BILL NUMBER: SB 708 INTRODUCED
BILL TEXT
INTRODUCED BY Senator Speier
FEBRUARY 23, 2001
An act to amend Sections 790.035, 10089.70, 10089.71, 10089.72,
10089.73, 10089.74, 10089.75, 10089.77, 10089.78, 10089.79, 10089.82,
10089.83, 10089.84, and 12921.3 of, and to add Sections 10089.3,
12921.9, and 12926.2 to, the Insurance Code, relating to insurance.
LEGISLATIVE COUNSEL'S DIGEST
SB 708, as introduced, Speier. Insurance.
(1) Existing law provides for regulation of the business of
insurance by the Insurance Commissioner. Existing law prohibits
trade practices defined or determined to be an unfair method of
competition or an unfair or deceptive act or practice in the business
of insurance, imposes specified civil penalties for violations, and
provides discretion to the commissioner to establish what constitutes
an act for these purposes.
This bill would provide for penalties of unspecified amounts,
would delete the discretion of the commissioner to establish what
constitutes an act for these purposes, and would authorize the
commissioner to order an insurer to pay a claim associated with those
violations.
(2) Existing law requires the Department of Insurance to establish
a program for the mediation of disputes between insureds and
insurers arising out of the 1994 Northridge earthquake. This program
is authorized to continue through January 1, 2005.
This bill would expand the mediation program to disputes arising
out of an event for any insured peril that involves personal lines of
insurance for residential and automobile coverage. The bill would
make other changes to the mediation program.
(3) Existing law requires the commissioner to receive,
investigate, and respond to complaints and inquiries relative to the
handling of insurance claims by insurers.
This bill would provide that the commissioner may not decline to
investigate complaints on various grounds, including that the insured
is represented by an attorney or is involved in a civil action
against an insurer, or that the complaint is from an attorney. The
bill would also require the department to make certain information
concerning these complaints public.
(4) Existing law sets forth various other duties and
responsibilities of the commissioner and the department.
This bill would require the department to make public any letters
and legal opinions of the department prepared in response to an
inquiry from an insured or other person or entity. The bill would
define the term "extraordinary circumstances" for the purpose of the
department determining noncompliance with the insurance laws and
regulations and determining appropriate penalties. The bill would
impose limitations on the authority of the department to enter into
settlement agreements referencing the existence of extraordinary
circumstances for a period of more than 6 months. The bill would
also require the department to adopt regulations relative to the
training and accreditation of insurance adjusters in the evaluation
of earthquake damage.
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 790.035 of the Insurance Code is amended to
read:
790.035. (a) Any person who engages in any unfair method of
competition or any unfair or deceptive act or practice defined in
Section 790.03 is liable to the state for a civil penalty to be fixed
by the commissioner, not to exceed five thousand
____ dollars ($5,000) ($____)
for each act, or, if the act or practice was willful, a civil
penalty not to exceed ten thousand ____
dollars ($10,000) ($____) for each
act. The commissioner shall have the discretion to
establish what constitutes an act An act for these
purposes is a ____ . However, when the issuance, amendment, or
servicing of a policy or endorsement is inadvertent, all of those
acts shall be a single act for the purpose of this section.
(b) The penalty imposed by this section shall be imposed by and
determined by the commissioner as provided by Section 790.05. The
penalty imposed by this section is appealable by means of any remedy
provided by Section 12940 or by Chapter 5 (commencing with Section
11500) of Part 1 of Division 3 of Title 2 of the Government Code.
(c) In addition to the penalty provided in this section, the
commissioner may order an insurer to pay a claim. However, it shall
not be a defense in a private civil action that the commissioner did
not order an insurer to pay a claim pursuant to this subdivision.
SEC. 2. Section 10089.3 is added to the Insurance Code, to read:
10089.3. The department shall adopt regulations setting forth
standards governing the training of insurance adjusters in evaluating
damage caused by earthquakes. On or before December 31, 2004,
insurers shall train and accredit adjusters in accordance with these
standards. Thereafter, an insurer using one or more adjusters who
are not trained and accredited in accordance with those standards
shall submit the names of those adjusters to the department, along
with information concerning earthquake claims those persons have
adjusted.
SEC. 3. Section 10089.70 of the Insurance Code is amended to read:
10089.70. The department shall establish
maintain a program for the mediation of the disputes between
insured complainants and insurers arising out of the
Northridge Earthquake of 1994 or any subsequent earthquake
an event related to any insured peril . The program shall
apply only to personal lines of insurance related to residential
coverage , as defined in paragraphs (1) and (2) of subdivision
(a) of Section 675, and automobile coverage, as defined in
subdivisions (c) and (d) of Section 660 . The goal of the
program shall be to favorably resolve a statistically significant
number of disputes sent to mediation under the program. This chapter
does not apply to any dispute that turns on a question of major
insurance coverage or a purely legal interpretation, or disputes
involving the actions of an agent or broker in which the insurer is
not alleged to have been responsible for the conduct, or any
complaint the commissioner finds to be frivolous, or any dispute in
which a party is alleged to have committed fraud.
