BILL NUMBER: SB 1237	ENROLLED
	BILL TEXT

	PASSED THE SENATE   JULY 12, 1999
	PASSED THE ASSEMBLY   JULY 8, 1999
	AMENDED IN ASSEMBLY   JULY 8, 1999
	AMENDED IN ASSEMBLY   JULY 2, 1999
	AMENDED IN ASSEMBLY   JUNE 28, 1999
	AMENDED IN SENATE   MAY 28, 1999
	AMENDED IN SENATE   MAY 17, 1999
	AMENDED IN SENATE   MAY 6, 1999

INTRODUCED BY   Senator Escutia

                        FEBRUARY 26, 1999

   An act to add Title 13.7 (commencing with Section 2870) to Part 4
of Division 3 of the Civil Code and to add Title 11.65 (commencing
with Section 1776) to Part 3 of the Code of Civil Procedure, relating
to resolution of claims.



	LEGISLATIVE COUNSEL'S DIGEST


   SB 1237, Escutia.  Insurance:  claims:  dispute resolutions.
   (1) Existing law prohibits insurers from engaging in unfair claims
settlement practices, and provides for sanctions against insurers
who engage in unfair claims settlement practices with respect to
third parties entitled to coverage under a policy of liability
insurance by means of administrative sanctions against the insurer.
   This bill would provide that an insurer shall act in good faith
toward and deal fairly with third-party claimants.  It would provide
that if an insurer engages in unfair claims settlement practices with
respect to a third-party claimant, the third-party claimant would
generally have the right, upon meeting certain conditions, to assert
a cause of action against the insurer, except as specified.
   (2) Existing law generally provides for the determination of civil
disputes by civil court actions, but contains provisions for
alternative dispute resolution procedures, such as arbitration and
judicial arbitration.
   This bill would provide that where the amount in controversy is
for either a dollar amount that does not exceed $50,000, or is within
policy limits if the policy limits do not exceed $50,000, a claimant
and the insurer may resolve the claim by arbitration pursuant to a
written arbitration agreement, as specified.  The bill would provide
that if the parties agree to submit a claim to, and participate in,
arbitration, the insurer shall be conclusively presumed to have
complied with the duty to act in good faith toward and deal fairly
with third-party claimants specified above.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  This act shall be known and may be cited as the "Fair
Insurance Responsibility Act of 2000" or as "FAIR."
  SEC. 2.  Title 13.7 (commencing with Section 2870) is added to Part
4 of Division 3 of the Civil Code, to read:

