BILL ANALYSIS Ó
AB 2591
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Date of Hearing: May 3, 2016
ASSEMBLY COMMITTEE ON JUDICIARY
Mark Stone, Chair
AB 2591
(Dababneh) - As Amended April 13, 2016
As Proposed to be Amended
SUBJECT: INSURANCE: ELECTRONIC TRANSMISSION
KEY ISSUES:
1)SHOULD INSURANCE COMPANIES BE AUTHORIZED TO ELECTRONICALLY
TRANSMIT NOTICES OF INSURANCE CANCELLATIONS, NONRENEWALS AND
RELATED DOCUMENTS TO AUTOMOBILE AND PROPERTY-CASUALTY
POLICYHOLDERS, PROVIDED THAT THERE ARE ADDITIONAL SAFEGUARDS
TO PROTECT CONSUMERS AGAINST THE SIGNIFICANT HARMS THAT CAN
OCCUR IF THESE DOCUMENTS ARE NOT ACTUALLY RECEIVED?
2)IN LIGHT OF THE NEW STATUTORY RULES TO BE APPLIED TO THE
ELECTRONIC DELIVERY OF DOCUMENTS UNDER THIS BILL, MIGHT IT BE
APPROPRIATE TO RETAIN A SUNSET DATE TO EVALUATE ITS PRACTICAL
EFFECT?
SYNOPSIS
This bill, sponsored by the insurance industry, seeks to
authorize insurers selling automobile and property-casualty
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policies to electronically provide certain notices of
cancellation, nonrenewal, offers of renewal, and other
communications to consumers if the named insured opts-in to
receive documents by electronic transmission. According to the
author, the Insurance Code has not been modernized to reflect
the choices today's insurance consumers should have, and
therefore this bill would expand consumer options to receive
electronic documents. While the goal of expanding options to
conduct financial business electronically is a worthy one, this
Committee has long believed that such efforts must be
accompanied by sufficient safeguards to ensure that these
documents are actually received by the consumer when they are
sent electronically. Actual receipt of the documents at issue
in this bill, including notices of cancellation and nonrenewal,
is crucial because the consequences for the consumer of not
receiving them (because of a junk email filter, for example) can
be serious, including financial exposure to significant
uninsured losses for auto accidents and damage to one's home.
Accordingly, as proposed to be amended, this bill tightens the
criteria under which an insurer may demonstrate actual delivery
and receipt of an electronic document to exclude the use of
confirmation receipts in an email program, among other things.
After discussions with Insurance Committee staff and other
stakeholders, the author also proposes to amend the bill to
reestablish a January 1, 2021 sunset date that will apply to the
sensitive cancellation and nonrenewal documents subject to
heightened standards for actual receipt, but that sunset will
not apply to the routine, less sensitive documents that may be
transmitted electronically under Insurance Code Section 38.6,
including life insurance, property-casualty, and automobile
insurance-related documents. The proposed amendments make clear
that upon expiration of the sunset date, on January 1, 2021,
authority to provide sensitive automobile and property-casualty
documents electronically will have expired, and electronic
transmittal of those documents will again be prohibited by Civil
Code Section 1633.3 (c) unless a later enacted statute comes
along to extend or repeal that sunset date. Finally, this bill
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would consolidate two similar reporting requirements due on
different dates, and make them both due on or before January 1,
2019. This would increase efficiency and help facilitate the
Insurance Commissioner delivering a single report to the
Governor and the Legislature evaluating the impact of these new
rules on the electronic delivery of insurance documents. As
proposed to be amended, the Insurance Commissioner has taken no
position on the bill; the Consumer Attorneys remain in
opposition while they take time to review the amendments and
continue to work with the author.
SUMMARY: Authorizes insurers to provide certain motor vehicle
and property-casualty notices of cancellation, nonrenewal,
termination and lapse of payment by electronic means, if certain
conditions are satisfied. Specifically, this bill:
1)Authorizes insurers, until January 1, 2021, to electronically
provide notices of cancellation, nonrenewal, termination and
lapse of payment for automobile, property-casualty, and life
insurance policies, if the insurer complies with several
requirements, including that the insured opt in and receive
specified disclosures.
