BILL ANALYSIS Ó SENATE COMMITTEE ON INSURANCE Senator Richard Roth, Chair 2015 - 2016 Regular Bill No: SB 488 Hearing Date: January 13, 2016 ----------------------------------------------------------------- |Author: |Block | |-----------+-----------------------------------------------------| |Version: |January 4, 2016 Amended | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |No |Fiscal: |Yes | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant:|Hugh Slayden | | | | ----------------------------------------------------------------- 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 SB 488 (Block) Page 2 of ? 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, SB 488 (Block) Page 3 of ? 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 SB 488 (Block) Page 4 of ? 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 SB 488 (Block) Page 5 of ? 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 SB 488 (Block) Page 6 of ? 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. SB 488 (Block) Page 7 of ? 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 SB 488 (Block) Page 8 of ? 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, SB 488 (Block) Page 9 of ? 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 SB 488 (Block) Page 10 of ? 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 SB 488 (Block) Page 11 of ? 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 -- END --