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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