2)Revises the criteria that establish whether an insurer has
demonstrated actual delivery and receipt of these notices of
cancellation, nonrenewal, termination and lapse of payment.
Actual delivery and receipt by the consumer may be established
by any of the following:
a) The person acknowledges receipt of the electronic
transmission of the record by executing an electronic
signature.
b) The record is posted on the insurer's secure Internet
Web site, and there is evidence demonstrating that the
person logged onto the insurer's secure Internet Web site
and downloaded, printed, or otherwise acknowledged receipt
of the record.
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c) The record is resent by regular mail to the person in
the manner originally specified by the underlying statutory
code if an insurer is unable to demonstrate actual
electronic delivery and receipt.
3)Re-establishes a sunset date of January 1, 2021 for provisions
authorizing cancellation and non-renewal notices for life
insurance, property-casualty insurance, and automobile
insurance policies, while allowing less sensitive documents,
including routine communications and notices, to be provided
electronically in perpetuity without being subject to any
sunset date.
4)Consolidates the due dates for two reports that the Insurance
Commissioner is required to make to the Governor and the
Legislature regarding the impact and implementation of
electronic transmission of important insurance documents.
Both of these reports may be combined into a single report and
become due on or before January 1, 2019, rather than being due
January 1, 2018 and January 1, 2020, respectively.
EXISTING LAW:
1)Establishes the Uniform Electronic Transactions Act (UETA)
which generally authorizes the transaction of business,
commerce and contracts by electronic means, except as
prohibited. (Title 2.5 of Part 2 of Division 3 of the Civil
Code, commencing with Section 1633.1.)
2)Specifies certain transactions which are prohibited from being
conducted by electronic means (Civil Code Section 1633.3),
such as:
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a) A notice of cancellation of auto insurance (Insurance
Code Section 663);
b) A written offer to renew an auto insurance policy, or a
written notice of nonrenewal (Insurance Code Section 663);
c) A notice of policy change or cancellation requested by
the insured (Insurance Code Section 667.5);
d) A written notice of exercise of the right to cancel a
premium financed insurance policy (Insurance Code Section
673);
e) A notice of cancellation of property insurance
(Insurance Code Section 677);
f) An offer to renew or a notice of nonrenewal of a policy
of property, liability, or other casualty insurance on
risks located in California (Insurance Code Section 678);
g) An offer to renew or a notice of nonrenewal of a
commercial policy of property, liability, or other casualty
insurance on risks located in California (Insurance Code
Section 678.1); and
h) A notice of reduced earthquake insurance coverage at the
time of renewal of a residential property insurance policy.
(Insurance Code Section 10086.)
3)Pursuant to UETA, provides that, unless the sender and the
recipient agree to a different method of receiving that is
reasonable under the circumstances, an electronic record is
received when the electronic record enters an information
processing system that the recipient has designated or uses
for the purpose of receiving electronic records or information
of the type sent, in a form capable of being processed by that
system, and from which the recipient is able to retrieve the
electronic record. (Civil Code Section 1633.15 (b).)
4)Permits, until January 1, 2019, consumers who opt-in to
receive electronic notices of renewal for automobile,
property, liability, workers' compensation, earthquake and
disability insurance, as long as other specified conditions
are met:
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a) Requires the insurer to obtain consent from the insured
before transmitting insurance documents electronically.
(Insurance Code Section 38.5 (b)(1).)
b) Requires the insurer to make the following disclosures
to the consumer before sending electronic renewal notices
and disclosures: (1) The insured must opt-in to receiving
these electronic documents; (2) the insured may opt-out of
electronic receipt at any time; (3) how the insured can
change the email address used by the insurer; (4) the
insurer's contact information (including toll free phone
number and website address). (Insurance Code Section 38.5
(b)(2).)
c) Requires the insurer to do one of the following within
two business days if the electronic transmission fails: (1)
Contact the insured to confirm the email address and resend
the document electronically; (2) resend the documents by
regular mail to the insured's address. (Insurance Code
Section 38.5 (b)(7)(A).)
