BILL NUMBER: SB 941 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY AUGUST 23, 1999
AMENDED IN ASSEMBLY AUGUST 16, 1999
AMENDED IN ASSEMBLY JULY 2, 1999
AMENDED IN SENATE MAY 19, 1999
AMENDED IN SENATE MAY 6, 1999
INTRODUCED BY Senator Speier
FEBRUARY 25, 1999
An act to amend Sections 1065.3, 1669, 1727, 1748, and
1748.5 of, and to add Sections 1723, 1738.1, and 1742.2
1742.2, and 12968 to, the Insurance Code,
relating to insurance.
LEGISLATIVE COUNSEL'S DIGEST
SB 941, as amended, Speier. Insurance: licensees.
(1) Existing law provides for licensing of various types of
insurance agents by the Insurance Commissioner, including fire and
casualty broker-agents and life agents. Existing law authorizes the
commissioner to issue restricted licenses in certain cases, and to
suspend or revoke licenses, as specified.
This bill would require the commissioner, at the time any original
or renewal application for any license issued under the Insurance
Code shows a conviction of a felony involving dishonesty or breach of
trust, or a conviction of a violation of a certain federal statute
involving insurance activities affecting interstate commerce, to
either deny the application or give written consent to the applicant
or licensee to engage in the business of insurance, as specified.
(2) Existing law authorizes the commissioner, without hearing, to
deny an application for a license upon a final judgment of conviction
of the applicant of a felony or of certain misdemeanors, including a
judgment following a plea of nolo contendere. Existing law also
authorizes the commissioner, without hearing, to deny an application
for a license if the applicant had a previous application for a
license denied, or had a previously issued license suspended or
revoked for cause, in the last 5 years.
This bill would allow the commissioner to also deny an
application, without hearing, upon a plea of guilty or nolo
contendere by the applicant with respect to these crimes, but would
require the commissioner, upon petition by the applicant, to vacate
an order based upon a plea that does not at any time result in a
judgment of conviction. This bill would also authorize the
commissioner to deny a license, without hearing, if the applicant had
any previous application for any professional, occupational, or
vocational license denied by any licensing authority, or had any
previous license in that regard suspended or revoked, in the last 5
years, as specified.
(3) Existing law authorizes the commissioner, by regulation, to
require licensees acting as insurance agents or brokers to maintain
certain records.
This bill would instead refer to licensees acting as fire
and casualty broker-agents. It would provide that these
records shall be open to inspection or examination by the
commissioner at all times, and that a licensee subject to these
provisions may be required to furnish the information contained in
those records to the commissioner.
(4) Existing law authorizes the commissioner to allow a licensee
to elect to pay an alternative monetary penalty, not to exceed $1,000
for each offense , $5,000 in the aggregate for all offenses
involved in any one proceeding, or as otherwise specified, in
lieu of a license suspension or other permitted license action.
This bill would instead require a minimum monetary
penalty of $2,000 to be paid by the licensee provide
that the alternative monetary penalty may not exceed $4,000 for each
offense or $20,000 in the aggregate for all offenses in any one
proceeding, or as otherwise specified. It would also provide for
reimbursement of the commissioner's costs and make other related
changes, as specified .
(5) Existing law provides that the commissioner may issue an
order, upon making certain findings, suspending a subject person from
his or her office or employment with a production agency and from
further participation in any manner in the conduct of the business of
the insurer or production agency. Existing law defines "subject
person" for these purposes to mean any director, officer, or employee
of a production agency, any natural person who participates in the
management or control of the business of a production agency, or any
person licensed as a producer.
This bill would modify the definition of "subject person" to mean
any person who has participated or may participate in any manner in
the business of a production agency, or any person licensed as a
producer. This bill would require the commissioner to issue that
order, and would modify the required findings.
(6) This bill would enact other related provisions.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 1065.3 of the Insurance Code is amended to
read:
1065.3. If, after hearing as provided by Section 1065.1 or
subdivision (b) of Section 1065.2, any of the statements as to
conduct, conditions , or grounds in the notice are found
to be true, the commissioner shall make such
an order or orders as may be reasonably necessary to correct,
eliminate , or remedy such the
conduct, conditions , or grounds. As part of
the order or orders, the commissioner may also order the person to
whom the order is directed to fully reimburse the commissioner for
the commissioner's costs in investigating, examining, and prosecuting
the matter. An order of reimbursement shall be enforced as provided
in Section 1065.5.