      TITLE 13.7.  OBLIGATION TO SETTLE INSURANCE CLAIMS FAIRLY

   2870.  (a) For purposes of this title, the following definitions
shall apply:
   (1) "Third-party claimant" or "claimant" shall mean each person
seeking recovery of benefits against an insured under a liability
insurance policy or a self-funded liability protection program, fund,
or plan, whether for personal injury or wrongful death, or other
economic loss, or both including, without limitation, damages
resulting from loss of consortium or loss of care, comfort, society
and the like resulting from wrongful death.
   (2) "Insured" shall mean a person or entity named as an insured in
a liability insurance policy or a private self-funded liability
protection program, fund, or plan; a person or entity who is
identified as an additional insured under a liability insurance
policy or a private self-funded liability protection program, fund,
or plan; a person or entity who is an additional insured under the
definitions of insured persons set forth in a liability insurance
policy or a private self-funded liability protection program, fund,
or plan; a person or entity who is defined, by law, as an insured
under a liability insurance policy or a private self-funded liability
protection program, fund, or plan; or cooperative corporations or
interindemnity arrangements provided for under Section 1280.7 of the
Insurance Code.
   (3) "Insurer" shall include any liability insurer licensed
pursuant to, or subject to regulation under, the Insurance Code who
provides liability coverage to an insured against whom the
third-party claimant makes a claim for personal injury, wrongful
death, or other economic loss, and the third-party administrator of
any private self-funded liability protection program, fund, or plan;
or cooperative corporations or interindemnity arrangements provided
for under Section 1280.7 of the Insurance Code.  However, "insurer"
does not include the self-funded liability protection program, fund,
or plan, itself, an insurer named as the insurer under a policy of
workers' compensation insurance, nor a self-insured public entity, a
private administrator for a public entity, or a public entity insured
by a private insurer or carrier.  For purposes of this section,
"public entity" has the meaning set forth in Section 811.2 of the
Government Code.
   2871.  (a) Every insurer, as defined in paragraph (3) of
subdivision (a) of Section 2870, doing business in the State of
California shall act in good faith toward and deal fairly with
third-party claimants.  A third-party claimant may bring an action
against an insurer doing business in the State of California to
recover damages, including general, special, and exemplary damages,
for commission of any unfair claims settlement practice specified in
subdivision (h) of Section 790.03 of the Insurance Code as it relates
to a third-party claimant.
   (b) A third-party claimant shall not be entitled to assert the
remedies set forth in subdivision (a) unless the third-party claimant
(1) obtains in the underlying action a final judgment after trial, a
judgment after default, or an arbitration award arising from a
contractual predispute binding arbitration clause or agreement, and
(2) the third-party claimant makes a written demand by certified mail
to settle the claim in the underlying action, and the claimant's
judgment or arbitration award in that prior proceeding exceeded the
amount of the final written demand on all claims by the third-party
claimant made before the trial, entry of default or arbitration
listed above.  A final written demand sent by certified mail may not
exceed the applicable policy limits and shall be deemed rejected if
not responded to within 30 days of receipt of the final written
demand.  Subject to subdivision (h) of Section 790.03 of the
Insurance Code, the verdict's amount may be considered as evidence of
bad faith, but shall not be the sole consideration.
   (c) The remedies set forth in this title shall apply to any
insurer who violates the standards set forth in subdivision (a) in
its handling, processing, or settlement of the claims made by a
third-party claimant under the insured's insurance protection.
   (d) A professional liability insurer is not liable under this
title if all the following conditions apply:
   (1) The consent of the policyholder to settlement is a
prerequisite to settlement under the terms of the insurance policy or
by statute.
   (2) The insurance company has assessed the case against the
policyholder as to potential liability and damages known at that time
and has fully informed the policyholder of that assessment.
   (3) The policyholder's refusal to consent is not based on
intentionally erroneous or misleading information provided by the
insurer.
   (e) A person injured in an accident arising out of the operation
or use of a motor vehicle, who at the time of the accident was
operating a motor vehicle in violation of Section 23152 or 23153 of
the Vehicle Code, and was convicted of that offense, may not assert a
cause of action under this section.
   (f) Any time period within which an action must be commenced
pursuant to any applicable statute of limitations shall not begin
until the underlying claim has been resolved through a final
judgment.  In the event of an appeal by either party, resolution of
the appeal shall be a prerequisite to a claim under this title.
   (g) Nothing in this title shall abrogate or limit any theory of
liability or remedy otherwise available at law including, but not
limited to, tort remedies for the breach of implied covenant and fair
dealing or any theory of liability or remedy based on Comunale v.
Traders & General Ins. Co.  (1958) 50 Cal.2d 654 or Crisci v.
Security Ins. Co. (1967) 66 Cal.2d 425.  Nothing in this section
shall relieve an insurer of its obligation of good faith and fair
dealing to its own insured.  However, the insurer cannot wrongfully
use its obligation to its own insured to violate its duties under
this section.
   (h) The provisions of this title shall apply, prospectively, to
events or accidents covered by the applicable insurance policy that
occur on or after January 1, 2000.
  SEC. 3.  Title 11.65 (commencing with Section 1776) is added to
Part 3 of the Code of Civil Procedure, to read:

