BILL ANALYSIS Ó
SENATE COMMITTEE ON INSURANCE
Senator Richard Roth, Chair
2015 - 2016 Regular
Bill No: AB 2591 Hearing Date: June 22,
2016
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|Author: |Dababneh |
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|Version: |May 27, 2016 Amended |
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|Urgency: |No |Fiscal: |No |
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|Consultant:|Hugh Slayden |
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Subject: Insurance: electronic transmission
SUMMARY Consolidates and recasts the several standards applicable to
electronic transactions applicable to insurance notices, in
addition to those provided under the Uniform Electronic
Transactions Act (UETA), and applies those standards to
additional insurance documents.
DIGEST
Existing law
1. Requires that various insurance notices, contracts, or other
documents (collectively referred to as "records") be provided in
writing and transmitted or delivered as specified, including by
mail, first-class mail, registered mail, certified mail, and
others.
2. Validates electronic records that are otherwise required to be
provided in writing.
a. Provides that, under California's version of the UETA, a
record or signature cannot be denied legal effect or
enforceability because it is in electronic form provided that
all parties agree and that the transaction complies with
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specified standards and principles, but exempts some classes
of records and some specific documents as provided. (Civil
Code § 1633.1 et seq.)
b. Provides that, under the United States Electronic
Signatures in Global and National Commerce (ESIGN) Act,
notwithstanding any statute, regulation, or other rule of law
with respect to any transaction in or affecting interstate or
foreign commerce a signature, contract, or other record
relating to such transaction may not be denied legal effect,
validity, or enforceability solely provided that all parties
agree and that the transaction complies with specified
standards and principles, but exempts some classes of records
and does not preempt state laws that meet certain criteria.
(15 U.S. Code §§ 7001 et seq.)
c. Provides that some notices for property and casualty
insurance may be sent electronically so long as, in addition
to those requirements provided under UETA, the insurer be
able to provide an affidavit documenting the transmission and
maintains a system for confirming that any notice or document
that is to be provided by electronic means has been sent, and
retains relevant records for a period of five years.
(Section § 38.5(a).)
d. Provides that some renewal and other notices for
property and casualty insurance and workers' compensation
insurance, may be provided electronically so long as, in
addition to those requirements provided under UETA and
Section 38.5(a), the insurer documents consent as
specifically provided, provides specified disclosures,
documents the insured's email address on the declaration
page, provides one free hardcopy annually on request, and
other consumer protections, until 2019. (Ins. Code §
38.5(b).)
e. Provides that life insurers may conduct all life
insurance transactions based on some basic rules, including
heightened treatment of highly sensitive notices of
cancellation (requiring some sort of confirmation of
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receipt), until 2021. (Ins. Code § 38.6.)
1. Authorizes insurers to send a notice of policy cancellation to
a lienholder with the consent of the recipient.
This bill
1. Replaces the several standards provided in the Insurance
Code for the transmission of electronic documents with a
single set of rules, in addition to UETA, applicable to all
insurance documents (except for some health insurance
documents) and all lines of insurance including the
following:
a. Requires a disclosure that informs the consumer that
the electronic transmission is voluntary and may be
revoked at any time, provides a description of the
record, describes the process to report or correct an
email address, and provides contact information for the
insurer.
b. Requires insurers to document consent and record
email address of the person consenting.
c. Requires the insurer to provide a free hardcopy
annually on request and prohibits an insurer from
charging, or providing a discount, for consenting.
d. Authorizes the electronic transmission of and
establishes standards for, in addition to those provided
under UETA, until January 1, 2021, documents that must be
sent by registered and certified mail, or return receipt
requested that requires electronic proof of actual
receipt.
e. Authorizes the electronic transmission of notices of
cancellation, until January 1, 2021, and other sensitive
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documents and applies standards established for
registered and certified mail to those documents.
f. Prescribes a process for documents posted on a
secure website or portal.
g. Prescribes a follow-up process for contacting the
insured if the insurer receives information that the
document was not received.
h. Requires the insurer to verify the consumer's
electronic address when more than a year has passed since
the last electronic communication.
i. Establishes that agents and brokers are not liable
for a deficiency in the electronic procedures agreed in
the contract under specified conditions.
j. Requires insurers to maintain relevant records for a
period of at least five years.
aa. Authorizes CDI to suspend a licensee's authority to
transmit documents electronically when there is a pattern
or practices that demonstrate the licensee has failed to
comply with the applicable standards.