SEC. 2. Section 1669 of the Insurance Code is amended to
read:
1669. The commissioner may, without hearing, deny an application
if the applicant has:
(a) Committed a felony as shown by a plea of guilty or nolo
contendere, or by a final judgment of conviction ,
thereof;
(b) Committed a misdemeanor denounced by this code or by other
laws regulating insurance as shown by a plea of guilty or nolo
contendere, or by a final judgment of conviction ,
thereof;
(c) Had a previous application for a professional, occupational,
or vocational license denied for cause by any licensing authority,
within five years of the date of the filing of the application to be
acted upon, on grounds that should preclude the granting of a license
by the commissioner under this chapter; or
(d) Had a previously issued professional, occupational, or
vocational license suspended or revoked for cause by any licensing
authority, within five years of the date of the filing of the
application to be acted upon, on grounds that should preclude the
granting of a license by the commissioner under this chapter.
In the event the commissioner issues an order based on a plea that
does not at any time result in a judgment of conviction, the
commissioner shall vacate the order upon petition by the applicant.
SEC. 2.
SEC. 3. Section 1723 is added to the Insurance Code, to
read:
1723. (a) At the time any original or renewal license application
that is submitted to the commissioner shows a conviction of the
applicant of a felony involving dishonesty or breach of trust, or of
a violation of Section 1033 of Title 18 of the United States Code,
the commissioner shall either commence a proceeding pursuant to
Section 1668 or 1669, or Section 1738 in the case of a renewal
application, or give written consent to the applicant or licensee
pursuant to paragraph (2) of subsection (e) of Section 1033 of Title
18 of the United States Code.
(b) This section shall apply to all licenses and registrations
issued by the commissioner pursuant to this code, whether included in
this chapter or in any other chapter of this code, and without
regard to whether another chapter incorporates the requirements of
this section by reference.
SEC. 3.
SEC. 4. Section 1727 of the Insurance Code is amended to
read:
1727. (a) The commissioner shall, after notice and hearing,
promulgate reasonable rules and regulations specifying the manner and
type of records to be maintained by those licensees acting as
fire and casualty broker-agents insurance
agents and brokers and the location where the records shall be
kept. Those records shall be open to inspection or examination by
the commissioner at all times, and the commissioner may at any time
require the licensee to furnish any information maintained or
required to be maintained in those records.
(b) Every licensee acting as a fire and casualty
broker-agent an insurance agent and broker shall
keep the records as required by the regulations promulgated pursuant
to subdivision (a).
(c) Every licensee acting as a fire and casualty
broker-agent an insurance agent and broker
employing a licensee in the capacity of an insurance solicitor shall
keep the records required by the regulations promulgated pursuant to
subdivision (a) for any insurance transacted by the insurance
solicitor in the capacity of employee of the employing licensee.
(d) The Legislature finds and declares that insurance is and
should be a highly regulated industry, and that the commissioner's
powers should be interpreted accordingly.
SEC. 4. Section 1738.1 is added to the Insurance Code, to read:
1738.1. Any accusation or other pleading or order against a
licensee issued pursuant to Section 1738, and the outcome, if any,
shall be displayed on the department's internet web site, if the
accusation or other pleading or order is a public document.
SEC. 5. Section 1742.2 is added to the Insurance Code, to read:
1742.2. The department shall promulgate regulations necessary to
comply with the requirements of Section 1034
1033 of Title 18 of the United States Code no later than
January 1, 2001.
SEC. 6. Section 1748 of the Insurance Code is amended to read:
1748. The commissioner, in any proceeding under the provisions of
this article, may, by an alternative order, permit a licensee to
elect in writing to pay a specified money penalty, within a specified
time in lieu of a license suspension or other permitted action. If
the licensee so elects, the sum of money specified shall be paid to
the commissioner for the use of the State of California. The
sum specified shall be a minimum of two thousand dollars
($2,000) and may also include:
(a) Thirty percent of the gross commissions on insurance
transacted by the licensee in the preceding calendar year.
(b) Any amount proven, or admitted, in the proceeding to have been
received and retained by the licensee as a rebate or otherwise, in
violation of a provision of this code.
