BILL NUMBER: SB 708 ENROLLED
BILL TEXT
PASSED THE SENATE SEPTEMBER 13, 2001
PASSED THE ASSEMBLY SEPTEMBER 12, 2001
AMENDED IN ASSEMBLY SEPTEMBER 5, 2001
AMENDED IN ASSEMBLY AUGUST 20, 2001
AMENDED IN ASSEMBLY JULY 18, 2001
AMENDED IN ASSEMBLY JULY 9, 2001
AMENDED IN ASSEMBLY JUNE 25, 2001
AMENDED IN SENATE JUNE 4, 2001
AMENDED IN SENATE MAY 1, 2001
INTRODUCED BY Senator Speier
FEBRUARY 23, 2001
An act to amend Sections 10089.70, 10089.71, 10089.72, 10089.73,
10089.74, 10089.75, 10089.77, 10089.78, 10089.79, 10089.82, 10089.83,
10089.84, 12921.1, 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, Speier. Insurance.
(1) Existing law provides for regulation of the business of
insurance by the Insurance Commissioner.
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 it to include disputes arising out of an
event for any insured peril that involves 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.
(2) 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.
(3) Existing law sets forth various other duties and
responsibilities of the commissioner and the department.
This bill would require the department to make public a letter or
legal opinion signed by the commissioner or the department's chief
counsel that was prepared in response to an inquiry from an insured
or other person or entity and that discusses the application of the
Insurance Code or regulations promulgated by the commissioner. 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.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. 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. For purposes of this
section, the California Earthquake Authority shall make available to
the Department of Insurance the standards used by the authority in
order for the department to develop regulations that are consistent
with the authority's standards. 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 the claim number of the claim adjusted by that adjuster. An
adjuster trained and accredited by one insurer pursuant to this
section shall not be required to receive training and accreditation
again in order to adjust claims for a different insurer. An insurer
using an adjuster who has been trained and accredited by another
insurer pursuant to this section shall not be required to submit the
name of that adjuster to the department.
(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. 2. Section 10089.70 of the Insurance Code is amended to read:
10089.70. The department shall establish 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, and disputes arising under automobile collision coverage
or automobile physical damage coverage, in a policy as defined in
Section 660. The program, with respect to the mediation of
earthquake insurance claims, shall only apply to personal lines of
insurance related to residential coverage. 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. 3. Section 10089.71 of the Insurance Code is amended to read:
10089.71. Any insured having a dispute with an insurer under 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. 4. Section 10089.72 of the Insurance Code is amended to read:
10089.72. (a) If, after the department's intervention, the
insurer and the insured do not reach agreement, the department may
notify the insurer that in order to avoid referral to mediation, the
insurer shall have 28 calendar days to resolve the dispute, unless
the department, for good cause, extends the period by an additional 7
calendar days.
(b) The department may not refer a claim to 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. 5. 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. 6. 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. 7. 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 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. 8. 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. 9. 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. 10. 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 administrative expenses for the mediation program shall be
paid from existing resources available to the department. If
additional resources are required by the department, those resources
shall be made available by an annual appropriation in the Budget Act.
SEC. 11. 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. 12. Section 10089.83 of the Insurance Code is amended to
read:
10089.83. (a) 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. 13. Section 10089.84 of the Insurance Code is amended to
read:
10089.84. This chapter shall remain in effect until January 1,
2006, and as of that date is repealed, unless a later enacted
statute, which is enacted before January 1, 2006, deletes or extends
that date. Any case referred to mediation by the department prior to
January 1, 2006, shall be mediated under this chapter whether or not
the mediation has been completed prior to January 1, 2006. No later
than 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. 14. Section 12921.1 of the Insurance Code is amended to read:
12921.1. (a) The commissioner shall establish a program on or
before July 1, 1991, to investigate complaints and respond to
inquiries received pursuant to Section 12921.3, to comply with
Section 12921.4, and, when warranted, to bring enforcement actions
against insurers. The program shall include, but not be limited to,
the following:
(1) A toll-free number published in telephone books throughout the
state, dedicated to the handling of complaints and inquiries.
(2) Public service announcements to inform consumers of the
toll-free telephone number and how to register a complaint or make an
inquiry to the department.
(3) A simple, standardized complaint form designed to assure that
complaints will be properly registered and tracked.
