BILL ANALYSIS                                                                                                                                                                                                    Ó






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          |SENATE RULES COMMITTEE            |                       AB 2591|
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                                   THIRD READING 


          Bill No:  AB 2591
          Author:   Dababneh (D), et al.
          Amended:  8/2/16 in Senate
          Vote:     21 

           SENATE INSURANCE COMMITTEE:  8-0, 6/22/16
           AYES:  Roth, Gaines, Berryhill, Glazer, Hall, Hernandez,  
            Mitchell, Wieckowski
           NO VOTE RECORDED:  Liu

           SENATE JUDICIARY COMMITTEE:  7-0, 6/28/16
           AYES:  Jackson, Moorlach, Anderson, Hertzberg, Leno, Monning,  
            Wieckowski

           ASSEMBLY FLOOR:  80-0, 5/31/16 - See last page for vote

           SUBJECT:   Insurance:  electronic transmission


          SOURCE:    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

          DIGEST:   This bill consolidates and recasts the several  
          standards applicable to insurance transactions made  
          electronically, in addition to those provided by the Uniform  
          Electronic Transactions Act (UETA), and applies those standards  
          and UETA to additional insurance documents.










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          ANALYSIS:  


          Existing law:


          1)Requires that various insurance notices, contracts, or other  
            documents (collectively referred to as "records") be provided in  
            writing and transmitted as specified.


          2)Validates electronic records and signatures 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  
               specified standards and principles, but exempts some classes of  
               records and some specific documents as provided.  (Civil Code §  
               1633.1 et seq.)


             b)   Authorizes an insurer (including other licensees  
               transmitting records on behalf an insurer) to transmit  
               electronically specified informational notices for property and  
               casualty insurance so long as the insurer maintains certain  
               records as specified.  (Ins. Code Section § 38.5(a).)


             c)   Authorizes an insurer to transmit electronically specified  
               renewal and other notices for property and casualty insurance  
               and workers' compensation insurance, until 2019, so long as the  
               insurer complies with UETA, 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 complies with other  
               consumer protections.  (Ins. Code § 38.5(b).)


             d)   Authorizes an insurer to transact life insurance  
               electronically, until 2021, so long as the insurer complies  
               with UTEA and meets other conditions similar to those  







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               applicable to notices of renewal for property and casualty  
               insurance records.  (Ins. Code § 38.6.)  


              e)   Authorizes a life insurer to electronically transmit notices  
               of cancellation or documents that must otherwise be sent by  
               registered mail, certified mail, or other method providing  
               confirmation of delivery, until 2021, so long as the insurer  
               can demonstrate actual receipt as specified.  (Ins. Code §  
               38.6.)  


              f)   Requires the Insurance Commissioner (IC) to submit a report  
               to the Governor and to the appropriate legislative committees  
               on the impact of electronic transmission of certain property  
               and casualty insurance records by January 1, 2018, and another  
               report on the impact of electronic transmission of certain life  
               insurance records by January 1, 2020.  


           This bill:


          1)Revises and consolidates the several standards applicable to  
            the electronic transaction of property and casualty insurance  
            and life insurance into a single, universal set of rules, in  
            addition to UETA, that applies to most insurance transactions  
            and lines of insurance.


             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 the insurer to document the consumer's consent.


             c)   Prohibits an insurer from charging a fee for hardcopy  
               transactions or providing a discount for agreeing to  
               electronic transactions.








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             d)   Authorizes, until January 1, 2021, the electronic  
               transmission of records that must be sent by registered and  
               certified mail, or other form of delivery providing proof  
               of delivery, and requires an insurer to retain proof of  
               actual receipt by the consumer.


             e)   Authorizes, until January 1, 2021, the electronic  
               transmission of notices of cancellation or nonrenewal and  
               requires an insurer to retain proof of actual receipt by  
               the consumer.


             f)   Prescribes a process for documents posted on a secure  
               Web site 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 at  
               least five years.


             aa)  Authorizes the Department of Insurance to suspend a  
               licensee's authority to transmit documents electronically  
               under certain conditions.


          2)Applies specifically UETA and the additional standards to  
            certain property and casualty records, including certain  







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            cancellation and nonrenewal notices, proof of mailing, and a  
            notice of policy change or cancellation requested by insured,  
            and others.


          3)Eliminates the use of electronic mail read receipts and other  
            email tracking technologies to prove actual receipt for  
            insurance records and establishes standards to prove actual  
            receipt for an application used on a personal electronic  
            device for most lines of insurance.


