BILL ANALYSIS Ó
SENATE COMMITTEE ON INSURANCE
Senator Richard Roth, Chair
2015 - 2016 Regular
Bill No: AB 1232 Hearing Date: July 8,
2015
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|Author: |Cristina Garcia |
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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 Commissioner: administrative hearings.
SUMMARY Provides an applicant whose license to act as an insurance
agent, broker, or solicitor has been denied by the California
Department of Insurance (CDI) the option to request a hearing in
front of an administrative law judge (ALJ) from CDI's
Administrative Hearing Bureau (AHB) or the Office of
Administrative Hearings (OAH), or permits the Insurance
Commissioner (IC) to assign the case if the applicant fails to
select a preference.
DIGEST
Existing law
1) Requires a person acting in the capacity of an insurance
agent, broker, or solicitor to hold a license issued by CDI.
2) Permits the IC to deny a license to an applicant for a
range of reasons including a lack of qualification,
conviction of any felony or a misdemeanor related to
insurance, or for prior unlicensed activity.
3) Prohibits the IC from denying a license without providing
the applicant a hearing held pursuant to the Administrative
Procedure Act (APA).
4) Requires that most hearings of state agencies conducted
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pursuant to the APA be presided over by OAH ALJs.
This bill
1) Permits the applicant to choose, at the time a hearing is
requested, whether to have an ALJ from CDI or from the OAH
hear the appeal.
2) Requires the IC to annually report on the total number of
hearings and the number of those cases heard by CDI ALJs,
average number of days between case referral, and when the
ALJ issues a proposed decision, and outcome of the cases.
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COMMENTS
1. Purpose of the bill CDI has sponsored this bill because
existing law does not provide the IC the authority to hear
new licensee applicant cases unlike many other entities in
the state. Currently the hearings are heard by OAH within
the Department of General Services with only a handful of
exceptions. OAH conducts hearings, mediations, and
settlement conferences for more than 1,600 state, local, and
county agencies, which can make it challenging to schedule
hearings for all outstanding applicants in a timely manner.
This has led to a hearing process that can be lengthy for
new licensee applicants and consumers, as well as being
costly to CDI. Individuals with a pending application or a
new licensee applicant are unable to work in a licensed
capacity in the insurance industry and must wait for their
case to be resolved. In many cases insurers and other
related employers have significantly invested in these
potential new agents, making delays extremely costly. Out
of 370,000 licenses, CDI sends approximately 160 licensee
cases per year to the OAH since the IC does not have the
authority to assign licensing matters to the AHB within CDI.
Sixty percent (or roughly 100) of those cases are new
licensee applicant cases that could be heard by the AHB.
This bill will enhance governmental efficiency by
streamlining the licensee hearing adjudication process for
new CDI licensee applicants. An administratively efficient
process better serves new licensee applicants and keeps
consumers protected.
2. Background The IC issues licenses and takes disciplinary
actions, such as suspension or revocation, against a person
who already holds a license ("licensees"). This bill would
only impact a person that the IC has initially denied a
license as an insurance agent, broker, or solicitor
("applicant") and who has requested a hearing to challenge
the reason for the denial.
Every applicant must complete a background check prior to
receiving a license as a part of the application and
examination process. If the background check is cleared and
the applicant has successfully passed the examination, a
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license is granted. However, for a variety of reasons, the
IC may deny the license or grant a license with
restrictions. The IC may deny the license without a hearing
on certain grounds (such as conviction for any felony), but
usually must give the applicant an opportunity to make a
case for licensure.
The hearing is the applicant's opportunity to prove that
alleged facts or reasons for the denial are untrue, invalid,
or should be considered along with mitigating factors.
Unlike criminal and licensee discipline cases, the burden is
on the applicant to show that he or she is fit for the
license. (The agency retains the burden of proving
wrongdoing for which the applicant has not already been
convicted, but only by a preponderance of the evidence or
"more likely than not" standard.) An adverse decision may
brand the applicant as dishonest or untrustworthy and the
applicant will have to disclose the decision anytime he or
she applies for another professional license or some types
of employment. Documents related to the case are usually
public records and pleadings and final decisions are posted
on the CDI website.
