature, or by electronic
transaction, subject to all applicable provisions.
This bill would authorize the department to suspend a licensee
from providing records by electronic transmission if there is a
pattern or practices that demonstrate the licensee has failed to
comply with the requirements of this section.
This bill would authorize a licensee to appeal a suspension and
resume its electronic transmission of records upon communication
from the department that the changes the licensee made to its
process or system to comply with the specified requirements are
satisfactory.
This bill would sunset on January 1, 2021, unless a later
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enacted statute, that is enacted before January 1, 2021, deletes
or extends that date.
COMMENT
1. Stated need for the bill
The author writes:
While California has enacted e-Commerce legislation that
largely follows the principles under federal [Electronic
Signatures in Global and National Commerce Act (E-SIGN)] and
[the Uniform Electronic Transactions Act (UETA)], a small
number of documents required to be delivered under the
Insurance Code, referenced in Civil Code 1633.3, could be
interpreted as requiring a paper-based delivery process or a
"wet signature" requirement. This has prevented the life
insurers, among others, from implementing a completely
electronic sales process, presenting challenges to customers
and agents, and undermining the benefits to insurers and
consumers of full electronic processing.
Current law must be updated to allow broader use of voluntary
e-delivery and e-signature of life insurance documents.
Customers voluntarily opt in only after being fully informed
of all their options and rights. In advancing this
legislation, the life insurance industry is attempting to meet
the increasing demand of California consumers to conduct
business electronically, and, in so doing, to take advantage
of the convenience of e-delivery and e-signatures in
obtaining, and keeping track of, life insurance coverage. All
existing consumer protections and rights to cancel under
current law remain intact. The bill also provides for
heightened delivery requirements for certain documents, as
well as record-retention requirements that are consistent with
existing California law.
In addition, the Department of Insurance [DOI] will also be
able to evaluate the impact and implementation of the
electronic transmission of these documents and include its
findings in a report. This authorization will also expire
unless a later enacted statute deletes or extends the
authorization.
AB 1131 will further modernize California's e-Commerce law for
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life insurance, annuities, disability insurance and LTC
transactions[,] which are otherwise authorized pursuant to
California's version of [UETA] statutes[,] the [California]
Insurance Code, and the federal E-SIGN 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.
1.Lack of information on how existing electronic insurance
notices are working under SB 251
Two years ago, SB 251 (Calderon, Chapter 369, Statutes of 2013)
similarly removed from the prohibited statutes list under UETA
and authorized electronic transmission of certain notices
pertaining to workers' compensation insurance, personal auto,
real and personal property, and liability insurance policies,
commercial insurance policies, and earthquake insurance. SB 251
required DOI to submit a report, on or before January 1, 2018,
to the Governor and to the Committees of the Senate and Assembly
having jurisdiction over insurance and the judiciary, regarding
the impact and implementation of the authorization of the
electronic transmission of these notices. However, because the
required date for the report is over two years away, no
information has been fully compiled by DOI or provided to the
Legislature. DOI expects to complete a survey of all property
and casualty insurers to ascertain with specificity whether and
to what degree they are expanding the use of electronic
transactions permitted under SB 251, and DOI expects to complete
this survey later this summer.
This bill seeks to exempt several more insurance notices from
the UETA prohibition. Yet, it is difficult to ascertain whether
the changes made by SB 251 are working effectively and
appropriately protecting consumers; therefore, it is uncertain
as to whether it is appropriate to remove life insurance and
annuity notices for the prohibited transactions list under UETA.
2.Federal preemption by E-SIGN
On June 30, 2000, the same year that California's UETA went into
effect, E-SIGN was signed into law and established legal parity
between electronic records and signatures and their paper and
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ink counterparts. (R. A. Wittie, J. K. Winn, Electronic Records
and Signatures Under the Federal E-SIGN Legislation and the UETA
[as of July 8, 2015].)
E-SIGN specifically applies to insurance: "It is the specific
intent of the Congress that this title and title II apply to the
business of insurance." (15 U.S.C. Sec. 7001(i).) E-SIGN also
specifically prohibits any notice of the cancellation or
termination of life insurance benefits. (15 U.S.C. Sec.
7003(b)(2)(C).) This provision directly conflicts with the
exemptions provided under this bill from the existing UETA
prohibition on electronic transmission of life insurance and
annuity cancellation notices; as such, these exemptions may be
preempted by federal law.
