BILL ANALYSIS Ó
SENATE COMMITTEE ON INSURANCE
Senator Richard Roth, Chair
2015 - 2016 Regular
Bill No: SB 488 Hearing Date: January 13,
2016
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|Author: |Block |
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|Version: |January 4, 2016 Amended |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Hugh Slayden |
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Subject: Public insurance adjusters
SUMMARY Revises the eligibility requirements and regulations
applicable to persons holding a license as a public insurance
adjuster (PIA).
DIGEST
Existing law
1. Defines the term "public insurance adjuster" as:
a. A person who, for compensation, acts on behalf of, or
aids in any manner, an insured in negotiating for or
effecting the settlement of a claim or claims for loss or
damage under any policy of insurance covering real or
personal property; or
b. Any person who advertises, solicits business, or holds
himself or herself out to the public as an adjuster of those
claims; and
c. Any person who, for compensation, investigates, settles,
adjusts, advises, or assists an insured with reference to
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claims for those losses on behalf of any public insurance
adjuster.
2. Requires a license to act as a PIA, and establishes three
categories of licenses: PIA, nonresident PIA, and interim PIA.
3. Excludes various persons from the licensing requirement.
4. Requires applicants for a PIA license to meet age, residency,
character, and other requirements; have sufficient experience in
the handling of loss claims under insurance contracts; pass an
examination; and pay a fee.
5. Requires applicants for a nonresident license to meet the same
criteria for PIA a license, except residency, and to appoint the
Insurance Commissioner (IC) as an agent for service of process.
6. Requires applicants for an interim license to be employed and
supervised by a licensee, and meet most other the requirements
for applicants, but they are not required to have prior
experience or pass an exam.
7. Requires specified fees and examinations for application and
renewal of a license.
8. Exempts some licensees, not including PIAs, from license
renewal if the requirement arises while the licensee is serving
in the military, and holds the license in force during the
period of service until the end of the license year for which he
or she is released from service.
9. Requires PIAs to enter into a written contract on a form
approved by the IC before acting on behalf of the client.
10. Requires PIA contracts to include specified disclosures,
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information, and provisions, including a provision allowing the
client to cancel the contract, without penalty and obligation,
by the third business day after the client signs the contract.
11. Provides that if a PIA misrepresents or conceals a material
fact from the insured prior to execution of the contract, the
insured is entitled to rescind the contract without time limit.
12. Prohibits PIAs from soliciting clients between 6 p.m. and 8:00
a.m.; during a "loss-producing occurrence"; and, for residential
properties, during a seven day period after a disaster.
13. Defines "disaster" to mean either a loss-producing event that
damages or destroys more than 25 dwellings, or an earthquake,
flood, fire, hurricane, riot, storm, tidal wave, or other
similar sudden or catastrophic occurrence for which a state of
emergency has been declared by the President or the Governor or
for which a local emergency has been declared by the executive
officer or governing body of any city, county, or city and
county.
This bill
1. Redefines "public insurance adjuster" to mean any person, for
compensation, that:
a. Acts or aids, solely in relation to first party
claims arising under insurance contracts that insure the
real or personal property of the insured, on behalf of an
insured in negotiating for, or effecting the settlement
of, a claim for loss or damage covered by an insurance
contract.
b. Advertises for employment as a PIA of insurance
claims or solicits business or represents himself or
herself to the public as a PIA of first party insurance
claims for losses or damages arising out of policies of
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insurance that insure real or personal property.
c. Directly or indirectly solicits business,
investigates, or adjusts losses, or advises an insured
about first party claims for losses or damages arising
out of policies of insurance that insure real or personal
property for another person engaged in the business of
adjusting losses or damages covered by an insurance
policy, for the insured.
2. Provides that the definition does not prohibit a PIA from
handling third-party claims if liability is not in dispute.
3. Eliminates some categories of persons exempt from the
licensing requirements including specified public employees,
charitable organizations, and admitted insurers.
4. Adds to the categories of persons exempt from the licensing
requirements a person that negotiate or settles claims
arising under a life or health insurance policy or an
annuity contract, a health care provider or employee who
files claims on behalf of patients, and a person who settles
subrogation claims between insurers.
5. Clarifies that unlicensed employees or agents of a licensee
may not conduct business for the licensee that would require
a license.
6. Revises application requirements and requires live scan
fingerprinting.
7. Requires applicants to complete a 20-hour prelicensing course
of study, but exempts applicants licensed in another state.
8. Repeals the provisions relating to interim licenses;
establishes an apprentice PIA license effective for no more
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than 12 months; limits apprentices to participation in the
factual investigation, tentative closing, and solicitation
of losses; and requires apprentice compensation be on a
salaried or hourly basis.