The Hearing Process. When the applicant requests a hearing,
CDI must serve a "statement of issues" explaining the basis
of the denial. Once CDI mails the statement of issues, the
applicant has 15 days to file a "notice of defense" that
requests a hearing and notes any special objections. Once a
hearing is requested, CDI will file the case with OAH to
start the formal process and request OAH to set a hearing
give the availability of the parties.
This bill would allow the applicant to request a hearing
with either the OAH or AHB when filing the notice of
defense. If the applicant fails to select a preference, the
IC could select the forum.
The agency and applicant will attempt to work out a
settlement before the hearing that may include probationary
terms. The applicant or the applicant's attorney will be
researching applicable law, talking to potential witnesses,
requesting and reviewing discovery, etc.
Often the applicant may want the license as soon as
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possible, but not always. An applicant may need time to
establish a history of employment, advance professional
training, sobriety (if the cause for denial involved drug or
alcohol-related conduct) or other factor that favors
licensure. At the hearing, the applicant may present
witnesses, such as therapists, employers, friends, and
others, who will testify on his or her behalf. CDI, on the
other hand, will present witnesses and documents supporting
a conclusion that the applicant is unfit for the license
including witnesses or victims of a wrongful act.
An ALJ from OAH presides over the hearing, accepts evidence,
rules on legal questions, resolves discovery disputes, and
submits a proposed decision to the IC. The ALJ is the
guardian of the record that serves as the basis for the
ultimate decision and any subsequent review. The IC,
however, retains ultimate authority to make the decision and
may adopt an ALJ's proposed decision entirely or adopt it
with a reduced restrictions or probationary terms. To
increase the restrictions or probationary terms, IC must
reject the proposed decision and either decide the case on
the existing record or refer it back to take additional
evidence.
Due Process Considerations. Due process demands a careful
balancing of administrative efficiency and separation of
powers. The roles played by a state agency become critical
elements in the due process analysis. Some agencies serve
as either prosecutor or judge and pose little to no risk of
an unconstitutional consolidation of power. For example,
the Department of Fair Employment and Housing investigates
discrimination cases but prosecutes them in superior court.
(Prior to 2012, the Fair Employment and Housing Commission
would hear and decide those cases.) Other agencies,
however, serve as prosecutor and judge, an arrangement that
raises the risks of potential due process violations such as
those involving improper ex parte contact or pro-agency bias
by the decision-maker or hearing officer.
In order to protect due process rights, agencies that
exercise prosecutorial and adjudicatory powers must
internally separate those functions; for instance, staff
involved in the investigation or prosecution of a matter may
not advise the decision-maker on that matter. The APA
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regulates some internal agency conduct, such as ex parte
communications, and requires that most cases be heard by an
ALJ employed by OAH.
California became the first state to establish a central
panel of ALJs in 1945 based on recommendations by the
Judicial Council. In its report Administrative Adjudication
by State Agencies, the California Law Revision Commission
(CLRC) explains that OAH was intended to create a staff of
qualified hearing officers who become expert in a number of
fields, yet do not have a potential conflict of interest
with the agency for which they conducted hearings and would
impart an appearance of fairness to the hearings. (P. 94.)
Also, since OAH ALJs are exposed to a variety of regulations
and agency practices, it may be argued that OAH judges are
less likely to establish practices and biases that favor the
agency, especially when an ALJ is asked to rule on whether
an agency has engaged in improper conduct or exceeded its
authority.
Despite the general trend to transfer cases to OAH, many
agencies have kept their in-house ALJs. Although there is
no bright line rule, the agencies follow at least one of
several patterns. Some agencies use in-house ALJs to
determine eligibility for public benefits or decide disputes
between private parties (such as an employer and an
employee). The Department of Social Services hears cases
before in-house ALJs that involve the denial of benefits for
several social assistance programs (but it prosecutes
actions against day care or residential facilities in front
of OAH). Other agencies with in-house ALJs are subject to
an external appeal process. The Employment Development
Department issues decisions related to unemployment
insurance coverage subject to review by the Unemployment
Insurance Appeals Board.