(4) Retention of records on complaints for at least three years
after the complaint has been closed.
(5) Guidelines to disseminate complaint and enforcement
information on individual insurers to the public, that shall include,
but not be limited to, the following:
(A) License status.
(B) Number and type of complaints closed within the last full
calendar year, with analogous statistics from the prior two years for
comparison. The proportion of those complaints determined by the
department to require that corrective action be taken against the
insurer, or leading to insurer compromise, or other remedy for the
complainant, as compared to those that are found to be without merit.
This information shall be disseminated in a fashion that will
facilitate identification of meritless complaints and discourage
their consideration by consumers and others interested in the records
of insurers.
(C) Number and type of violations found, by reference to the line
of insurance and the law violated.
(D) Number and type of enforcement actions taken.
(E) Ratio of complaints received to total policies in force, or
premium dollars paid in a given line, or both. Private passenger
automobile insurance ratios shall be calculated as the number of
complaints received to total car years earned in the period studied.
(F) Any other information the department deems is appropriate
public information regarding the complaint record of the insurer that
will assist the public in selecting an insurer. However, nothing in
this section shall be construed to permit disclosure of information
or documents in the possession of the department to the extent that
the information and those documents are protected from disclosure
under any other provision of law.
(6) Procedures and average processing times for each step of
complaint mediation, investigation, and enforcement. These
procedures shall be consistent with those in Article 6.5 (commencing
with Section 790) of Chapter 1 of Part 2 of Division 1 for complaints
within the purview of that article, consistent with those in Article
7 (commencing with Section 1858) of Chapter 9 of Part 2 of Division
1 for complaints within the purview of that article, and consistent
with any other provisions of law requiring certain procedures to be
followed by the department in investigating or prosecuting complaints
against insurers.
(7) A list of criteria to determine which violations should be
pursued through enforcement action, and enforcement guidelines that
set forth appropriate penalties for violations based on the nature,
severity, and frequency of the violations.
(8) Referral of complaints not within the department's
jurisdiction to appropriate public and private agencies.
(9) Complaint handling goals that can be tested against surveys
carried out pursuant to subdivision (a) of Section 12921.4.
(10) Inclusion in its annual report to the Governor, required by
Section 12922, detailed information regarding the program required by
this section, that shall include, but not be limited to: a
description of the operation of the complaint handling process,
listing civil, criminal, and administrative actions taken pursuant to
complaints received; the percentage of the department's personnel
years devoted to the handling and resolution of complaints; and
suggestions for legislation to improve the complaint handling
apparatus and to increase the amount of enforcement action undertaken
by the department pursuant to complaints if further enforcement is
deemed necessary to insure proper compliance by insurers with the
law.
(b) The commissioner shall promulgate a regulation that sets forth
the criteria that the department shall apply to determine if a
complaint is deemed to be justified prior to the public release of a
complaint against a specifically named insurer.
(c) The commissioner shall provide to the insurer a description of
any complaint against the insurer that the commissioner has received
and has deemed to be justified at least 30 days prior to public
release of a report summarizing the information required by this
section. This description shall include all of the following:
(1) The name of the complainant.
(2) The date the complaint was filed.
(3) A succinct description of the facts of the complaint.
(4) A statement of the department's rationale for determining that
the complaint was justified that applies the department's criteria
to the facts of the complaint.
(d) An insurer shall provide to the department the name, mailing
address, telephone number, and facsimile number of a person whom the
insurer designates as the recipient of all notices, correspondence,
and other contacts from the department concerning complaints
described in this section. The insurer may change the designation at
any time by providing written notice to the Consumer Services
Division of the department.
(e) For the purposes of this section, notices, correspondence, and
other contacts with the designated person shall be deemed contact
with the insurer.
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) 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) A letter or legal opinion signed by the Commissioner
or the Chief Counsel of the Department of Insurance that was
prepared in response to an inquiry from an insured or other person or
entity and that discusses either generally or in connection with a
specific fact situation the application of the Insurance Code or
regulations promulgated by the commissioner shall be made public.
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.
(b) A letter or legal opinion made public pursuant to this section
shall not be construed as establishing an agency guideline,
criterion, bulletin, manual, instruction, order, standard of general
application, rule, or regulation, as those terms are described in
Sections 11340.5 and 11342.600 of the Government Code.
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.