9. Requires applicants for PIA license to have at least two
years of experience in the handling of loss claims under
insurance contracts, except that applicants who have served
12 months under the new apprenticeship program are deemed to
have met the requirement.
10. Requires organization applicants to designate a licensed
individual to be responsible for compliance with insurance
laws.
11. Revises the eligibility requirements for nonresident licenses
so that, absent a history of certain types of misconduct, a
license will be granted if the person is licensed and is in
good standing in his or her home state, has paid the
necessary fees, and meets the standard financial
responsibility requirements.
12. Requires the contract with the insured to contain a notice
that the PIA may not base a fee on any amount paid to the
insured by the insurer prior the contract.
13. Tolls the three-business-day cancelation period until the
client receives a copy of the signed contract and extends it
to five calendar days for claims resulting from a
"catastrophic disaster" as defined in this bill.
14. Permits PIAs to solicit clients between 6:00 p.m. and 8:00
a.m. if requested by the policyholder.
15. Defines "loss-producing occurrence" and clarifies that a
loss-producing occurrence is ongoing whenever any specified
circumstances are still present in respect to the subject
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property such as emergency responders are still present on
the property or an evacuation order is still in effect.
16. Eliminates the definition of "disaster" and defines the term
"catastrophic disaster" as an event that results in large
numbers of deaths and injuries; causes extensive damage or
destruction of facilities that provide and sustain human
needs; produces an overwhelming demand on state and local
response resources and mechanisms; causes a severe long-term
effect on general economic activity; and severely affects
state, local, and private sector capabilities to begin and
sustain response activities; and provides that a
catastrophic disaster shall be declared by the U.S.
President or the Governor.
17. Clarifies that a PIA may not solicit clients until seven days
have elapsed from the conclusion of a loss-producing
occurrence if the property is included in an area subject to
a catastrophic disaster, but may provide written materials
without making personal contact.
18. Adjusts provisions related to application and renewal fees.
19. Adds PIAs to the list of licensees exempt from examination
and fees on renewal if the requirement arises while serving
in the military.
20. Makes various technical changes and removes obsolete
references.
COMMENTS
1. Purpose of the bill According to the author, Senate Bill
488 establishes and enhances consumer protections against
unfair practices by PIAs. The bill also more closely
conforms California law to national licensing standards
further and clarifies conditions under which a PIA may
contact consumers in a disaster area.
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2. Background Insurance adjusters investigate the
circumstances of an insurance claim, evaluate the covered
losses, and negotiate settlements according to the policy
and applicable law. Adjusters fall into one of three
categories. Insurance adjusters (sometimes referred to as
"company adjusters") employed by insurers. Independent
insurance adjusters who adjust claims, as independent
contractors, for insurers, self-insurers, and third-party
administrators of self-insured plans. And PIAs, the subject
of this bill, who represent commercial and noncommercial
insureds (policyholders and others who are protected under
the contract) in the negotiation or settlement of claims
involving real or personal property. PIAs inspect the
property, evaluate the damage, prepare supporting
documentation and data, help to establish replacement costs,
and provide other services. PIAs are typically paid on a
contingency fee basis taking a portion of the settlement
proceeds. They serve the consumer in a position of trust and
confidence and are regulated by California Department of
Insurance (CDI).
SB 488 makes comprehensive revisions to PIA licensing laws.
Its most significant provisions clarify periods when a PIA
should not be soliciting clients, such as during a
loss-producing occurrence and after a catastrophic disaster,
and establishes reciprocity for nonresident licensees with
states that have similar licensing requirements. The bill
also enhances some of the consumer protections related to
the contract between the PIA and the client by tolling the
three-business-day cancellation period until the client is
provided a copy of the contract and extending the
cancellation period to five days after disaster for
residential properties.
Recent amendments, reflecting an agreement among the author,
CDI, and the California Association of Public Insurance
Adjusters (CAPIA), struck several controversial provisions
and language related to independent insurance adjusters.
All known opposition has been removed based on those
amendments, however, several insurance trade associations
that have taken a neutral position on the bill continue to
have concerns about the experience requirements proposed in
the bill, language regarding services provided to
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third-party claimants as proposed, and that current law and
this bill do not explicitly address delays in the filing of
a notice of claim that may be caused by PIAs.
Apprentice PIA License. This bill would establish an
apprentice PIA license consistent with optional provisions
of the NAIC model act and eliminate the current interim
license. Existing law requires that applicants have
"sufficient experience, or special education or training, or
both." This bill would require applicants to have two years
of experience, except those who have completed an
apprenticeship would only need one. Insurer trade
associations have expressed concerns about the adequacy of
the one-year requirement for apprentices, especially since
independent adjusters are currently required to have
two-years. It is anticipated that language, recently
stricken from this bill, that would have established more
flexible experience requirements for independent adjusters
will be revived in a separate bill.