The commissioner shall determine the penalty to be paid in any
given case.
If a licensee so electing fails to pay the specified sum within
the specified time, the commissioner may, unless the order is
lawfully stayed, revoke or suspend the license of the licensee for a
period as he or she may determine. sum specified shall
not exceed:
(a) Four thousand dollars ($4,000) for each offense.
(b) Twenty thousand dollars ($20,000) in the aggregate for all
offenses involved in any one proceeding.
(c) Thirty percent of the gross commissions on insurance
transacted by the licensee in the preceding calendar year.
(d) Any amount proven, or admitted, in the proceeding to have been
received and retained by the licensee in violation of this code.
The commissioner shall determine the monetary penalty to be paid
in any given case and in so doing shall not be limited to the
selection of the penalty specified in any one of the above
subdivisions, as compared with the penalty in any of the other three
subdivisions, that will result in the payment by the licensee of the
least amount.
The amount of reimbursement the commissioner orders shall be the
amount that fully reimburses the commissioner for the commissioner's
costs, or any lesser amount that the commissioner determines is the
most the subject of the order can pay in the event the subject is
financially unable to fully reimburse the commissioner.
If a licensee fails to pay a monetary penalty or reimbursement
within the time specified in the order, the commissioner, unless the
order is lawfully stayed, may deny a pending application for a
license, or may revoke or suspend the license of the subject of the
order for a period of time as determined by the commissioner. If,
for any reason, an application is denied, or a license is revoked or
suspended, before the subject of the order has paid the full amount
of an ordered monetary penalty or reimbursement, the balance owed
shall be paid before a license may be reinstated or an application
for any new license may be granted.
SEC. 7. Section 1748.5 of the Insurance Code is amended to read:
1748.5. (a) For the purposes of this section, the following
definitions are applicable:
(1) "Production agency" means any person or organization licensed
under Chapter 5 (commencing with Section 1621), Chapter 5A
(commencing with Section 1759), Chapter 6 (commencing with Section
1760), Chapter 7 (commencing with Section 1800), or Chapter 8
(commencing with Section 1831).
(2) "Subject person" means any person who has participated or may
participate in any manner in the business of a production agency, or
any person licensed as a producer.
(3) "Insurer" means any domestic insurer, and any insurer
which that is admitted to transact insurance in
this state, provided that if a subject person of an insurer is not a
resident of California, or operating out of a place of business
within California, then the subject person shall be engaged in direct
management, direction, or conduct of the business of insurance in
California in order to come within the provisions of this section.
(b) If, after notice and a hearing, the commissioner finds all of
the following, the commissioner may issue an order removing a subject
person from his or her office or employment with the production
agency and prohibiting the subject person from further
participating in any manner in the conduct of the business
of an insurer or production agency, except with the prior consent of
the commissioner:
(1) (A) The subject person has engaged in
repeated acts of misconduct with respect to an insurer or production
agency which is a direct cause of substantial financial loss to an
insurer or the production agency or which has resulted in direct
financial injury to insurance policyholders or applicants.
(2) The misconduct is fraudulent, or consists of willful acts or
omissions involving personal dishonesty that demonstrates a
continuing disregard for the safety and soundness of an insurer or
production agency, or presents a direct financial injury to insurance
policyholders or applicants.
(3) The conduct or practice is relevant in that it
misconduct with respect to the business of insurance that has caused
financial or other injury to any person, or
(B) The subject person has engaged in fraud, or willful acts or
omissions involving dishonesty that exposed a person to financial or
other injury; and
(2) The subject person's conduct or practice demonstrates
unfitness to continue as a subject person.
(c) (1) If the commissioner gives written notice pursuant to
subdivision (b) to a subject person, the commissioner shall
immediately issue an order prohibiting the subject person
from participating in any manner in the business of insurance, except
with the prior consent of the commissioner, if the commissioner: (A)
finds that failure to immediately issue the order threatens the
financial solvency of an insurer or may reasonably be expected to
cause financial irreparable injury to
any person; (B) serves that subject person and the production agency
with written notice of the suspension order; and (C) finds that all
of the necessary factors are present which would permit the
commissioner, after notice and a hearing, to issue an order pursuant
to subdivision (b) removing a subject person from his or her office
or employment with the production agency and prohibiting the subject
person from further participating in any manner in
the business of an insurer or production agency.