As discussed by the California Law Revision Commission (CLRC)
when it undertook the study of adopting the Uniform Adult
Guardianship and Protective Proceedings Jurisdiction Act
(UAGPPJA), subsequently enacted by SB 940 (Jackson, Chapter 553,
Statutes of 2014), the CLRC noted the following issues of
whether a state law could be preempted by E-SIGN:
Subsection (a) of E-SIGN Section 102 governs preemption
generally; the remainder of Section 102 appears irrelevant for
present purposes. As codified, subsection (a) creates a
two-prong test for determining whether a state law is exempt
from E-SIGN preemption, and thus may effectively modify
E-SIGN's requirements for electronic transactions. [Citation
omitted.]
Under the first prong (paragraph (a)(1)), a state's enactment
or adoption of the final version of UETA may, subject to
certain exceptions, "modify, limit, or supersede" the
requirements of E-SIGN Section 101 (15 U.S.C. [Sec.] 7001).
In other words, in specified circumstances a state's enactment
or adoption of UETA is not preempted by E-SIGN.
Under the second prong (paragraph (a)(2)), a state law may
effectively specify alternative procedures or requirements for
electronic transactions if all of the following requirements
are met:
(1) Those alternative procedures or requirements are
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consistent with E-SIGN.
(2) As compared to E-SIGN, those procedures or requirements
do not require or give greater legal status or effect to
implementation or application of a specific technology or
technical specification for the functions of creating,
storing, generating, receiving, communicating, or
authenticating electronic records or electronic signatures.
(3) The state law specifically refers to E-SIGN.
In other words, a state law may deviate from E-SIGN's
requirements for electronic records without being preempted if
it satisfies all of the above criteria.
By its terms, the preemption exemption provided by E-SIGN
Section 102(a) applies only to the requirements in E-SIGN
Section 101 (15 U.S.C. [Sec.] 7001).
. . .
After the enactment of E-SIGN, [the Uniform Law Commission
(ULC)] took steps to protect its uniform laws from E-SIGN
preemption claims. To meet the second prong of E-SIGN's
preemption test and provide a defense against such claims, ULC
created a standard provision (known as "the Standard Section")
for its uniform acts that
provide for electronic records, agreements, or signatures.
. . .
The Standard Section has already been included in a number of
uniform acts enacted by California, including the Uniform
Anatomical Gift Act (Health & Safety Code [Sec.] 7151.30),
Uniform Commercial Code (Com. Code [Sec.] 1108), Uniform
Limited Partnership Act of 2008 (Corp. Code [Sec.] 15912.03),
Uniform Prudent Management of Institutional Funds Act (Prob.
Code [Sec.] 18509), Revised Uniform Limited Liability Company
Act (Corp. Code [Sec.] 17713.02), and Uniform Electronic Legal
Material Act (Gov't Code [Sec.] 10300.) (Study L-750, Staff
Memorandum 2013-14, Uniform Adult Guardianship and Protective
Proceedings Jurisdiction Act: E-SIGN (Mar. 28, 2013) Cal. Law
Revision Comm.
[as of July 8, 2015] pp. 7-9.)
This bill would supersede the prior version of UETA and
specifically authorize the electronic transmission of life
insurance benefit cancellation notices in direct conflict with
E-SIGN, and does not provide for the Standard Section, which is
being included in other uniform laws adopted by California.
Accordingly, because federal law prohibits electronic
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transmission of life insurance policy cancellation notices,
depending upon whether the notice of right to cancel is
considered a notice for cancellation purposes, and this bill
does not properly comply with the federal procedures regarding
preemption, it is possible this bill would be preempted by
federal law.
3.Consumer protections in UETA
California enacted its own version of UETA in 1999, shortly
before the draft UETA was finalized and submitted by NCCUSL for
adoption in all states. California's version of UETA includes
specified notice exclusions that vary from those found in the
NCCUSL version.
DOI asserts that existing law allows some life insurance and
annuity notices to be provided electronically while others are
prohibited from UETA, and this "[t]his leaves some transactions
prohibited and some permitted, with policyholders/annuitants
receiving some notices by hard copy and some electronically.
