BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 708|
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THIRD READING
Bill No: SB 708
Author: Speier (D)
Amended: 6/4/01
Vote: 21
SENATE INSURANCE COMMITTEE : 5-1, 4/4/01
AYES: Speier, Escutia, Figueroa, Scott, Soto
NOES: Oller
SENATE JUDICIARY COMMITTEE : 4-2, 4/24/01
AYES: Escutia, Kuehl, O'Connell, Peace
NOES: Ackerman, Haynes
SENATE APPROPRIATIONS COMMITTEE : 8-4, 5/31/01
AYES: Alpert, Bowen, Burton, Escutia, Karnette, Murray,
Perata, Speier
NOES: Battin, Johannessen, McPherson, Poochigian
SUBJECT : Insurance
SOURCE : Author
DIGEST : This bill changes civil fines in the insurance
code, expands an earthquake mediation program to include
automotive and residential insurance claims, prohibit the
State Department of Insurance from refusing to investigate
complaints under specified circumstances, and create new
requirements for insurance adjusters and insurers who
adjust earthquake claims.
ANALYSIS :
CONTINUED
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Existing Law
1.Provides for regulation of the business of insurance by
the Insurance Commissioner (IC).
2.Prohibits trade practices defined as unfair methods of
competition or determined to be an unfair or deceptive
business practice.
3.Imposes a civil penalty upon an insurer of up to $5,000
for each act that is an unfair or deceptive trade
practice or up to $10,000 for each willful act.
4.Provides discretion to the IC to establish what
constitutes an act for these purposes.
5.Requires the State Department of Insurance (DOI) to
establish a mediation program for disputes arising from
the 1994 Northridge earthquake, and authorizes the
program to continue until January 1, 2005.
6.Requires the IC to receive and investigate complaints
about the handling of insurance claims by insurers.
7.Sets forth various other duties of the IC and the DOI.
This bill:
1.Provides for a $7,500 civil penalty for an act that is
an unfair method of competition or an unfair and
deceptive trade practice.
2.Provides for a $15,000 civil penalty for a willful act
that is an unfair method of competition or an unfair and
deceptive trade practice.
3.Specifies that when the IC determines what constitutes
an act, he or she is required to 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
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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 bill.
4.Allows the IC, in addition to levying civil penalties by
way of settlement or by decision after hearing, order
the payment of restitution to individual insureds or
claimants or to designated classes of insured or
claimants upon the terms and condition that the
commissioner in the reasonable exercise of discretion
may require.
5.Expands the DOI's earthquake mediation program to
disputes that arise out of residential and automotive
coverage, under specified circumstances, increases the
cap on fees paid to mediators, and makes other changes
to the mediation program. Specifies that DOI may not
refer a claim to mediation unless the amount claimed by
the insured exceeds $7,500 and the amount in dispute
exceed $2000.
6.Provides that the IC may not decline to investigate a
complaint on various grounds, including that the insured
is represented by an attorney or that an attorney is
making a complaint. The IC may defer the investigation
until the finality of a dispute, mediation, arbitration,
or civil action involving the claim is known.
7.Requires that information about justified complaints
against insurers be made public, as specified.
8.Requires that a letter signed by the IC or DOI's Chief
Counsel or legal opinions of the DOI given to insured be
made public, under specified circumstances.
9.Prohibits the IC from agreeing in a settlement agreement
related to unfair claims practices that "extraordinary
circumstances" existed for longer than six months,
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unless the IC includes a written justification and
states the dates during which the extraordinary
circumstances existed.
10.Requires that the DOI adopt regulations relative to
training and accrediting insurance adjusters in the
evaluation of earthquake damage. Defines insurance
adjuster, as specified.
11.Requires that any earthquake claim adjusted by an
unaccredited adjuster be reported, along with the
adjuster's name, to the DOI.
12.Extends the sunset date on the earthquake mediation
program to 2006.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 5/31/01)
Consumers Union
Consumer Attorneys of California
OPPOSITION : (Verified 5/31/01)
Alliance of American Insurers
Personal Insurance Federation of California
American Insurance Association
National Association of Independent Insurers
Association of California Insurance Companies
ARGUMENTS IN SUPPORT : The author, the sponsor of this
bill, states that many of its provisions arise from
legislative recommendations made in last year's Senate
Insurance Committee Report, entitled "Department of
Insurance in Rubble After Northridge." In its general
findings, the report noted that the former commissioner's
ability to abuse the power of his office was aided by
"numerous ambiguities in California law" and the "immense
regulator power" granted to the commissioner. The report
further noted that written rules and regulations, "a first
line of defense against abuse of government power," were
largely nonexistent in the DOI.
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The report's legislative recommendations included expansion
of the earthquake insurance mediation program established
in 1995 to encompass other types of claims. Although the
earthquake program had received "mixed reviews," according
to the report, "the concept of mediation of claims after a
catastrophe would appear to be sound."
Consumers Union (CU) supports this bill for several
reasons. First, it would expand the mediation program to
include other lines of insurance, thus offering consumers
easier resolution of disputes. Second, it would prohibit
the DOI from declining to investigate complaints merely
because the complaint was submitted by an attorney. CU
believes that the DOI should protect all consumers from
breaches by insurers, not merely those who lack legal
representation. Third, CU believes that the public
benefits from knowing about consumer complaints against
insurers. Fourth, CU believes that legal opinions will be
useful to the public, and will improve the consistency with
which the law is applied. Accrediting and training
adjusters doing earthquake claims is also important to
protect consumers.
ARGUMENTS IN OPPOSITION : Several of the insurance
organizations opposing this bill express concerns about its
proposed expansion of the earthquake's insurance mediation
program, arguing that is arbitrarily displaces the
arbitration provisions included in most insurance contracts
and the court-administered mediation program provided for
in Title 11.6 of the Code of Civil Procedures.
Opponents also note that unlike catastrophes, which tend to
result in "high severity, low frequency" claims, most of
the homeowner and particularly the automobile claims that
would be included in the proposed expansion of the program
are "low severity, high frequency" claims, which are better
suited to small claims court and which would overwhelm a
mediation program without a vastly increased bureaucracy to
support it, and would further burden and delay the claims
process. Requiring the insurer to bear the costs of
mediation, and the increased bureaucracy that would result,
would result in higher premiums to consumers.
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Opponents suggest that, to narrow the amounts of claims in
mediation, the proposed threshold for automobile claims be
"raised significantly" and a similar threshold be applied
to residential claims.
The author's office responds that this bill is a work in
progress, and that consultations and negotiations on the
proposed program expansion are continuing.
DLW:cm 6/4/01 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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