(2) Any suspension order issued pursuant to paragraph (1) of this
subdivision shall be effective until the date the commissioner
dismisses the charges contained in the notice served under
subdivision (b) or paragraph (1) of this subdivision, the effective
date of an order issued by the commissioner pursuant to subdivision
(b), or a court issues a stay of the order pursuant to subdivision
(d).
(d) Within 10 days after a subject person has been served with an
order of suspension pursuant to subdivision (c), the person may apply
to the superior court of the county in which the principal office of
the production agency is located for a stay of the order pending
completion of the proceedings pursuant to subdivision (b), and the
court shall have jurisdiction to issue an order staying the
suspension. Nothing in this subdivision shall be deemed to authorize
the court to issue a stay order on a an
ex parte basis.
(e) (1) If the commissioner finds both of the following, he or she
shall immediately issue an order suspending a subject person from
his or her office or employment with a production agency and
prohibiting the subject person from further
participating in any manner in the conduct of the business of an
insurer or production agency, except with the prior consent of the
commissioner: (A) the subject person has been charged in an
indictment issued by a grand jury, or in an information, complaint,
or similar pleading issued by a United States Attorney, district
attorney, or other governmental official or agency authorized to
prosecute crimes, with a crime punishable by imprisonment for a term
exceeding one year and which involves as one of its necessary
elements a fraudulent act or an act of dishonesty in the acceptance,
custody, or payment of money or property; and (B) that a failure to
immediately issue the order threatens the financial solvency of an
insurer or may cause financial or other injury to any person.
In the event the criminal proceedings are terminated other than by
judgment of conviction, an order issued pursuant to paragraph (1) of
this subdivision shall be deemed rescinded as if it had not been
issued.
(2) If the commissioner finds both of the following, he or she may
immediately issue an order removing a subject person from his or her
office or employment with a production agency and prohibiting the
subject person from further participating in any
manner in the business of an insurer or production agency, except
with the prior consent of the commissioner: (A) the person has
during the preceding five years been convicted of a crime that is
punishable by imprisonment for a term exceeding one year and has as
one of its necessary elements a fraudulent act or an act of
dishonesty in the accepting, custody, or payment of money or
property; and (B) that a failure to immediately issue the order
threatens the financial solvency of an insurer or may cause financial
or other injury to any person.
(3) The fact that any subject person charged with a crime
involving as one of its necessary elements a fraudulent act or any
act of dishonesty in the acceptance, custody, or payment of money or
property is not convicted of that crime shall not preclude the
commissioner from issuing an order regarding the subject person
pursuant to other provisions of this code.
(f) (1) Within 30 days after an order is issued pursuant to
subdivision (c) or (e), the subject person to whom the order is
issued may choose to do either of the following: (A) file with the
commissioner an application for a hearing on the order. The
commissioner shall, upon the written request of the subject person,
extend the 30-day period by an additional 30 days provided the
request is filed with the commissioner within 30 days after the order
is issued. If the commissioner fails to commence the hearing within
15 business days after the application is filed, or within a longer
period of time to which the subject person consents, the order shall
be deemed rescinded as if it had not been issued. Within 30 days
after the hearing, the commissioner shall affirm, modify, or rescind
the order; otherwise, the order shall be deemed rescinded as if it
had not been issued, or (B) petition for judicial review of the order
pursuant to Section 1085 of the Code of Civil Procedure, where the
court shall exercise its independent judgment on the evidence.
(2) The right of any subject person to whom an order is issued
pursuant to subdivision (c) or (e) to petition for judicial review of
the order shall not be affected by the failure of that subject
person to apply to the commissioner for a hearing on the order as
provided by this subdivision.
(g) (1) Any person to whom an order is issued pursuant to
subdivision (b), (c), or (e) may apply to the commissioner to modify
or rescind the order. The commissioner shall not grant the
application unless he or she finds that it is reasonable to believe
that the person will, if and when he or she becomes a subject person,
comply with all of the applicable provisions of this code and of any
regulation or order issued thereunder.
(2) The right of any subject person to whom an order is issued
pursuant to subdivision (b), (c), or (e) to petition for judicial
review of the order shall not be affected by the failure of that
subject person to apply to the commissioner pursuant to paragraph
(1).