License denials and disciplinary actions taken against
individuals or businesses usually involve common issues and
legal questions and are mostly heard by OAH. Entities
within the Department of Consumer Affairs, such as the
Medical Board and Bureau of Automotive Repair, hear
licensing disputes before OAH. The Public Utilities
Commission (PUC) is a notable exception; the PUC needs its
own expert ALJs given the complexity and unique nature of
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the issues and laws related to utility regulation. This is
one reason why CDI uses its own ALJs to hear insurance
rating matters.
CDI's Administrative Hearing Bureau (AHB). CDI is a state
agency directed by the IC, a statewide elected official that
holds quasi-legislative, prosecutorial, and quasi-judicial
powers that are not subject to an administrative appeal
process. CDI has four in-house ALJs in its AHB that hear
insurance rate cases under Proposition 103 which requires
property/casualty insurers to submit their proposed rating
plans to the IC for approval. However, they also hear cases
related to workers' compensation rates, hearings related to
persons prohibited to engage in the business of insurance
under federal law, and others matters. According to CDI,
the majority of cases heard by the AHB are non-Prop 103
cases and requires the ALJs to weigh the applicant's
testimony in determining his or her "fitness or character"
when reaching a decision (qualifications critical to hearing
applicant cases). Because of the irregular flow of cases,
AHB ALJs are assigned other legal work when not hearing
cases.
AHB ALJs are appointed by the IC pursuant to civil service
rules and may not be supervised directly by the IC or
supervised directly or indirectly by an employee in the
legal branch. A deputy commissioner writes the performance
reviews of the Chief ALJ who writes the performance reviews
and assigns the cases and other work to the other ALJs.
Deputy commissioners serve at the pleasure of the IC and
possess the formal powers of the IC unless otherwise
restricted.
Length of Time to Resolve a Case. CDI data shows that for
2013 and 2014, it has taken, on average, 188.41 days from
the date a Request to Set a Hearing was sent to OAH until
CDI received the proposed decision from OAH (based on a
review of 307 cases that includes both application and
licensing cases, but mostly licensing cases). CDI also
notes that the ALJ has 30 days from the close of the record
to issue the proposed decision. According to CDI, previous
OAH data showed an average number of days to hear cases
(start to finish) was approximately 162 days. CDI claims
that it would be able to hear these cases within 30 days.
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At the committee's request, OAH calculated the average
amount of time to set CDI cases over the last year (from
April 2014 to May 2015) and determined that it has taken 111
days from when OAH receives a Request to Set form, but notes
that this time frame fits within two weeks of the parties'
typical availability. OAH explains that CDI attorneys often
indicate that they are unavailable for weeks or months.
Fiscal Impact. While a state agency may seek reimbursement
for its pre-hearing investigation and enforcement costs, due
process requires state agencies to bear the cost of the
hearing. The 2014-15 rate for an OAH ALJ is $191 per hour,
staff counsel costs $181 per hour, and a hearing reporter is
priced at a contract rate. The analysis by the Assembly
Appropriations Committee indicates a negligible state fiscal
effect. Any savings to CDI under this bill will likely be
shifted as losses of income to OAH.
Conflict of Interest. Occasionally, ALJs are asked to rule
on the agency's conduct or scope of authority. Such an
issue may be seen as presenting a conflict of interest if
raised before an in-house ALJ. These sorts of issues are
far less likely to arise in license application cases, as
opposed to cases involving licensees or insurers, since the
issues involved tend to be narrow and straightforward and
there are far fewer laws and regulations that apply.
Moreover, the applicant may select OAH to hear the case when
filing the notice of defense if there are any concerns about
the objectivity of AHB ALJs at that time.
Hearing Location. The APA requires that hearings be held at
an OAH facility in Sacramento, Oakland, Los Angeles, or San
Diego, whichever is closest to the location where the
transaction occurred or the respondent resides, or at place
selected by agreement of the parties. CDI assures the
committee that although it only has two hearing rooms in Los
Angeles and San Francisco, cases can be heard in other CDI
locations where conference rooms are available. CDI ALJs
are physically located in San Francisco but are able to
travel, as necessary, to hold a hearing and can hear cases
throughout the state. For example, CDI has regional offices
in San Diego and an office in Sacramento with facilities
that may be used to conduct hearings.
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POSITIONS
Support
Department of Insurance (sponsor)
Oppose
None received
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