5)Permits the Department of Insurance (department) to suspend an
insurer's authorization to send the above electronic documents
if the insurer has a pattern or practice that demonstrate a
failure to comply with statutory requirements. Further allows
an insurer to appeal this suspension and, when the department
determines the insurer has complied with the specified
requirements, resume electronic transmission of these
documents. (Insurance Code Section 38.5 (c).)
6)Permits, until January 1, 2021, consumers who opt-in to
receive electronic notices of renewal for life insurance
policies, provided other specified conditions (see Items 4a to
4c above) are met. (Insurance Code Section 38.6.)
7)Provides, until January 1, 2021, that the record provided by
electronic transmission shall be treated as if actually
received if the licensee delivers the record to the person in
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compliance with applicable statutory delivery deadlines.
Provides that the licensee may demonstrate actual delivery and
receipt by any of the following:
a) The person acknowledges receipt of the electronic
transmission of the record by returning an electronic
receipt or by executing an electronic signature.
b) 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.
c) 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.
d) If a licensee is unable to demonstrate actual delivery
and receipt pursuant to this paragraph, the licensee shall
resend the record by regular mail to the person in the
manner originally specified by the underlying provision of
the Insurance Code. (Insurance Code Section 38.6 (b)(7).)
FISCAL EFFECT: As currently in print this bill is keyed
non-fiscal.
COMMENTS: Insurance documents have historically been excluded
from the law allowing electronic transmittals of documents in
specified transactions. As discussed below, this exclusion
reflects the many consumer protection issues that arise when
insurance documents transmitted through electronic means are not
actually received by the consumer. This bill, sponsored by the
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insurance industry, would lift that longstanding ban to allow
insurers to provide certain motor vehicle and property-casualty
notices of cancellation, nonrenewal, termination and lapse of
payment by electronic means, if the named insured has consented
and certain conditions are satisfied that ensure the documents
are actually received by the insured.
The bill is sponsored by the Personal Insurance Federation of
California, the Association of California Insurance Companies,
Pacific Association of Domestic Insurance Companies, the
American Insurance Association, and the Independent Insurance
Agents and Brokers of California, whose members collectively
write the vast majority of auto and home insurance in
California. In explaining the need for the bill, the sponsors
state:
In 1999, the Uniform Electronic Transactions Act (UETA) was
enacted in California, which established uniform standards
for conducting business transactions electronically, giving
consumers the option to receive certain documents
electronically and the right to opt-out if they change
their mind. Unfortunately, much of the California Insurance
Code was written in the 1940's and was not amended in
alignment with the UETA as other code sections have been.
Therefore, the insurance code has not been modernized to
reflect the choices today's insurance consumer should have.
In 2013, members of the Legislature and the Governor
recognized shortcomings in existing law and passed SB 251
(Calderon), allowing consumers to opt-in to receive a
narrow range of insurance documents electronically.
However, under current law insurers still cannot
electronically add a new driver or new car to an insurance
policy without mailing paper copies, even when the consumer
has deliberately chosen to go paperless. SB 251 was a good
first step in updating California's insurance laws to
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reflect the technology that is available today, but more is
needed. AB 2591 would expand consumer options to receive
electronic documents, and would preserve the consumer
protections that exist today in the California Civil and
Insurance Codes.