SEC. 4. Section 10089.71 of the Insurance Code is amended to read:
10089.71. Any person insured having
a dispute with an insurer under a policy of residential or
automobile insurance arising out of the Northridge
earthquake of 1994 or any subsequent earthquake any
qualifying event pursuant to Section 10089.70 may file a
written complaint with the department. The complaint shall indicate
that the complainant has not been able to reach a satisfactory
settlement of a claim with the insurer.
SEC. 5. Section 10089.72 of the Insurance Code is amended to read:
10089.72. (a) The department shall notify the insurer
of the claim or dispute. To avoid referral to mediation, the insurer
shall have 28 days to resolve the dispute following notice of the
dispute from the department, unless the department, for good cause,
extends the period by an additional 7 days.
(b) The department may not refer an automobile claim to mediation
unless the claimant's bid is five thousand dollars ($5,000) or more,
and the amount in dispute exceeds one thousand dollars ($1,000).
SEC. 6. Section 10089.73 of the Insurance Code is amended to read:
10089.73. If the dispute is not resolved within the time period
prescribed by Section 10089.72, the insurer shall notify the
department of the failure, and may include the reason for the
failure. The insurer may at that time notify the department
of its position with respect to the dispute shall,
within the time period prescribed by Section 10089.72, notify the
department of its position if it believes that the dispute is not
eligible for the mediation program .
SEC. 7. Section 10089.74 of the Insurance Code is amended to read:
10089.74. (a) If the insurer notifies the department of the
failure to resolve the dispute, the department shall notify the
insured of the insured's ability to request mediation and ask the
insured whether the insured requests mediation. If the insured
responds affirmatively, the department shall refer the dispute to
mediation.
(b) If the insurer fails to give the required notice to the
department prior to the expiration of the time limits set forth in
Section 10089.72, the department shall notify the insured of the
insured's ability to request mediation and ask the insured whether
the insured requests mediation. If the insured responds
affirmatively, the department shall refer the dispute to mediation.
The department may not refer a dispute to mediation if the matter
turns upon a question of major insurance coverage, a purely
legal interpretation, the actions of an agent or broker in which the
insurer is not alleged to have been responsible for the conduct, or
if a party is alleged to have committed fraud, any complaint the
commissioner finds to be frivolous any of the reasons
or conditions set forth in Section 10089.70, relative to
applicability , or if for other good cause the commissioner
determines that mediation of the dispute is inappropriate.
(c) If the insured has filed a civil complaint, the insurer is
excused from mediating under this chapter any claims or disputes
involved in the civil action.
SEC. 8. Section 10089.75 of the Insurance Code is amended to read:
10089.75. (a) Any insurer may inform an insured who has filed a
complaint with the department concerning a dispute arising out of an
earthquake qualifying event of the
existence of the mediation program and may ask the insured to seek
mediation under this chapter jointly with the insurer. Any
insurer may notify the department of any dispute arising out of a
qualifying event that it believes may be appropriately resolved
through the mediation program. The department, with respect to that
notification, shall proceed as provided in subdivision (a) of Section
10089.74.
(b) Notwithstanding Section 10089.82, if the commissioner makes a
finding that an individual insurer has engaged in unreasonable or
arbitrary refusals to mediate, the commissioner shall have the
authority to require that insurer to participate in mediation in all
cases deemed by the commissioner appropriate for mediation under this
chapter.
(c) Any insurer who has been ordered to participate in mediation
on a mandatory basis may seek a review of the order by filing in a
court of competent jurisdiction within 30 days of the order. The
commissioner's order to participate in mediation, however, may not be
stayed during the pendency of any judicial proceeding for any period
beyond 60 days after the initial date of the order to participate.
The basis for the commissioner's decision to require an insurer to
participate in the mediation program shall not be made public unless
review is sought. The commissioner's decision not to require an
insurer to participate, including the basis for the decision, shall
be made public.
(d) Any insured whose request to mediate his or her claim under
this chapter was declined by an insurer may request the commissioner
to require the insurer to participate in the mediation program and
may seek review in a court of competent jurisdiction of the
commissioner's decision not to require the insurer to participate in
the mediation program. The review shall be required to be sought
within 30 days after the commissioner's decision.
SEC. 9. Section 10089.77 of the Insurance Code is amended to read:
10089.77. The department shall contract with a diverse pool of
mediators for the provision of mediation services. The contractors
shall provide be qualified mediators
who meet standards that may be established by the
commissioner. The commissioner shall establish standards in
consultation with consumer groups, policyholder groups, mediators,
alternative dispute resolution groups, insurers, and the State Bar.