      TITLE 11.65.  ALTERNATIVE DISPUTE RESOLUTION ACT

   1776.  For the purposes of this title, the following definitions
apply:
   (a) "Claimant" means a person defined in paragraph (1) of
subdivision (a) of Section 2870 of the Civil Code.
   (b) "Insurer" shall include any liability insurer licensed
pursuant to or subject to regulation under the Insurance Code, any
private self-funded liability protection program, fund or plan, and
any person or entity meeting the Vehicle Code definition of a
permissible self-insured.  However, "insurer" does not include a
self-insured public entity, a private administrator for a public
entity, or a public entity insured by a private insurer or carrier.
For purposes of this section, "public entity" has the meaning set
forth in Section 811.2 of the Government Code.
   1777.  (a) In a claim where the amount in controversy is for
either a dollar amount that does not exceed fifty thousand dollars
($50,000), or is within policy limits, exclusive of applicable
uninsured or underinsured motorist coverage, if the policy limits do
not exceed fifty thousand dollars ($50,000), whichever is less, a
claimant who is represented by counsel may request arbitration
pursuant to this title.
   (b) Notwithstanding subdivision (b) of Section 2017, prior to a
request for arbitration, a claimant may demand and obtain insurance
coverage policy limits information concerning all applicable, and
potentially applicable, policies of insurance, to decide whether to
participate in arbitration as set forth in this title.  The insurer
shall respond within 10 days and verify in writing that the
information about coverage and policies is true and correct.  An
insurer that releases such information shall not be subject to civil
liability to the insured or any other insurer for release of the
policy limits information.
   (c) An insurer may request arbitration under this title where the
claimant is represented by counsel under any of the following
conditions:
   (1) If a claimant makes a settlement demand against all
responsible or potentially responsible persons or entities that does
not exceed fifty thousand dollars ($50,000) in total, and the
arbitration request is made within 90 days of the settlement demand.