2. Applies UETA and the consolidated Insurance Code standards
to the following documents:
a. Notice of policy cancellation to an addition person
with an interest (Ins. Code § 662)
b. Written notice of nonrenewal (Ins. Code § 663(a)(2))
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c. Proof of mailing: cancellation, nonrenewal and
reasons (Ins. Code § 664)
d. Notice of policy change or cancellation requested by
insured (Ins. Code § 667.5)
e. Notices related to a lender's right to cancel an
insurance policy (Ins. Code § 673)
f. Notices of cancellation (Ins. Code § 677(a))
g. Notices of nonrenewal (Ins. Code § 678(a)(2))
h. Policy notice of nonrenewal for workers'
compensation insurance (Ins. Code § 678.1(a) and (b))
3. Eliminates the use of electronic mail read receipts and
other email tracking technologies to provide proof of
delivery and actual receipt of certain documents and
establishes standards for proof of delivery for an
application used on a personal electronic device.
4. Eliminates the sunset date to authorize electronic
transmission for most insurance documents subject to a
sunset date, but establishes a sunset date of January 1,
2021, for that authority relative to documents that require
proof of actual receipt.
5. Coordinates existing reporting requirements and requires
CDI to submit both reports to the Legislature on or before
January 1, 2019.
COMMENTS
1. Purpose of the bill According to the author, current law
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must be updated to preserve existing consumer protections
and allow broader use of voluntary e-delivery and
e-signature of property and casualty insurance documents.
SB 251 (Calderon), which allowed consumers to opt-in to
receive a narrow range of insurance documents
electronically, was a great first step in modernizing
California's insurance laws to reflect the technology that
is available today, but more is needed. For example,
insurers still cannot electronically add a new driver or new
car to an insurance policy without mailing paper copies,
even when the consumer has chosen to go paperless. AB 2591
takes the next step by expanding consumer's options to
receive electronic documents, and would preserve the
consumer protections that exist today in the California
Civil and Insurance Codes. This bill will also decrease
paper use and give the consumer a choice in how they want
their insurance documents delivered.
2. Background Every day, countless electronic transactions
occur via email, facsimile, smart phone applications, web
pages, and other digital forums. The technology works
behind the scenes to facilitate contracts, sales, and other
commercial activity, but it is the law that makes agreements
"real" and enforceable. Some types of agreements are only
enforceable if they are in writing. Not long ago, "in
writing" meant ink and paper and it was not clear whether
the law recognized agreements formed and memorialized
electronically.
In 1999, the National Conference of Commissioners on Uniform
State Laws (NCCUSL) adopted the model UETA to establish
consistent interstate rules for electronic transactions.
(Former Legislative Counsel Bion M. Gregory sat on the
drafting committee.) SB 820 (Sher), Chapter 428, Statutes
of 1999, enacted California's version of UETA almost
immediately afterward. The following year, Congress enacted
the Electronic Records and Signatures in Global and National
Commerce Act (ESIGN), in part, to encourage the states to
adopt UETA in its broadest form and facilitate e-commerce
among the states.
ESIGN's intended effect was to establish UETA as the
universal standard. It includes explicit preemption
provisions that override state laws are not taken from the
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model UETA or circumvent the fundamental rule that
electronic documents are valid. When California enacted
UETA, it exempted numerous records, including many insurance
documents, based on the model provision found in Section
3(b)(4) (California Civil Code § 1633(c)). When Congress
drafted ESIGN it rejected the UETA state-specific exclusions
by saving state laws based on UETA "except that any
exception to the scope of such Act enacted by a State under
section 3(b)(4) of such Act shall be preempted to the extent
such exception is inconsistent with [the validity provisions
of ESIGN]" (15 U.S.C § 7002(a)(1).) That ESIGN provision
raises significant issues as to the enforceability of the
exclusions listed in California's version of UETA.
There is little case law on this point and nothing directly
applicable. ESIGN preemption is a very complex subject and
the insurance industry has avoided the controversy by
seeking legislative authorization. These efforts began with
AB 328 (C. Calderon), Chapter 433, Statutes 2009, that
applied UETA and some additional rules to basic
informational documents related to property and casualty
insurance, including notice of reasons for refusal to issue
a good driver policy and the notice of the right of a
homeowner to purchase earthquake coverage. SB 251 (R.