These standards shall include:
(a) Mandatory training that may be provided by the department,
which shall include, at a minimum, the legal rules for insurance
policy interpretation and the rights of insureds under California
law, and methods of determining costs of construction and
reconstruction and costs of automobile repair in given
geographical areas.
(b) A requirement that no mediator participating in this program
may have business, familial, contractual, or other affiliation with,
or financial interest in, the insured, or in any insurer, insurance
agent, or agency. For purposes of this subdivision, an investment in
a mutual fund that holds insurer stocks is not a financial interest.
Financial interest does not include prior representation of, or an
employment or contractual relationship with a law firm or lawyer who
represents, one or more insurers or who represents insurance agents
in connection with their business affairs, provided the law firm or
lawyer has not previously represented any of the parties to the
mediation.
However, any prior representation, employment, or contractual
relationship shall be disclosed to the parties to the mediation. If
any party objects to the mediator because of the prior
representation, employment, or contractual relationship, the
department shall dismiss that mediator and select a new mediator. An
objection under this subdivision does not limit a party's right to
object once under subdivision (d).
(c) A requirement that no mediator participating in this program
may be either a lawyer or an employee of a lawyer or law firm that
has represented any party to the mediation in the previous 36 months,
or a person who has a business, familial, contractual, or other
affiliation with a lawyer or law firm that has represented any party
to the mediation in a lawsuit against the insurer in the last 36
months.
(d) Each party to the mediation may object once to the mediator
assigned by the department. If a party objects to the mediator, the
department shall dismiss the mediator and assign another mediator.
(e) In selecting mediators, the department shall give priority to
mediators who bid less than four hundred dollars ($400) while
offering complete and cost-effective mediation services. In
addition, the department may use, on a pro bono basis, mediators who
meet the standards of the program.
SEC. 10. Section 10089.78 of the Insurance Code is amended to
read:
10089.78. Upon receipt of a complaint, the mediation service
, to the extent possible, shall issue a notice to the insured
and the insurer setting a date and time within 21 days of the date of
the notice for commencement of a mediation conference. The mediator
shall make all reasonable efforts to schedule the mediation at a
time agreeable to both parties. The notice shall inform the parties
that the cost of mediation will be borne by the insurer, except to
the extent provided in Section 10089.81. The notice shall also state
that in the event of a proposed settlement the insured may have
three business days in which to rescind the agreement, as specified
in subdivision (c) of Section 10089.82.
SEC. 11. Section 10089.79 of the Insurance Code is amended to
read:
10089.79. The costs of mediation shall be reasonable, and shall
be borne by the insurer, except as provided in Section 10089.81. The
commissioner may set a fee not to exceed four
seven hundred dollars ($400)
($700) for each dispute mediated.
SEC. 12. Section 10089.82 of the Insurance Code is amended to
read:
10089.82. (a) An insured may not be required to use the
department's mediation process. An insurer may not be required to
use the department's mediation process, except as provided in Section
10089.75.
(b) Neither the insurer nor the insured is required to accept an
agreement proposed during the mediation.
(c) If the parties agree to a settlement agreement, the insured
will have three business days to rescind the agreement.
Notwithstanding Chapter 2 (commencing with Section 1115) of Division
9 of the Evidence Code, if the insured rescinds the agreement, it may
not be admitted in evidence or disclosed unless the insured and all
other parties to the agreement expressly agree to its disclosure. If
the agreement is not rescinded by the insured, it is binding on the
insured and the insurer, and acts as a release of all specific claims
for damages known at the time of the mediation presented and agreed
upon in the mediation conference. If counsel for the insured is
present at the mediation conference and a settlement is agreed upon
that is signed by the insured's counsel, the agreement is immediately
binding on the insured and may not be rescinded.
(d) This section does not affect rights under existing law for
claims for damage that were undetected at the time of the settlement
conference.
(e) All settlements reached as a result of department-referred
mediation shall address only those issues raised for the purpose of
resolution. Settlements and any accompanying releases are not
effective to settle or resolve any claim not addressed by the
mediator for the purpose of resolution, nor any claim that the
insured may have related to the insurer's conduct in handling the
claim.
Referral to mediation or the pendency of a mediation under this
article is not a basis to prevent or stay the filing of civil
litigation arising in whole or in part out of the same facts. Any
applicable statute of limitations is tolled for the number of days
beginning from the referral to mediation
notification date to the insurer until the date on which the
mediation is either completed or declined, or the date on which the
insured fails to appear for a scheduled mediation for the second
time, or, in the event that a settlement is completed, the expiration
of any applicable three business day cooling off period.