Potential risks of harm if electronic transmittal of documents
does not result in actual receipt by consumers. According to
proponents of the bill, many consumers today are not only
comfortable with conducting their banking and financial business
online, but prefer to do so-including managing their home and
auto insurance policies. While this may be true, it should also
be acknowledged that consumers face an often underappreciated
risk of harm if, under rules set by state law, the electronic
transmittal of documents does not result in actual delivery to,
and receipt by, the consumer. For example, a renewal that does
not come to the attention of the insured may lead to
cancelation, causing significant losses to the consumer if
coverage unknowingly expires. An insurer may change the terms
or costs of the insurance - reducing policy limits, eliminating
coverages, increasing deductibles or increasing premium - all
unbeknownst to the insured who has not received the required
document, particularly for customers who have auto-pay
arrangements. In addition, consider that insurers are
authorized to unilaterally modify earthquake policies at the
time of renewal if they provide the insured with a required
disclosure. Failure to receive this document would be critical
for the many Californians whose only protection against the
total loss of their most precious asset is earthquake insurance.
All of these risks presumably underlie the longstanding policy
prohibiting electronic transmittal of these documents, and may
have increased rather than diminished in the years since UETA
was enacted in 1999 to prohibit many insurance documents from
being delivered electronically.
With respect to other potential problems, receipt of emailed
documents can be impeded by ever more robust but imprecise spam
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blockers that can filter out legitimate messages. Whatever the
problems of the U.S. Post Office may be, there is at least no
force or agency actively seeking to intercept physical mail.
Technological problems can also interfere, such as when a
computer server goes down. A number of ISPs have experienced
widespread service failures, and of course receipt of email
messages also depends on proper operation of the computer
systems on the receiving end that are subject to technological
problems of their own. In addition, sophisticated computer
hackers have regularly disabled the Internet computer servers of
companies through denial-of-service attacks and other methods.
Far from being resolved in the years since the insurance
prohibition was adopted in UETA in 1999, these problems may well
have gotten worse. Recent data shows that email deliverability
- the term used to designate the rate of email placed in the
inbox - has dropped to 76% for American businesses. According
to Return Path, American businesses saw nearly one in four
emails land in the spam folder or go missing, with inbox
placement dropping from 87% in 2014 to just 76% in 2015.
(Deliverability Benchmark Report: Analysis of Inbox Placement
Rates in 2015. Return Path. Available at:
https://returnpath.com/wp-content/uploads/2015/10/2015-Deliverabi
lity-Benchmark-Report.pdf ) According to the study, the reasons
for the decline are threefold: ISPs are being more rigorous
with filtering and blocking, sender reputations are
deteriorating, and consumers are reacting to email overload,
including by using a "junk" button to automatically filter out
emails from senders they specifically opted-in to receive.
The phenomenon of dealing with email overload by designating a
sender as "junk" when the volume becomes too great - even though
the user initially consented to receiving messages from the
sender - may be particularly relevant here. If an insurance
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company obtains consent to send renewals by email and
subsequently sends other types of unwanted messages, or a
greater number of messages than the consumer wishes to receive,
the consumer may react by automatically directing further
messages from the insurer to a junk filter without realizing
that a renewal message six months later will be filtered out as
well.
As troubling as these deliverability statistics may be, they do
not reflect the full scope of the problem. Receipt of emails is
also affected by a wide variety of actions of users. For many
people, email addresses are temporary and disposable. Many
people use multiple addresses, often transitioning over a period
of time, or designating specific addresses for certain uses
which may shift with time and experience - for example, a
frequently used general address may become associated instead
with a more specific purpose, or may be abandoned if it is
overtaken by unwanted "spam" emails. People change or abandon
an email address or a service provider and do not necessarily
recall whether years ago they might have given a particular
address to their insurance company - or if they do recall doing
so, they may not know how to notify the insurance company that
they no longer use that new email address. This problem is
compounded because there is no system of forwarding or return
receipt requests for email as there is with the Postal Service.
Email transmission of insurance documents may also not be
effective because of the increasing fear of computer viruses or
scams that cause consumers to be reluctant to open emails from
senders, even when they appear to be legitimate because of the
increasing sophistication of such frauds.