The American Association of Public Insurance Adjusters
(AAPIA) has expressed one concern that the bill would
require that PIAs pay apprentices on an hourly or salaried
basis. AAPIA argues that this requirement would be
cost-prohibitive since PIAs are compensated on a contingency
basis. AAPIA also argues that the requirement would place
resident PIAs at a disadvantage with nonresident PIAs that
are not subject to this or a similar requirement.
Third Party Claimants. Under existing law and this bill,
PIAs are defined as serving the "insured." The current
statute is silent as to third-party claimants who file
claims against someone else's insurance policy. This bill
clarifies that it would not prohibit a PIA from assisting
third-party claimants when liability is not in dispute.
Insurer trade associations argue that it is unreasonable to
expect PIAs or insurers to know if liability is an issue
within a 3-5 day period (the cancellation period),
especially since insurers have 40 calendar days to accept or
deny the claim under current regulations. The bill does not
address who gets to make the determination if liability is
not in dispute and what happens if liability later comes
into dispute. They also state that the language blurs the
line between adjusting and practicing law. However,
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evidence has not been offered regarding the extent or impact
of PIAs providing services to third-party claimants.
Moreover, existing law already explicitly prohibits any
independent or public adjuster from engaging in the
unlicensed practice of law. (Ins. Code § 14002.)
Notice of Claim. The claims process begins with when the
insurer is notified that a loss has occurred and provided
necessary and available information related to the loss
(referred to as a "notice of claim"). This notice triggers
an investigation by the insurer. Prompt investigation of
claims is necessary to make sure that evidence is not lost
or become stale and that the memories of potential witness
remain fresh. Existing law defers to the contract, with
some limitations, to establish the insured's duty to a
report a claim in a timely fashion. An insurer may deny a
claim if the policyholder fails to provide reasonable
notice, but only if late notice prejudiced the insurer.
Insurance industry representatives have expressed concern
that existing law, and this bill, fail to require PIAs to
notify the insurer about the actual claim. Under current
law, PIAs must notify insurers of representation agreements
within six business days after a contract is signed (three
business days after the expiration of the three-day
cancelation period) with no statutory requirement to provide
notice of the claim. Insurer representatives argue that if
the insured waits to sign the PIA contract, the notice of
claim may be further delayed. Under existing law the
insured remains bound to the contract and the PIA is already
subject to civil liability or license discipline if he or
she negligently or willfully causes an insured to violate
that duty.
Solicitation "Blackout Periods." Existing law prohibits
PIAs from personally soliciting clients outside of regular
business hours and during periods when insured's emotional
state may be compromised due to an insurance-related loss.
PIAs may not solicit during a "loss-producing occurrence" or
seven calendar days after a disaster. While "disaster" is
defined, "loss-producing occurrence" is not. The author
explains that the definition of "occurrence" is paramount in
interpreting and enforcing the blackout provisions since it
is unclear when to start the seven-day clock. For instance,
"occurrence" could be the date of loss or the date that the
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home is destroyed, the date the homeowner is permitted to
return to confirm damage, or the date a fire is contained.
This bill clarifies what is meant by a loss-producing
occurrence by providing specific benchmarks. It also
replaces "disaster" with the phrase "catastrophic disaster"
which is defined in conformity with national standards, but
may be more restrictive than existing law because of the
extensive criteria established in the definition.
3. Support
a. CDI supports the bill because it clarifies several
provisions that would build stronger consumer protections
related to fees, representation agreements, and losses
arising from catastrophes.
b. California Association of Public Insurance Adjusters
(CAPIA) support SB 488 because it conforms California law
to the National Association of Insurance Commissioners
Public Adjusters Licensing Model Act relative to
apprentice PIAs, non-resident licensees and other
technical issues, including the definition of a disaster,
which is an improvement over existing law
4. Opposition
None received
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5. Prior and Related Legislation
a. AB 1636 (McAlister), SB 518 Chapter 1202, Statutes
of 1985, enacted the Public Insurance Adjusters Act and
established a specific licensing scheme for PIAs in lieu
of a general insurance adjuster license.
b. AB 1953 (Vargas), Chapter 600, Statutes of 2004,
increased fines for acting as an unlicensed PIA;
established the 7-day solicitation blackout period for
contracts related to losses resulting from disasters; and
clarified that the Public Insurance Adjuster Act applies
to PIAs rather than the Home Sales Solicitation Act.
c. SB 518 (Kehoe) Chapter 448, Statutes of 2005, made
significant revisions to the licensing requirements for
PIAs and the mandatory provisions for PIA contracts.
POSITIONS
Support
California Department of Insurance (sponsor)
California Association of Public Insurance Adjusters
NCFIA Anti-Fraud Alliance
United Policyholders
Oppose
None received
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