SEC. 13. Section 10089.83 of the Insurance Code is amended to
read:
10089.83. (a) On or before August 1, 1996, and on or before
August 1 of each succeeding year in which this
program is in effect, the commissioner shall issue a report on the
status of the program in the prior year, including statistics about
the number of cases suitable for mediation, the number sent to
mediation, and the number accepted, as well as declined, by the
insurers, and other similar information concerning the operation of
the program.
(b) At six-month intervals, the department shall collect from the
mediators with which it contracts for this service the following
information: the number of persons to whom mediation was offered,
the number of insurers that accepted and declined mediation, the
number of settlements, and of those settlements, the number rejected
within the three business day cooling off period. For each
settlement, the mediation service shall also report the amount
initially claimed by the consumer and the amount agreed to be paid,
if any, by the insurer or other party.
(c) The department may adopt regulations, including reporting
requirements, in the commissioner's discretion, to implement this
chapter. The regulations shall be adopted as emergency regulations
pursuant to Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code. The adoption of the
regulations is deemed necessary for the immediate preservation of the
public peace, health or safety, or general welfare.
SEC. 14. Section 10089.84 of the Insurance Code is amended to
read:
10089.84. This chapter shall remain in effect until January 1,
2005, and as of that date is repealed, unless a later enacted
statute, which is enacted before January 1, 2005, deletes or extends
that date. Any case referred to mediation by the department prior to
January 1, 2005, shall be mediated under this chapter whether or not
the mediation has been completed prior to January 1, 2005. No later
than August 1, 2004, the commissioner shall report to the Governor
and the Legislature on whether the pilot program
should be extended, expanded, terminated, or otherwise modified and
shall include specific findings regarding the use of the program by
insureds and insurers.
SEC. 15. Section 12921.3 of the Insurance Code is amended to read:
12921.3. (a) The commissioner, in person or through
employees of the department, shall receive complaints and inquiries,
investigate complaints, prosecute insurers when appropriate and
according to guidelines determined pursuant to subdivision
(g) of Section 12921.1, and respond to complaints and
inquiries by members of the public concerning the handling of
insurance claims, including but not limited to, violations of Article
10 (commencing with Section 1861) of Chapter 9 of Part 2 of Division
1, by insurers, or alleged misconduct by insurers or production
agencies.
(b) The commissioner shall not decline to investigate complaints
for any of the following reasons:
(1) The insured is represented by an attorney in a dispute with an
insurer, or is in mediation or arbitration.
(2) The insured has a civil action against an insurer.
(3) The complaint is from an attorney, if the complaint is based
upon evidence or reasonable beliefs about violations of law known to
an attorney because of a civil action.
(c) In addition to the required summary report referenced in
subdivision (c) of Section 12921.1, and within 90 days of making a
finding that a complaint is justified pursuant to Section 12921.1,
the department shall release to the public the information set forth
in paragraphs (2), (3), and (4) of subdivision (c) of Section
12921.1, and any response by the insurer, but shall not include any
information that would identify the insured, including the name,
address, policy number, or other information that would tend to
identify the insured. An insurer shall have 30 days prior to release
of this information to provide a response to the department.
(d) The commissioner, as he or she deems appropriate,
and pursuant to Section 12921.1, shall provide for the education of,
and dissemination of information to, members of the general public or
licensees of the department concerning insurance matters.
SEC. 16. Section 12921.9 is added to the Insurance Code, to read:
12921.9. A letter or legal opinion of the department, prepared in
response to an inquiry from an insured or other person or entity,
that discusses the application of the law and regulations generally
or in connection with specific fact situations, shall be made public.
However, the department may redact the name, address, policy
number, and other identifying information regarding a particular
insured or other person or entity from the letter or legal opinion
when it is made public.
SEC. 17. Section 12926.2 is added to the Insurance Code, to read:
12926.2. (a) As used in this section, "extraordinary
circumstances" means circumstances outside of the control of a
licensee that severely and materially affect the licensee's ability
to conduct normal business operations.
(b) In determining noncompliance with this code and regulations
adopted pursuant to this code, and appropriate penalties, if any, the
commissioner may consider evidence concerning the existence of
extraordinary circumstances.
(c) A settlement agreement between the commissioner and an insurer
may not contain a provision referencing the existence of
extraordinary circumstances relative to the subject matter at issue,
unless the agreement specifies the precise period of time during
which extraordinary circumstances were in existence. Except as
provided in subdivision (d), extraordinary circumstances may not be
stated to exist for a duration of more than six months.
(d) A settlement agreement may concede the existence of
extraordinary circumstances for a period of time exceeding six months
if all of the following conditions are met:
(1) The commissioner makes a finding in the agreement that
extraordinary circumstances existed for more than six months, and
documents in that finding facts supporting that conclusion.
(2) The finding identifies the public purpose justifying the
extension of extraordinary circumstances beyond the six-month period.
(3) The beginning and ending date, by month and year, of the
commencement and termination of the extraordinary circumstances are
identified.