One aspect of the bill is to avoid potential confusion as to how
the consumer is to receive records and permit all aspects of
life/annuity transactions by electronic means. However, in
doing so, the insurer must comply with all of the UETA law as
well as the additional requirements in this bill."
Consumers Union, which raised consumer protection concerns and
worked extensively on SB 820, which enacted the California UETA,
continues to have concerns with the various UETA statutes
enacted in various states because they are not as protective as
E-SIGN. (See Sen. Com. on Judiciary, Analysis of Sen. Bill No.
820 (1998-1999 Reg. Session) as amended May 6, 1999, p. 6; Sen.
Rules Com., Off. of Sen. Floor Analyses, Unfinished Business
analysis of Sen. Bill No. 820 (1998-1999 Reg. Sess.) as amended
Sept. 3, 1999, p. 4.) According to the Consumers Union:
E-Sign and UETA are similar in many respects, but they are not
at all similar in the way they treat consumers. In consumer
transactions, E-Sign requires a specific and electronic
consent process before an electronic notice may replace a
legally required written notice. UETA merely requires that
the parties agree to conduct transactions by electronic means,
but does not specify how that agreement is to be proven.
Instead, UETA states that agreement is determined from the
context and circumstances. UETA's agreement requirement
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applies to all types of electronic notices (legal and
contractual). UETA undercuts its own basic premise of
agreement by permitting the agreement to conduct transactions
electronically to be found from the context, including
conduct. UETA also permits the agreement for future electronic
notices to be given only on paper. UETA does not exempt any
categories of consumer notices.
(1) The need for consumer protection: Electronic records,
however, present special problems in a consumer context.
Unlike mail, which all consumers have for free, over two
thirds of the households in the U.S. still are not connected
to the Internet. Yet, under UETA consumers in face-to-face
transactions could be asked to sign paper documents agreeing
to receive all documents relating to the transaction - both
currently and in the future - on-line. This could be
construed to be legal even if the consumer does not have ready
access to a computer.
There are considerable problems even for consumers who have
computers. Consumers commonly receive mail every day[;] many
people do not check email on a regular basis. Unlike mail,
where filing a forwarding address with the post office is
easy, there is no system for forwarding email when a consumer
switches internet providers. Unlike mail, where everyone has
a residence address somewhere, many consumers discontinue
email accounts entirely. Unlike mail, which can be opened by
opening an envelope, email sometimes comes with attachments
which the consumer's computer cannot read (and, indeed, we are
sometimes warned not to open unfamiliar attachments because of
the risk of viruses). All of these factors counsel that we
exercise caution in limiting consumer rights based on the
assumption that consumers have received everything that has
been emailed to them. (The Need to Protect Consumers -
Especially Low-Income Consumers - from UETA, Consumers Union
[as of July 8,
2015].)
Yet, the notices of cancellation for life insurance and annuity
policies, which includes the statutes created to protect senior
policyholders age 65 and older, that this bill would exempt were
specifically included in the UETA prohibition with a host of
other consumer protection notices because of the Legislature's
concern when enacting SB 820 that some consumer notices should
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not be sent electronically. Since DOI has yet to compile
information as to whether the exemptions provided under SB 251
are adequately protecting consumers, it may be premature to
provide more exemptions before the Legislature can review the
effects of the SB 251 exemptions on consumer protections.
4.Elder financial abuse and annuities
This bill would authorize electronic transmission of right of
cancellation notices regarding life insurance and annuities sold
to individuals over 65 years old. Although E-SIGN authorizes
electronic transmission of annuity notices, California has a
long history of legislative efforts to protect predatory
practices aimed at elders.
In 2003, the Senate Insurance Committee held an informational
hearing entitled "Financial Planning or Fleecing of Seniors?:
Insurance Products and Investments." This hearing highlighted
many instances where senior citizens were preyed upon by
"Medi-Cal advocates," who would convince seniors to spend down
their assets through the purchase of annuities so that the
seniors would qualify for Medi-Cal. These "advocates" received
a commission for the sale of the annuity, and the senior
purchased a product that may not be appropriate for their life
expectancy and financial circumstances.
To combat this financial predatory scheme, in 2008, the
Legislature extended consumer protections under the Consumer
Legal Remedies Act (CLRA) for unreasonable fees charged for the
preparation, assistance, or advice regarding applications for
public social services. (SB 1136 (Alquist, Chapter 479,
Statutes of 2008).) The CLRA prohibits unfair and deceptive
commercial conduct, and authorizes a consumer to commence a
civil action for damages resulting from violations of the CLRA.