Calderon), Chapter 369, Statutes of 2013, applied UETA with
more consumer protections to notices of renewal and other
documents. Last year, AB 1131 (Dababneh), Chapter 638,
Statutes of 2015, until 2020, applied UETA with similar
consumer protections, and authorized life insurance
carriers, agents and brokers to transactions related to life
insurance and annuities electronically. It also authorized
the delivery of cancelation notices for life insurance
(explicitly exempted from ESIGN) and the delivery of
documents that must otherwise be sent by certified or
registered mail, or some other method requiring confirmation
of delivery. SB 251 is scheduled to sunset in 2019 and AB
1131 in 2021.
California insurance law has come completely full circle on
uniformity and, in applying UETA with additional and unique
features, has differing standards within the same industry
and varying standards applied to documents within the same
line of insurance. The hodge-podge approach presents a
problem for insurers who sell many lines of insurance and
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consumers who prefer or rely on electronic transactions
(including those who travel, students living away from home,
and others). This also presents a problem for insurers
doing business in several states who are subject to
disparate standards and consumers who move to California
that are accustomed to receiving these documents
electronically.
Insurance E-commerce. Insurers cannot control many of the
factors that might make electronic delivery problematic,
such when consumers change email addresses or when SPAM
filters misdirect messages. UETA and ESIGN both leave the
consumer ultimately responsible for choosing the delivery
methods they are most comfortable with and that fit their
lifestyle. For this reason, legislation has focused on
reinforcing informed consent (including heightened
disclosures and prohibiting discounts or charges based on
consent) in the insurance context.
The insurer-consumer electronic interface is quickly
changing as technology evolves and consumers increasingly
depend on electronic transactions. Insurers may use any
number of technologies, including email, facsimile, text
messaging, or smartphone or tablet application, and
combinations thereof. For example, a document may be placed
in an Internet account and notice of the document delivery
provided by email, text message, and or app. Consumers may,
through an application on a tablet or cell phone, provide
proof of insurance (AB 1708 (Gatto, 2013), Chapter 236,
Statutes of 2012), file a claim, summon emergency
assistance, access documents, etc.
UETA's Ground Rules. UETA establishes ground rules and
principles for parties engaging in e-commerce. The most
important rule is that engaging in electronic forms is
voluntary. UETA also recognizes that the underlying law
might treat certain transactions with special consideration.
For instance, UETA leaves undisturbed provisions that call
for a document to be sent within 30 days or with special
formatting (such as a font size). But UETA does not impose
obligations on either party greater than that imposed by the
underlying law and specifically provides that a record may
be received even if no individual is aware of its receipt.
The NCCUSL drafting committee explains: "As in the paper
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world, obligations to send do not impose any duties on the
sender to assure receipt, other than reasonable methods of
dispatch."
Since concepts from the paper world do not translate easily
into the digital, UETA establishes extensive default rules
and definitions. For example, for a document to be
considered "sent," the electronic information must be
properly addressed or otherwise directed to the recipient
and a general broadcast message would not suffice. The
record will be considered sent once it leaves the control of
the sender or comes under the control of the recipient. In
this sense, UETA was constructed to provide a complete
system. A state should not have to tailor the rules (it is
a uniform standard); ESIGN's preemptive provisions
specifically favor the model act "as approved and
recommended for enactment. (15 U.S.C. 7002(1).)
Both UETA and ESIGN respect the level of sensitivity given
to a record by the underlying law. A record that must be
sent by certified or registered mail, for example, requires
confirmation of delivery to the address. While Section
8(b)(2) of the model UETA (Civil Code Section 1633.8(b)(2))
preserves required delivery method but creates a potential
absurdity. The drafting committee explains that if a record
requires a delivery by first class U.S. mail, the record
could still be provided electronically, but must be mailed
accordingly, such as mailing a CD with the electronic
record. ESIGN refines this approach and preempts any
attempt to impose of nonelectronic delivery methods under
model UETA Section 8(b)(2). (15 U.S.C. 7002(c).) Rather,
ESIGN expressly provides that if a law enacted prior to
ESIGN requires verification or acknowledgment of receipt,
the electronic equivalent must also provide verification or
acknowledgement. (15 U.S.C § 7001.)
