BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 1232|
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THIRD READING
Bill No: AB 1232
Author: Cristina Garcia (D)
Amended: 6/29/15 in Senate
Vote: 21
SENATE INSURANCE COMMITTEE: 8-0, 7/8/15
AYES: Roth, Gaines, Berryhill, Glazer, Hall, Hernandez, Liu,
Wieckowski
NO VOTE RECORDED: Mitchell
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
ASSEMBLY FLOOR: 77-0, 5/7/15 (Consent) - See last page for
vote
SUBJECT: Insurance Commissioner: administrative hearings
SOURCE: California Department of Insurance
DIGEST: This bill 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.
ANALYSIS:
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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
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) Permits the IC to refer the matter for hearing to either
the OAH or to a CDI ALJ if the applicant does not indicate a
preference.
3) Requires the IC to annually report for three years 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.
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
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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 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
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forum.
The agency and applicant will attempt to work out a settlement
before the hearing that may include probationary terms. Often
the applicant may want the license as soon as 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.
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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 regulates some internal
agency conduct, such as ex parte communications, and requires
that most cases be heard by an ALJ employed by OAH. Since OAH
ALJs are exposed to a variety of regulations and agency
practices, OAH judges may be 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. 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.
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 the issues and laws related to
utility regulation. This is one reason why CDI uses its own
ALJs to hear insurance rating matters.
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. 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.
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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. 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.
According to OAH, 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 EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
SUPPORT: (Verified8/18/15)
California Department of Insurance (source)
OPPOSITION: (Verified8/18/15)
California Department of General Services
ARGUMENTS IN SUPPORT: 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
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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.
ARGUMENTS IN OPPOSITION: The Department of General Services
opposes this bill it seeks to remove an unknown number of cases
from OAH, which was established as the state's independent and
neutral adjudicatory body, and place them under the jurisdiction
of the AHB of the prosecutorial agency, the CDI. It also asserts
that there is no data supporting the CDI's premise that this
change would increase the efficiency of the hearing process.
ASSEMBLY FLOOR: 77-0, 5/7/15
AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom,
Bonilla, Bonta, Brough, Brown, Burke, Calderon, Chang, Chau,
Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly,
Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina
Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez,
Gordon, Gray, Grove, Hadley, Harper, Holden, Irwin, Jones,
Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low,
Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin,
Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea,
Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Mark
Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams,
Wood, Atkins
NO VOTE RECORDED: Campos, Roger Hernández, Steinorth
Prepared by:Erin Ryan / INS. / (916) 651-4110
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