BILL ANALYSIS Ó SENATE JUDICIARY COMMITTEE Senator Hannah-Beth Jackson, Chair 2015-2016 Regular Session AB 2591 (Dababneh) Version: June 13, 2016 Hearing Date: June 28, 2016 Fiscal: No Urgency: No NR SUBJECT Insurance: electronic transmission DESCRIPTION This bill would consolidate and recast the several standards applicable to electronic transactions applicable to insurance notices, in addition to those provided under the Uniform Electronic Transactions Act (UETA), and apply those standards to additional insurance documents. 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.) 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 AB 2591 (Dababneh) Page 2 of ? 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). Relevant to this bill, 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, Ch. 433, Stats. 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' insurance policies. Then in 2013, SB 251 (Calderon, Ch. 369, Stats. 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. Last year, AB 1131 (Dababneh, Ch. 638, Stats. 2015), 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 AB 2591 (Dababneh) Page 3 of ? notices for life insurance (explicitly exempted from the federal E-SIGN law) and the delivery of documents that must otherwise be sent by certified or registered mail, or some other method requiring confirmation of delivery. AB 1131 is scheduled to sunset in 2021. This bill now seeks to allow broader use of voluntary e-delivery and e-signature of property and casualty insurance documents, and would therefore consolidate and recast the several standards applicable to electronic transactions applicable to insurance notices, and apply those standards to additional insurance documents. This bill was heard by the Senate Insurance Committee on June 22, 2016, 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 law 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 specified standards and principles, but exempts some classes of records and some specific documents as provided. (Civ. Code Sec. 1633.1 et seq.) Existing law provides that some notices for property and casualty insurance may be sent electronically so long as, in addition to those requirements provided under the UETA, the insurer is able to provide an affidavit documenting the transmission and maintains a system for confirming that any AB 2591 (Dababneh) Page 4 of ? notice or document that is to be provided by electronic means has been sent, and retains relevant records for a period of five years. (Civ. Code Sec. 38.5(a).) Existing law 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 the 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 Sec. 38.5(b).) Existing law 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 receipt), until 2021. (Ins. Code Sec. 38.6.) This bill would replace the several standards provided in the Insurance Code for the transmission of electronic documents with a single set of rules, in addition to the UETA rules, applicable to all insurance documents (except for some health insurance documents) and all lines of insurance. These new rules and standards would, among other things: require a disclosure that informs the consumer that the electronic transmission is voluntary and may be revoked at any time, provide a description of the record, describe the process to report or correct an email address, and provide contact information for the insurer; require insurers to document consent and record the email address of the person consenting; require the insurer to provide a free hardcopy annually on request and prohibit an insurer from charging, or providing a discount, for consenting; authorize the electronic transmission of and establish standards for, in addition to those provided under the 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; authorize the electronic transmission of notices of cancellation, until January 1, 2021, and other sensitive documents and apply standards established for registered and certified mail to those documents; AB 2591 (Dababneh) Page 5 of ? prescribe a process for documents posted on a secure Web site or portal. prescribe a follow-up process for contacting the insured if the insurer receives information that the document was not received; require the insurer to verify the consumer's electronic address when more than a year has passed since the last electronic communication; establish that agents and brokers are not liable for a deficiency in the electronic procedures agreed in the contract under specified conditions; require insurers to maintain relevant records for a period of at least five years; and authorize 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. This bill would apply the UETA and the consolidated Insurance Code standards to the following documents: notice of policy cancellation to an additional person with an interest; written notice of nonrenewal; proof of mailing, cancellation, nonrenewal and reasons; notice of policy change or cancellation requested by insured; notices related to a lender's right to cancel insurance; notices of cancellation; notices of nonrenewal; and policy notice of nonrenewal for workers' compensation insurance (Ins. Code Sec. 678.1(a) and (b).) This bill would eliminate 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. This bill would eliminate 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. COMMENT AB 2591 (Dababneh) Page 6 of ? 1.Stated need for the bill According to the author: Current law must be updated to preserve the consumer protections that exist today in the California Civil and Insurance Codes 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 would also decrease paper use and gives the consumer a choice in how they want their insurance documents delivered. 2.Reestablish sunset date of January 1, 2021 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. In justifying the removal of that sunset date, 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. That being said, striking this sunset will undo an important protection that was established one year ago by AB 1131 for life insurance documents. The following amendments would reestablish a January 1, 2021, sunset date that will apply to the sensitive cancellation and nonrenewal documents subject to the heightened AB 2591 (Dababneh) Page 7 of ? standard for actual receipt, but that will not apply 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, unless a later enacted statute comes along to extend or repeal that sunset date. Suggested amendment: Restore sunset dates approved in AB 1131 (Dababneh, Ch. 638, Stats. 2015.) 3.Heightened standard for most sensitive insurance documents 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, based on the sensitivity of the document, to ensure that documents are sent and received. For documents considered less sensitive (e.g., statements and routine notices), life insurers may transmit them electronically if they comply with the minimum standards established by UETA. (See Civ. Code Sec. 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 AB 2591 (Dababneh) Page 8 of ? 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 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. That being said, the Consumer Attorneys of California (CAOC), in opposition, argues that the division of insurance documents between the two tiers requires a closer look. CAOC writes: Receiving documents altering or canceling coverage is important. 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, we 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. AB 2591 (Dababneh) Page 9 of ? If this Committee were to approve this legislation, it should consider doing so with the commitment that the author work with the opposition to ensure that sensitive documents which have been sent electronically are indeed viewed by the consumer. Support : American Council of Life Insurers; Association of California Insurance Companies; National Association of Mutual Insurance Companies; Nationwide Insurance; State Farm Mutual Automobile Insurance Company; Western Insurance Agents Association Opposition : ; Consumer Attorneys of California HISTORY Source : American Insurance Association; Association of California Life and Health Insurance Companies; Independent Insurance Agents and Brokers of California; Pacific Association of Domestic Insurance Companies; Personal Insurance Federation of California Related Pending Legislation : None Known Prior Legislation : AB 1131 (Dababneh, Ch. 638, Stats. 2015) See Background. SB 251 (R. Calderon, Ch. 369, Stats. 2013) See 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 715 (Calderon, 2011) would have enacted the Suitability Requirements for Annuity Transactions but was vetoed by Governor Brown because he signed AB 689 (Dodd. Ch.302, Stats. 2015), a virtually identical bill. AB 2066 (Jones, 2010) would have required all insurers, brokers, agents, and others engaged in the transaction of insurance who AB 2591 (Dababneh) Page 10 of ? 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, Ch. 433, Stats. 2009) See Background. SB 820 (Sher, Ch. 428, Stats. 1999) See Background. Prior Vote : Senate Insurance Committee (Ayes 8, Noes 0) Assembly Floor (Ayes 80, Noes 0) Assembly Judiciary Committee (Ayes 10, Noes 0) Assembly Insurance Committee (Ayes 13, Noes 0) **************