BILL ANALYSIS
SB 708
Page 1
SENATE THIRD READING
SB 708 (Speier)
As Amended September 5, 2001
Majority vote
SENATE VOTE :24-12
INSURANCE 10-4 JUDICIARY 7-3
-----------------------------------------------------------------
|Ayes:|Calderon, Chavez, Diaz, |Ayes:|Steinberg, Corbett, |
| |Dutra, Frommer, Havice, | |Dutra, Jackson, |
| |Horton, Keeley, Kehoe, | |Longville, Shelley, Wayne |
| |Steinberg | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Bogh, John Campbell, |Nays:|Robert Pacheco, Bates, |
| |Harman, Richman | |Harman |
| | | | |
-----------------------------------------------------------------
APPROPRIATIONS 14-6
--------------------------------
|Ayes:|Migden, Alquist, Aroner, |
| |Washington, Corbett, |
| |Correa, Goldberg, Papan, |
| |Pavley, Simitian, |
| |Thomson, Wesson, Wiggins, |
| |Wright |
| | |
|-----+--------------------------|
|Nays:|Bates, Ashburn, Daucher, |
| |Robert Pacheco, Runner, |
| |Zettel |
| | |
--------------------------------
SUMMARY : Creates new requirements for earthquake insurance
adjusters and insurers, expands the earthquake mediation program to
include automotive claims, prohibits the Department of Insurance
(DOI) from refusing to investigate complaints under specified
circumstances, and limits the authority of DOI to enter into
settlement agreements referencing the existence of extraordinary
circumstances. Specifically, this bill :
1)Requires DOI to adopt regulations, consistent with the training
standards of the California Earthquake Authority, relating to the
SB 708
Page 2
training of earthquake insurance adjusters. Requires insurers to
train and accredit adjusters on or before December 31, 2004, and
requires insurers using unaccredited adjusters to submit the names
of those adjusters to DOI, along with the claim number of the
claim adjusted by that adjuster. Provides that an adjuster need
only be trained and accredited once, even if the adjuster later
adjusts claims for a different insurer.
2)Makes the following changes to the DOI earthquake mediation
program: expands the program to include disputes arising with
regard to personal lines of automotive insurance; prohibits DOI
from referring a claim to mediation unless the amount claimed
exceeds $7,500 and the amount in dispute exceeds $2,000; increases
the cap on fees paid for mediations from $400 to $700; provides
that the administrative expenses for the mediation program be paid
from existing resources available to DOI and any additional
resources required by DOI be made available by an annual
appropriation in the Budget Act; extends the sunset date on the
mediation program to January 1, 2006; and, makes other minor
changes to the mediation program.
3)Specifies that information released to the public by DOI regarding
complaints against insurers include the number and type of
violations by reference to the line of insurance and the law
violated.
4)Prohibits the IC from declining to investigate a complaint for any
of the following reasons: the insured is represented by an
attorney in a dispute with an insurer, or is in mediation or
arbitration; the insured has a civil action against an insurer; or
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.
5)Requires that a letter or legal opinion signed by the IC or DOI's
chief counsel that is prepared in response to an inquiry from an
insured and that discusses the application of the Insurance Code
or the IC's regulations in general or in connection with specific
facts be made public.
6)Defines "extraordinary circumstances" to mean circumstances
outside the control of a licensee that severely and materially
affect the licensee's ability to conduct normal business
operations, and authorizes the IC to consider the existence of
extraordinary circumstances in determining noncompliance with the
law and appropriate penalties. Prohibits a settlement agreement
SB 708
Page 3
between the IC and an insurer from referencing the existence of
extraordinary circumstances, unless certain requirements are met.
EXISTING LAW does not provide training standards for earthquake
insurance adjusters. Existing law also requires DOI to establish a
mediation program for disputes between claimants and insurers
arising out of the 1994 Northridge earthquake and provides that the
cost of mediation shall be borne by the insurer. No party is
required to accept any agreement proposed during mediation, but if
such agreement is accepted, it shall be binding upon the parties.
Existing law authorizes the mediation program to continue until
January 1, 2005.
FISCAL EFFECT : According to the Senate Committee on Appropriations,
this bill will result in administrative costs to DOI amounting to
$886,000 in 2001-02, $1.4 million in 2002-03, and $1.4 million in
2003-04. According to DOI, first-year costs will be $115,000 in
2001-02 and there will be ongoing annual costs of $198,000
thereafter from the Insurance Fund, mostly to provide assistance to
insureds who are represented by counsel. According to the Assembly
Committee on Appropriations, expansion of mediation program will
result in first-year costs of $886,000 and ongoing costs of $1.4
million, subject to a Budget Act appropriation.
COMMENTS : The author introduced this bill to address the
legislative recommendations made in the August 28, 2000, Senate
Insurance Committee report entitled Department of Insurance in
Rubble After Northridge . As a result of one of these
recommendations, the author has proposed that DOI's mediation
program be made available to automotive claims. According to DOI,
last year it received 1,406 first party private passenger automobile
written complaints, and DIO has estimated that about 40% (562) of
the complaints may have been eligible for mediation under an
expanded program. In the interest of balancing the need for prompt
and fair settlement with the need to cope with a natural disaster,
the author has also proposed that a company's existing adjusters be
trained in earthquake damage adjustment.
Supporters believe that expanding the earthquake mediation program
would give consumers, particularly those with smaller claims, a way
to informally resolve disputes with insurers. Supporters also feel
that making public letters and legal opinions signed by the IC or
DOI's chief counsel would be useful in helping the public understand
how insurance laws and regulations are applied and provide for
consistency in their application.
SB 708
Page 4
Opponents to this bill dispute the need to expand the earthquake
mediation program to include automotive claims. Opponents also
dispute the bill's proposal to make public letters or legal opinions
signed by the IC or DOI's chief counsel. Opponents state that the
authority to issue such an opinion lies with the Attorney General,
and that releasing this information to the public creates the
inference that these opinions carry the weight of law or otherwise
have the force and effect of law.
This bill is related to SB 658 (Escutia) of this session, pending in
the Assembly, which modifies the standard form fire policy and
earthquake insurance policies by setting forth new requirements
regarding examination under oath, appraisal, and adjusters; and SB
1899 (Burton), Chapter 1090, Statutes of 2000, which granted
Northridge earthquake victims an additional year in which to make
claims that were otherwise time-barred.
Analysis Prepared by : M. Christine Iway / INS. / (916) 319-2086
FN: 0002937