          4)Eliminates the sunset date on the provisions authorizing the  
            electronic transmission of most property and casualty  
            insurance notices currently subject to a sunset date (not  
            including cancellation or nonrenewal notices and those  
            requiring proof of receipt).


          5)Changes the date by which the IC must submit reports regarding  
            the electronic transaction of property and casualty insurance  
            and life insurance to January 1, 2019.


          Background


          Not long ago "in writing" meant hardcopy 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 adopted the model UETA to  
          establish consistent interstate rules for electronic  
          transactions.  California enacted its version of UETA the same  
          year.  In 2000, Congress enacted the Electronic Records and  
          Signatures in Global and National Commerce Act (ESIGN), in part,  
          to encourage the states to adopt UETA.  


          UETA establishes ground rules and principles for parties  
          engaging in electronic commerce.  Most importantly, UETA  
          requires all parties to agree to engage in the transaction  
          electronically. Since concepts from the paper world do not  
          always translate easily into the digital, UETA also establishes  
          extensive default rules and definitions.  However, when  







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          California enacted UETA, it exempted numerous records, including  
          many insurance documents.  Since then, the Legislature has  
          applied UETA to many of the exempted records on a case-by-case  
          basis.  


          Since 2009, three bills have expanded the number of records  
          subject to UETA, as well as established additional consumer  
          protections specific to those records.  AB 328 (C. Calderon.  
          Chapter 433, Statutes of 2009) addressed basic informational  
          documents related to property and casualty insurance (auto,  
          homeowners, liability, commercial, etc.).  SB 251 (R. Calderon,  
          Chapter 369, Statutes of 2013) applied UETA to notices of  
          renewal and other documents for property and casualty insurance,  
          and added consumer protections specific to those documents.   
          Last year, AB 1131 (Dababneh, Chapter 638, Statutes of 2015)  
          applied UETA with additional consumer protections similar to  
          those established by SB 251, to all life insurance transactions,  
          including cancelation notices and documents sent by certified  
          and registered mail.  SB 251 is scheduled to sunset in 2019 and  
          AB 1131 in 2021.


          Meanwhile insurers have developed a wide variety of services  
          offered electronically.  Consumers may provide proof of  
          insurance, file a claim, summon emergency assistance, access  
          documents, and seek other services through an application on a  
          tablet or cell phone or through its Web site.


          In the end, the case-by-case approach as applied with multiple  
          sunset dates has produced inconsistent standards within  
          California insurance law that change every other year.  Several  
          insurers and insurance trade associations have indicated that  
          these shifting standards have discouraged insurers, especially  
          small insurers, from making the necessary investments in human  
          and IT resources to send documents electronically.


          This bill establishes a single set of standards applicable to  
          most insurance records, eliminates the sunset provisions  
          applicable to many documents (but leaves the sunset provisions  
          applicable to life insurance and sensitive documents) and more  
          closely aligns California law to the national standards  







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          established by ESIGN.




          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:NoLocal:    No


          SUPPORT:   (Verified8/1/16)


          American Insurance Association (co-source)
          Association of California Insurance Companies (co-source)
          Independent Insurance Agents and Brokers of California  
              (co-source)
          Pacific Association of Domestic Insurance Companies (co-source)
          Personal Insurance Federation of California (co-source)
          American Council of Life Insurers
          Association of California Life and Health Insurance Companies
          National Association of Mutual Insurance Companies
          State Farm Mutual Automobile Insurance Company
          Western Insurance Agents Association


          OPPOSITION:   (Verified8/1/16)


          Consumer Attorneys of California


          ARGUMENTS IN 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.  


          ARGUMENTS IN OPPOSITION:     The Consumer Attorneys of  







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          California (CAOC) highlights the importance of receiving  
          documents that alter or cancel coverage. They argue that 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. CAOC emphasizes that it is crucial that consumers  
          actually receive these documents and that the same rules that  
          may be acceptable for telephone bills or credit card statements  
          are not appropriate for auto and home insurance.


          ASSEMBLY FLOOR:  80-0, 5/31/16
          AYES:  Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker,  
            Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke,  
            Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley,  
            Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth  
            Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto,  
            Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper,  
            Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim,  
            Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis,  
            Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte,  
            O'Donnell, Olsen, Patterson, Quirk, Ridley-Thomas, Rodriguez,  
            Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting,  
            Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon

          Prepared by:Hugh Slayden / INS. / (916) 651-4110
          8/3/16 19:38:10


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