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
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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
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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
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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;
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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
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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
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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
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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.
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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
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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)
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