The definition of public social services under the CLRA includes
activities and functions of state and local government
administered or supervised by the State Department of Public
Health or the State Department of Social Services.
In 2007, the United States Department of Veterans Affairs
(USDVA) reported that private companies were targeting the
elderly at assisted living facilities, and these companies would
offer to assist elderly veterans qualify for veteran's benefits.
(Acting Director Bradley G. Mayes, Letter to all VA Regional
Offices and Centers, Jan. 3, 2007.) The USDVA noted that
companies were charging fees related to veteran's benefits
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applications even though these companies had not been authorized
by USDVA to perform such services. In order to protect seniors
from improper fees associated with veteran's benefits
applications, SB 180 (Corbett, Chapter 79, Statutes of 2011)
added to the definition of public social services in the CLRA
veteran's benefits administered by the United States Department
of Veterans Affairs and the California Department of Veterans
Affairs.
Veterans' associations around California began reporting an
increase in predatory practices on elderly veterans. "Veterans
advocates" are offering services to redistribute the veteran's
finances so that the veteran will qualify for the Veterans Aid
and Attendance program. As with the Medi-Cal and Medicaid
schemes, these "advocates" reorganize a senior veteran's
finances through the purchase of insurance and annuity products
that may not be appropriate for the senior veteran's life
expectancy and financial circumstances. To combat these
practices, SB 1170 (Leno, Chapter 653, Statutes of 2012)
provided senior citizens protection against deceptive insurance
advertisements regarding veterans organizations or agencies,
added veteran's benefits assistance advertising and promotions,
as specified, to the list of deceptive practices under the
Consumer Legal Remedies Act, provided additional disclosure
requirements, as specified, for the sale of life insurance and
annuities to senior citizens, and prohibited an insurance agent,
as specified, from delivering living trusts or other legal
documents, other than insurance product documents, to a senior
citizen if the purpose of the delivery is to sell an insurance
product.
Additionally, AB 689 (Blumenfield, Chapter 295, Statutes of
2011) enacted the Suitability Requirements for Annuity
Transactions and, among other things, prohibited an insurer from
issuing an annuity recommended to a consumer unless there is a
reasonable basis to believe the annuity is suitable based on the
consumer's suitability information, and prohibited a producer
and an insurer from recommending to a person 65 years of age or
older the sale of an annuity to replace an existing annuity that
requires the insured to pay a surrender charge for the annuity
that is being replaced, where purchase of the annuity does not
confer a substantial financial benefit over the life of the
policy to the consumer, so that a reasonable person would
believe the purchase is unnecessary.
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Just last year, AB 2347 (Gonzalez, Chapter 166, Statutes of
2014) revised the senior disability and life insurance policy
30-day notices to apply to individual and group life insurance
products, require the mandated notice explaining the 30-day
"free look" period be in 12 point bold print on the front of the
policy jacket or on the cover page of the policy, as specified;
added individual annuity contracts to the requirement that all
individual life insurance policies include a right to return of
not less than 10 days nor more than 30 days, as specified,
required that mandatory notice to a senior citizen describing
the 30-day "free look" period to be on the front of the policy
jacket or the cover page, required individual non-variable life
insurance policies and non-variable annuity contracts,
individual variable life insurance policies and annuity
contracts, and immediate annuity contracts sold to senior
citizens to include a notice on the front of the policy jacket
or cover page in 12 point bold print that describes the 30-day
right to return and any surrender charges or penalties, as
specified. Concerns regarding appropriate consumer protections
for senior groups regarding life insurance and annuity
cancellation notices continue to this day. As noted in Comment
4, there are multiple factors regarding the inconsistency of
policyholder computer and email use to be considered when
limiting consumer rights based on the assumption that, even
though the policyholder may initially opt in to receive
electronic notices, consumers have received everything that has
been emailed to them.