For these reasons and others, California law in many instances
still requires written notices and other documents to be mailed
to an individual's home or designated physical mailing address
to better ensure delivery and/or receipt for legal purposes.
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This bill wisely seeks to apply heightened standards to the most
sensitive insurance documents to ensure their actual receipt by
consumers. Last year, AB 1131 (Dababneh), Ch. 638, Stats. 2015,
established Insurance Code Section 38.6 to allow all life
insurance documents to be transmitted electronically if the
consumer opts-in. Under Section 38.6, there are two different
standards to ensure that documents are sent and received based
on the sensitivity of the document. For documents considered
less sensitive (for example, statements and routine notices),
life insurers may transmit them electronically if they comply
with the minimum standards established by UETA. (See Civil Code
Section 1633.15, stating an electronic record is received "when
the electronic record enters an information processing system
that the recipient has designated or uses for the purpose of
receiving electronic records or information of the type sent, in
a form capable of being processed by that system, and from which
the recipient is able to retrieve the electronic record.") For
documents considered most sensitive, such as notices of
cancellation, termination, lapse of payment, and non-renewal,
Section 38.6 specifies heightened criteria for the policyholder
to acknowledge receipt of the notice before it can be considered
to have been received. This is a key consumer protection
because the policyholder has a limited amount of time to respond
to such a notice. For instance, among the most common causes
for a cancellation notice is the failure to timely pay a
premium, but the policyholder has a window to pay the premium to
keep the policy in force after receiving the notice. This is
particularly significant for life insurance products as it can
be difficult to replace a life insurance policy later in life
because life insurance policies are harder to obtain and more
costly as a person ages. Proponents note that this standard
imposes a greater level of consumer protection than current law
which merely requires the insurer to have proof of mailing with
no assurance that the policyholder is aware of receiving the
notice.
Despite its heightened, two-tier system, Section 38.6 currently
applies to only life insurance documents, and not automobile or
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property-casualty insurance documents which are covered by
current Civil Code Section 38.5 (which itself is set to sunset
on January 1, 2019). This bill adds authority for policyholders
to receive the full range of documents for automobile and
homeowner's policies electronically by repealing the existing
statute governing electronic transmission requirements for
property/casualty policies and instead applying the standards
developed in AB 1131. The bill would have the additional
benefit of applying a common set of standards to both life
insurance and property/casualty policies in California.
Proposed amendment to better ensure actual receipt by consumer
of sensitive documents transmitted electronically under Section
38.6. Under the current version of the bill, an insurer may
demonstrate actual delivery and receipt by any of the following
methods:
(A) The person acknowledges receipt of the electronic
transmission of the record by returning an electronic receipt
or by executing an electronic signature.
(B) 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.
(C) 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.
(D) If a licensee is unable to demonstrate actual delivery and
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receipt pursuant to this paragraph, the licensee shall resend
the record by regular mail to the person in the manner
originally specified by the underlying provision of this code.
In discussions with the author, the Committee noted its concern
that "returning an electronic receipt" in (A) and all of the
language in (B) did not appear to adequately ensure that a
consumer actually receives the insurance document.
Problematically, the "electronic receipt" and "confirmation
receipt" referred might be satisfied by an automatic indicator
or reply script in an email program, which from experience does
not necessarily reflect an affirmative action or step taken by
the insured to indicate actual receipt of the underlying
document at issue. The hallmark of demonstrating actual receipt
is when the consumer can be shown to have taken an affirmative,
non-automated step in response to the electronic delivery of the
document-for example, by logging into the insurer's secure
website to view the notice or respond to it, whether being
prompted by an email message or on their own accord.
Committee staff notes that the bill might be further refined to
make sure it encompasses a very popular modern
technology-smartphone apps-that are increasingly being used by
insurance companies and their customers. Because an app in some
cases may not involve the consumer literally logging on through
an insurer's secure website, the author may wish to explore with
stakeholders if there is a need to revise the language of (C),
or add a new paragraph, that clearly establishes that technology
like an interactive user app represents a secure and acceptable
way to actually receive electronic insurance notices.
