BILL NUMBER: SB 708 AMENDED
BILL TEXT
AMENDED IN SENATE JUNE 4, 2001
AMENDED IN SENATE MAY 1, 2001
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 amended, 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 in specified
amounts, would delete the discretion of require
the commissioner to establish what adopt
regulations regarding the conduct that constitutes an act for
these purposes, and would authorize the commissioner to order an
insurer to pay a claim restitution
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 extend the operation of the program until
January 1, 2006, and would expand the mediation
program it to include disputes
arising out of an event for any insured peril that involves
personal lines of insurance for residential and automobile
coverage and any other insured loss the commissioner determines
would be best served by the mediation process . 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
signed by the commissioner or the department's chief counsel
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 seven thousand five hundred
dollars ($7,500) for each act, or, if the act or practice was
willful, a civil penalty not to exceed fifteen thousand dollars
($15,000) for each 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 Commissioner shall have the discretion to establish
what constitutes an act. In exercising that discretion, the
commissioner shall adopt regulations providing criteria to be applied
in making that determination and in establishing the penalty to be
imposed. Those criteria shall include, at a minimum, those factors
to be considered in determining that an act is willful, consideration
of the severity of the detriment to the public caused by the act,
the relative number of claims where acts are found to exist when
contrasted to the total number of claims handled during the relevant
time period, and the existence or nonexistence of previous violations
of this section by the insurer. 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.
(c) 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)
(d) In addition to the penalty provided in this section, the
commissioner may order an insurer to pay a claim. However,
it commissioner may, by way of settlement or by
decision after hearing, order the payment of restitution to
individual insureds or claimants or to designated classes of insureds
or claimants upon the terms and conditions that the commissioner in
the reasonable exercise of discretion may require. 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. did not order the
payment of restitution to individual insureds or claimants or to
designated classes of insureds or claimants pursuant to this
subdivision.
SEC. 2. Section 10089.3 is added to the Insurance Code, to read:
10089.3. (a) 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.
(b) For purposes of this section, "insurance adjuster" shall
include the following persons:
(1) Persons licensed pursuant to Chapter 1 (commencing with
Section 14000) of Division 5.
(2) Employees of persons licensed pursuant to Chapter 1
(commencing with Section 14000) of Division 5 who perform insurance
adjusting activities as defined in Section 14021.
(3) Employees of an insurer who perform insurance adjusting
activities as defined in Section 14021.
SEC. 3. Section 10089.70 of the Insurance Code is amended to read:
10089.70. The department shall establish and maintain
a mediation program , consistent with Section
10089.79, for the mediation of the disputes between insured
complainants and insurers arising out of an
any event related to any that results
from an 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 collision and automobile physical
damage coverage, as defined in subdivisions (c) and (d) of
Section 660 and any other insured property loss that the
commissioner determines would be best served by the mediation process
. 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 insured having a dispute with an insurer under
a policy of residential or automobile insurance arising out
any qualifying event pursuant to Section 10089.70 may file a written
a policy that qualifies for this program 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. The
department shall, if deemed appropriate, notify the insurer against
whom the complaint is made of the nature of the complaint, may
request appropriate relief for the complainant, and may meet and
confer with the complainant and the insurer in order to attempt
resolution of the dispute.
SEC. 5. Section 10089.72 of the Insurance Code is amended to read:
10089.72. (a) The department shall If,
after the department's intervention, the insurer and the insured do
not reach agreement, the department may notify the insurer of
the claim or dispute. To avoid referral to mediation, the insurer
shall have 28 calendar 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
calendar days.
(b) The department may not refer an automobile
a 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). mediation
unless the amount claimed by the insured exceeds seven thousand five
hundred dollars ($7,500) and the amount in dispute exceeds two
thousand dollars ($2,000).
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 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 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 a qualifying event that qualifies for this
program 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 calendar 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 calendar 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 calendar 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 be qualified mediators who meet standards 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.
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 calendar 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. (a) 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
seven hundred dollars ($700) for each dispute mediated.
(b) The mediation program shall only begin if it is funded through
an appropriation made in the annual Budget Act. This appropriation
shall be repaid, under a plan approved through the annual Budget Act,
by the fees established in subdivision (a).
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 notification date to the insurer pursuant to
Section 10089.72, 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 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 2006 , and as of that date is
repealed, unless a later enacted statute, which is enacted before
January 1, 2005 2006 , deletes or
extends that date. Any case referred to mediation by the department
prior to January 1, 2005 2006 , shall
be mediated under this chapter whether or not the mediation has been
completed prior to January 1, 2005 2006
. No later than August October 1,
2004, the commissioner shall report to the Governor and the
Legislature on whether the 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 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.
(4) The commissioner may defer the investigation until the
finality of a dispute, mediation, arbitration, or civil action
involving the claim is known.
(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 signed by the commissioner or the
department's chief counsel 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.