Notably, AB 1747 (Feuer, Chapter 315, Statutes of 2012) requires
life insurers to permit policy owners to designate at least one
other person (a designee) to receive notices of missed payments
and prohibits termination of an individual life insurance policy
until that notice has been mailed 30 days prior to the effective
date of termination for nonpayment of premium. The insured's
assignee is already authorized to receive these notices
electronically. (Ins. Code Sec. 10113.71(b)(3).) Those
provisions were enacted to add additional procedural protections
to a life insurance policy owner in order to avoid lapse.
Similarly, this bill should require the life or annuity insurer
to provide the bill's electronic notices to the insured's
designee and assignee, upon the designee's or assignee's
consent, respectively, and require the insurer to have an
electronic process through which the designee or assignee may
electronically communicate to the insurer changes in the
designee's or assignee's email address.
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6. Additional points
E-SIGN makes insurance agents and brokers liable for any
deficiency in the electronic procedures agreed to by the parties
under the contract if the agent or broker has engaged in
negligent, reckless, or intentional tortious conduct, was
involved in the development or establishment of such electronic
procedures, and the agent or broker deviated from such
procedures. (15 USC Sec. 7001(j).) However, neither existing
law nor this bill provides these consumer protections, which
should be considered by the author and added to this bill to
enhance consumer protections.
Also, UETA prohibits sending electronic notices of the right to
cancel unless, in addition to satisfying the other law
authorizing a particular notice to be transmitted electronically
and UETA, the policyholder may return the notice of cancellation
by electronic means. (Civ. Code Sec. 1633.16.) Accordingly,
this bill should also require the life or annuity insurer to
provide the ability for the policyholder to electronically
return a notice of cancellation.
Support : None Known
Opposition : None Known
HISTORY
Source : Association of California Life and Health Insurance
Companies; California Department of Insurance
Related Pending Legislation : AB 1097 (Holden, 2015) would
permit alarm companies, upon the consent of the contracting
customer, to execute home solicitation contracts electronically,
as specified, and allow for the execution of a notice of
cancellation by electronic means pursuant to the Uniform
Electronic Transactions Act (UETA).
Prior Legislation :
SB 940 (Jackson, Chapter 553, Statutes of 2014) See Comment 3.
AB 2347 (Gonzalez, Chapter 166, Statutes of 2014) See Comment 5.
SB 251 (R. Calderon, Chapter 369, Statutes of 2013) See
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Background.
SB 1212 (R. Calderon, 2012) would have authorized an insurer to
transmit electronically specified offers of renewal for
automobile, property, or commercial insurance, as well as
certain liability insurance and notices related to earthquake
coverage. SB 1212 was held without action in the Assembly
Insurance Committee.
SB 1170 (Leno, Chapter 653, Statutes of 2012) See Comment 5.
AB 1747 (Feuer, Chapter 315, Statutes of 2012) See Comment 5.
SB 715 (Calderon, 2011) would have enacted the Suitability
Requirements for Annuity Transactions but was vetoed by Governor
Brown because he signed AB 689, a virtually identical bill.
SB 180 (Corbett, Chapter 79, Statutes of 2011) See Comment 5.
AB 689 (Blumenfield, Chapter 295, Statutes of 2011) See Comment
5.
AB 2066 (Jones, 2010) would have required all insurers, brokers,
agents, and others engaged in the transaction of insurance who
offer to sell an annuity to a senior to disclose to the senior,
as defined, all material facts and features of the annuity that
he or she knows or reasonably should know are likely to affect
the decision of the senior to purchase the annuity, required a
written notice with all blanks filled in and initialed by the
senior, signed by the senior, in the annuity transaction, would
have delineated conditions under which it would be presumptively
improper to sell an annuity to a senior; and would have made the
sale of an annuity to a senior without fulfilling the written
notice requirement or under specified circumstances as
presumptively improper, a violation of the duty owed to a
prospective insured who is 65 years of age or older of honesty,
good faith, and fair dealing. AB 2066 was held in the Assembly
Insurance Committee.
AB 328 (C. Calderon, Chapter 433, Statutes 2009) See Background.
SB 1136 (Alquist, Chapter 479, Statutes of 2008) See Comment 5.
SB 820 (Sher, Chapter 428, Statutes of 1999) See Background.
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Prior Vote :
Senate Insurance Committee (Ayes 8, Noes 0)
Assembly Floor (Ayes 76, Noes 0)
Assembly Appropriations Committee (Ayes 15, Noes 0)
Assembly Insurance Committee (Ayes 13, Noes 0)
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