Accordingly, the author proposes the following amendments:
On page 10, line 20, delete "returning an electronic receipt
or by", and delete lines 22 to 26.
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Reestablishing a sunset date of January 1, 2021 for untested
authority to send sensitive auto, P&C, and life insurance
documents. As introduced, this bill included a sunset provision
that would take effect January 1, 2021 unless a later enacted
statute deleted or extended that date. However, the bill was
amended in Assembly Insurance Committee to eliminate the sunset
date completely, which in effect would have allowed for the
first time all of the sensitive automobile and property-casualty
cancellation and nonrenewal notices to be sent electronically,
while simultaneously striking the sunset date that would have
allowed the Legislature to evaluate that significant policy
change for the first time in 2021. In addition, by striking the
sunset date in Section 38.6, this bill would have been undoing
the sunset date that was just established one year ago by AB
1131 for life insurance documents, before the Legislature had
had its first opportunity to evaluate the significant changes
related to their electronic transmission as created by AB 1131.
In explaining the rational for removing the sunset, the
Insurance Committee wrote:
The Committee is aware of a number of insurers
(representing a significant portion of the
property/casualty insurance market in California) who have
been unwilling to make the considerable financial
investment required to go online because of the uncertainty
created by the sunset provisions. Given that reality, the
sunset provisions are not only unnecessary, but also
getting in the way of providing consumers with online
options.
After discussions with Insurance Committee staff and other
stakeholders, the author proposes to amend the bill to
reestablish a January 1, 2021 sunset date that will apply to the
sensitive cancellation and nonrenewal documents subject to the
heightened standard for actual receipt, but that will not apply
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to the routine, less sensitive documents that may be transmitted
electronically under Section 38.6, including life insurance,
property-casualty, and automobile insurance-related documents.
The proposed amendments make clear that upon expiration of the
sunset date, on January 1, 2021, authority to provide sensitive
automobile and property-casualty documents electronically will
have expired, and electronic transmittal of those documents will
again be prohibited by Civil Code Section 1633.3(c) unless a
later enacted statute comes along to extend or repeal that
sunset date.
Proposed amendment to consolidate dual reporting requirements.
Under the bill currently in print, the Insurance Commissioner
must report to the Governor and the Legislature on or before
January 1, 2020 his evaluation of the impact of the changes
brought about by AB 1131 of last year, with respect to the
electronic transmittal of life insurance documents to consumers.
In addition the Commissioner also is required to complete a
similar report, on or before January 1, 2018, evaluating the
impact of changes arising from SB 251 (2013), which allowed a
narrow range of documents to be provided electronically on a
trial basis.
As proposed to be amended, this bill would consolidate those two
reports and make them both due on or before January 1, 2019.
This would increase efficiency and help facilitate a single
report by the Commissioner that would be received and
contemplated by the Legislature well in advance of the January
1, 2021 sunset date to be re-established by this bill.
ARGUMENTS IN OPPOSITION: The Committee received an Oppose
Unless Amended letter from the Consumer Attorneys prior to a
compromise being reached on the proposed amendments described
above. The letter states that CAOC opposes the bill "unless it
is amended to ensure adequate safeguards are implemented to make
certain that consumers receive their important insurance renewal
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notices and a proper sunset date is added." It is believed that
the author's proposed amendments may address some of CAOC's
concerns, but that at the time of this analysis CAOC is listed
in opposition while the group reviews the amendments. At the
same time, the group has pledged to work with the author as the
bill moves forward.
REGISTERED SUPPORT / OPPOSITION:
Support
American Insurance Association
Association of California Insurance Companies
Independent Insurance Agents and Brokers of California
Pacific Association of Domestic Insurance Companies
Personal Insurance Federation of California
Oppose unless amended
Consumer Attorneys of California
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Analysis Prepared by:Anthony Lew / JUD. / (916) 319-2334