   (2) In any action in which the policy limits applicable to the
claimant do not exceed fifty thousand dollars ($50,000), provided
that the request for arbitration is made not later than 150 days
after the service of the complaint.
   (3) Subject to paragraphs (1) and (2), in an action involving more
than one responsible party, an insurer may request arbitration under
this title if all parties agree to arbitration or the insurer offers
to settle the action for policy limits.
   (d) The request for arbitration shall be in writing and sent by
certified mail.
   (e) (1) Within 30 days after receipt of a request for arbitration,
the insurer or claimant shall respond to the request in writing,
sent by certified mail, return receipt requested.
   (2) The request shall be deemed rejected if not responded to
within 30 days, unless the parties stipulate in writing to an
extension of time.
   (f) Nothing in this section shall relieve an insurer of its
obligation of good faith and fair dealing to its own insured.
   (g) An arbitration award pursuant to this section shall not exceed
the available policy limits and shall not include damages that are
not covered by the applicable insurance policies.
   (h) A claimant or insurer requesting or agreeing to arbitration
under this section shall at the same time send by certified mail a
copy of each offer or agreement to arbitrate to all claimants and all
insurers involved in the claim.  Offers and agreements made by
counsel under this section shall be deemed to be made with the
authority of all clients represented by that counsel.  The
arbitration of all claims under this title shall be pursuant to a
written arbitration agreement.
   1778.  If the insurer agrees to submit a claim to arbitration
under Section 1777 the insurer shall be conclusively presumed to have
complied with the duties under subdivision (a) of Section 2871 of
the Civil Code.
   1779.  (a) Upon a showing of good cause in a petition before the
court having jurisdiction over the amount in controversy, either side
may request removal from arbitration under this title and to
commence or continue a civil action, upon a showing of any of the
following:
   (1) Either party discovers new information regarding insurance
coverage that creates aggregate coverage for the claim in excess of
fifty thousand dollars ($50,000).
   (2) A change in the nature or extent of the claimant's injury or
damages, which, despite reasonable inquiry, was not discovered prior
to the acceptance of the offer to engage in alternative dispute
resolution, and causes the claimant or attorney to believe that the
reasonable value of the claim will exceed fifty thousand dollars
($50,000).
   (3) A party discovers new, additional, potentially responsible
persons or entities who are not parties to the arbitration.
   (4) The insurer discovers evidence that the claim is in violation
of Section 550 of the Penal Code.  The insurer shall document the
basis for its finding and provide the information to the court.  The
court shall make the information available to the claimant or his or
her counsel, if represented, unless the court determines that
releasing the information would substantially impede the
investigation or future prosecution of the claim for fraud.
   (5) A change of law affects the remedies available to a claimant,
or a change in law expands or contracts the claimant's legal right to
recover.
   (6) The interests of justice support permitting a party to
commence a civil action.
   (7) A party unreasonably interferes with the completion of the
arbitration.
   (b) Within 60 days of discovery of one of the conditions outlined
in subdivision (a), and before commencement of the arbitration, the
party seeking to remove the claim from arbitration under this title
shall petition the court having jurisdiction over the amount in
controversy, establishing good cause for the request.
   (c) If a court finds good cause pursuant to a petition filed by a
claimant to remove the claim from arbitration under subdivision (a),
the presumption of good faith under Section 1778 shall not apply if
the good cause arises from a misrepresentation, error or unreasonable
interference in the conduct of the arbitration by the insurer.
   (d) If the insurer removes the claim from arbitration pursuant to
this title, the presumption of good faith under Section 1778 does not
apply.
   1780.  (a) Any applicable period of limitations shall be tolled
from the date of receipt of a request to participate in arbitration
until 30 days after the insurer responds to the offer.  If the
request for arbitration is accepted, the period is tolled until
settlement, satisfaction of judgment, or 30 days after a court order
to remove a claim from arbitration under Section 1779.
   (b) Any applicable case management rules are suspended upon
agreement of the parties to arbitrate a claim under this title.
Additionally, an agreement to participate in arbitration under this
title relieves the parties of any obligation to participate in
court-ordered arbitration or mediation.
   1781.  Except as otherwise provided by this title, arbitration
shall be conducted under the same procedures as are applicable to
other arbitration agreements under Title 9 (commencing with Section
1280).
   1782.  The following additional and supplemental provisions govern
arbitration under this title:
   (a) The provisions of Section 1987 shall govern attendance of
parties at arbitration.
   (b) Arbitrators shall be paid at the prevailing rate for judicial
arbitrators.  The cost of the arbitrator will be borne equally
between the insurers and the claimants.  The obligation of the
parties for the arbitrator's fee does not include preparation time,
travel time, and postarbitration time, unless the parties agree
otherwise.
   (c) The parties shall select a single neutral arbitrator pursuant
to Section 1281.6.  Unless the parties agree otherwise, the
arbitrator shall be a retired judge.
   (d) The parties to the arbitration shall pay an arbitration
filling fee of two hundred dollars ($200).  The fee shall be borne in
equal portions by each party to the arbitration.
   (e) If the parties cannot agree on a date to commence arbitration,
the arbitrator shall set a date convenient to the parties.
   (f) Disputes arising regarding discovery shall be resolved by
motion before the arbitrator.  The arbitration shall be deemed to be
a proceeding and the hearing before the arbitrator shall be deemed to
be the trial of an issue for those purposes.
   (g) No party may introduce new or different information from that
provided under subdivision (f) at the arbitration unless it is
provided to the other side at least 30 days before the arbitration
except when such evidence is offered solely for impeachment.  Upon a
showing of good cause under Section 9 of the Standards for Judicial
Administration, the arbitrator may grant a continuance to permit the
introduction of the new information.
   (h) Each party shall exchange a list of all witnesses and all
exhibits no later than 20 days before the arbitration.  Witnesses and
exhibits not listed shall not be considered or relied upon by the
arbitrator unless offered solely for impeachment.
   (i) If more than one person or insurer may be liable for the
injury, and if the actions against each are subject to this title,
the arbitration proceedings with respect to each may be consolidated
by agreement of the parties.
   (j) The rules of evidence and rules for conduct of hearing set
forth in Rules 1613 and 1614 of the California Rules of Court, shall
apply to the arbitration.
   (k) The arbitrator may continue the arbitration pursuant to
Section 9 of the Standards of Judicial Administration.
   1783.  (a) The award shall be binding on all parties and upon the
insurer and shall resolve all disputes between the parties, and may
be reviewed only for the reasons set forth in Section 1286.2.
   (b) The insurer shall satisfy the arbitration award within 20 days
of conclusion of any postresolution motions or settlement.  Interest
shall accrue at the legal rate thereafter.
   1784.  A claimant and an insurer may agree in writing to submit
any claim for personal injury or wrongful death to arbitration
pursuant to this title, provided that the notice requirements set
forth in Section 1777 are met.  The agreement to, and subsequent
participation in, binding arbitration by the parties provides the
protections set forth in Section 1778.