(h) (1) It is unlawful for any subject person or former subject
person to whom an order is issued pursuant to subdivision (b), (c),
or (e) to do any of the following as long as the order is in effect,
except with the prior consent of the commissioner: (A) to serve or
act as a subject person for any insurer or production agency; or (B)
to directly or indirectly vote any shares or other securities of an
insurer or production agency.
(2) If, after notice and a hearing, the commissioner finds that
any subject person has violated paragraph (1) of this subdivision,
the commissioner may order that subject person to pay to the
commissioner a civil penalty, which may be recovered in a civil
action, in an amount the commissioner may specify; provided however,
that the amount of the civil penalty shall not exceed one thousand
dollars ($1,000) for each day for which the violation continues.
In determining the amount of civil penalty to be paid to the
commissioner under this paragraph, the commissioner shall consider
the financial resources and good faith of the subject person charged,
the gravity of the violation, the history of previous violations by
the person, and other factors as in the opinion of the commissioner
may be relevant.
(3) If, after notice and a hearing, the commissioner finds that
any production agency has knowingly aided and abetted a subject
person in a violation of paragraph (1) of this subdivision, or
subdivision (h) of Section 728, the commissioner may order that
production agency to pay to the commissioner a civil penalty in an
amount the commissioner may specify; provided however, that the
amount of the civil penalty shall not exceed one thousand dollars
($1,000) for each violation or in the case of a continuing violation,
one thousand dollars ($1,000) for each day for which the violation
continues, up to a maximum of fifty thousand dollars ($50,000).
Continuation of the subject person's salary or other employee
benefits pending final disposition shall not be considered aiding and
abetting a subject person.
In determining the amount of civil penalty to be paid to the
commissioner under this paragraph, the commissioner shall consider
the financial resources and good faith of the subject person charged,
the gravity of the violation, the history of previous violations by
the person, and other factors as in the opinion of the commissioner
may be relevant.
(i) Except as otherwise provided by this section, any hearing
required by this section shall be conducted in accordance with
Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of
Title 2 of the Government Code, subject to the following:
(1) At the option of the subject person, all hearings shall be a
closed session and private, and the records of the hearings shall not
be made public unless the hearing results in a final order adverse
to the subject person.
(2) Where judicial review is sought by the subject person pursuant
to Section 1085 of the Code of Civil Procedure, the court shall
exercise its independent judgment upon the evidence.
(3) When a subject person to whom an order has been issued
pursuant to subdivision (c) or (e) applies to the commissioner for a
hearing pursuant to subparagraph (A) of paragraph (1) of subdivision
(f), the Office of Administrative Hearings shall schedule the hearing
on a priority basis at the earliest possible time and once the
hearing is commenced, it shall not be continued for more than three
business days without the consent of the subject person.
(4) If the Office of Administrative Hearings cannot schedule the
commencement of a hearing within 15 business days as provided by
paragraph (1) of subdivision (f), and the subject person does not
waive his or her right to a hearing commencing within 15 days, the
hearings may be conducted by administrative law judges appointed by
the commissioner; the hearing shall be completed within 45 days of
commencement, unless additional time is requested by the subject
person. If the hearing is not completed within the 45 days, the
order shall be deemed rescinded as if it had not been issued. The
scheduling of other hearings before the administrative law judge
shall not be considered good cause for purposes of this paragraph.
(j) Nothing in this section is intended to or shall be construed
to create a private cause of action against an offending subject
person or insurer or production agency that aids and abets a subject
person, based on the standards established by this section or the
commissioner's findings or orders pursuant to this section.
SEC. 8. Section 12698 is added to the Insurance Code, to
read:
12698. Every pleading issued by the commissioner to initiate a
formal enforcement action against a licensee under this code, and
every order issued by the commissioner or a court of competent
jurisdiction or other document that resolves a formal enforcement
action, shall be displayed on the department's internet website, if
the document is a public record that is not exempt from disclosure to
the public pursuant to the California Public Records Act (Chapter
3.5 (commencing with Section 6250) of Division 7 of Title 1 of the
Government Code).
SEC. 9. The Legislature finds and declares that the
amendments to Section 1727 of the Insurance Code, made by Section 3
of this act do not constitute a change in, but are declaratory of,
existing law.