This bill permits an insurer to transmit a document that
would otherwise require a postal delivery receipt or
equivalent if the insurer can document that consumer opened,
viewed, or printed the record. However, the standards
applied are probably higher than the hardcopy because
certified or registered mail does not accomplish this in
real life. Only postal mail sent "restricted delivery"
requires the USPS to deliver the document to the named
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recipient.
This bill also authorizes insurers to send notices of
cancelation so long as they comply with the same "actual
receipt" standard, even though the underlying law does not
require certified or registered mail.
Consumer-Initiated Changes. This bill applies UETA and the
additional protections to several documents, including
notices sent to named insureds who have requested changes to
the policy. However, when a policyholder requests a change
in the policy at renewal or mid-term, such as the removal of
an additional named insured, the insurer must send a notice
to the named insured listed on the policy declarations page
to the address stated on the policy. This helps to protect
other people who depend on the contract. This bill is
intended to authorize the insurer to send electronic notices
to the policyholder, but it might not apply to other named
insureds.
Under existing law, this bill does nothing to change UETA's
requirement that a recipient must consent to electronic
transactions and that the record must be properly addressed
to the recipient. The Insurance Code requires the notice to
be sent to the address listed on the policy. The inability
for a named additional insured to receive these notices
electronically may prove detrimental to some consumers,
especially to a named insured who may not have access to the
mail at the residence, such as an estranged or traveling
spouse.
Sunset Dates. Sunset dates force the Legislature to
reconsider laws based on the most recent information,
however, they also undermine the predictability of a law and
may not be appropriate where there is a need for long-term
planning. Both SB 251 and AB 1131 have sunset dates.
Several insurers and insurance trade associations have
indicated that the sunset dates have discouraged insurers,
especially small insurers, from making the necessary
investments in human and IT resources to send documents
electronically. The current provisions removing the
existing sunset dates on most documents, and the addition of
a new sunset for highly sensitive documents, are the result
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of negotiations between the Assembly Insurance and Judiciary
Committees.
Double-referral. This bill is double-referred to the
Committee on Judiciary.
3. Support Several insurance trade associations explain that
developments in everyday business electronic communications
is already here and it includes secure inbox capabilities,
real-time claims reporting and many other customer-friendly
features enabled by mobile phone apps and internet-based
solutions. As the majority of commerce moves to an online
platform driven largely by consumers, the trade associations
believe that it is appropriate to review remaining
prohibitions on the electronic transaction insurance -
particularly those that empower consumers to choose to
opt-in.
4. Opposition The Consumer Attorneys of California highlights
the importance of receiving documents altering or canceling
coverage. The consequences of a reduction or cancellation of
coverage for a consumer can be serious, including financial
exposure to significant uninsured losses for auto accidents
and damage to one's home. It is crucial that consumers
actually receive these documents. The same rules that may be
acceptable for telephone bills or credit card statements are
not appropriate for auto and home insurance.
All car owners and home owners are required to have auto and
home insurance; thus, AB 2591 has a broad application. As a
result of the commonality of these auto and home insurance
policies, the bill must ensure consumers do indeed receive
important notices that could result in significant financial
exposure.
Life insurance policies are inherently more sensitive due to
older, more vulnerable consumers who are often less
technology-savvy. Additionally, the consequences of an
unknowing cancelation or lapse in coverage could have dire
financial consequences for an individual who has been paying
into their life insurance for decades. Because the
electronic life insurance bill only recently went into
effect, CAOC believes that it is premature to remove the
2021 sunset date relative to life insurance.
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5. Related Legislation
AB 2296 (Low, 2016) would clarify the types of electronic
signatures that are permissible for public agencies.
AB 1743 (Dababneh, 2016) would apply UETA to the
California's Automobile Sales Finance Act & the California
Vehicle Leasing Act and authorize the use of an electronic
signature for the purpose of purchasing or leasing a vehicle
with an electronic signature.
POSITIONS
Support
American Council of Life Insurers
American Insurance Association
Association of California Insurance Companies
Association of California Life and Health Insurance Companies
Independent Insurance Agents and Brokers of California
National Association of Mutual Insurance Companies
Personal Insurance Federation of California
Pacific Association of Domestic Insurance Companies
State Farm Mutual Automobile Insurance Company
Western Insurance Agents Association
Oppose
Consumer Attorneys of California
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