BILL ANALYSIS
AB 989
Page 1
Date of Hearing: April 22, 2009
ASSEMBLY COMMITTEE ON INSURANCE
Joe Coto, Chair
AB 989 (Block) - As Introduced: February 27, 2009
SUBJECT : Senior insurance: actions against insurers.
SUMMARY : Authorizes any person who is harmed as a result of a
violation of the senior insurance laws (see "Existing Law"
below) to bring a civil action for compensatory damages and any
other remedies otherwise provided by law.
EXISTING LAW :
1)Establishes a series of legal protections in connection with
the sale of insurance to persons who are 65 years of age or
older. This area of law, known as senior insurance, does the
following:
a) Specifies that all insurers, brokers, agents, and others
engaged in the transaction of insurance owe a prospective
insured who is 65 years of age or older, a duty of honesty,
good faith, and fair dealing.
b) Provides that the conduct of an insurer, broker, agent,
or other person engaged in the insurance transaction,
during the offer and sale of a policy previous to the
purchase is relevant to any action alleging a breach of the
duty of good faith and fair dealing.
c) Requires disability and life insurance policies offered
to seniors to allow an examination period of 30 days.
d) Requires brokers and agents offering disability
insurance to seniors to provide a full and accurate written
comparison with existing health coverage, and explain the
relationship of the proposed coverage to an existing
Medicare or Medi-Cal benefit.
e) Prohibits advertisements to seniors from using words,
letters, or symbols that are used by governmental agencies
and that could mislead the public. Also, other specified
deceptive devices are prohibited from being used in
advertising to seniors.
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f) Prohibits insurers, brokers, and agents from causing a
senior to replace disability insurance unnecessarily, or
from recommending the sale of disability insurance
providing coverage of more than 100% of actual medical
expenses.
g) Requires, in connection with the sale of life insurance
or annuities, disclosures that the sale or liquidation of
stock, bonds, an IRA, annuity, or other asset to fund the
new product may have tax consequences and early withdrawal
penalties.
h) Prohibits the sale of annuities to seniors who meet
specified income or Medi-Cal criteria.
i) Requires that anyone who meets with a senior in the
senior's home in connection with the sale of life
insurance, including annuities, must deliver a written
notice at least 24 hours prior to the meeting.
2)Assigns the Insurance Commissioner with the administrative
authority to assess penalties against insurers, brokers,
agents, and other persons engaged in the transaction of
insurance who violate the laws regarding senior insurance.
Upon a showing of a violation of the senior insurance laws in
a civil action, a court may also assess the penalties
established in law.
3)Specifies that actions for injunctive relief, administrative
penalties (ranging from $1,000 to $300,000 and rescission of a
contract), damages, restitution, and other remedies in law,
may be brought in the superior court by the Attorney General,
district attorney, or city attorney on behalf of the people of
California. The court shall award reasonable attorney's fees
and court costs to the prevailing plaintiff who establishes a
violation of the laws regarding senior insurance.
FISCAL EFFECT : Undetermined.
COMMENTS :
1)Purpose. The purpose of this bill is to create a private
right of action for seniors harmed by violations of the laws
regarding senior insurance, to allow them to recover damages.
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2)Background. The author provides the following information as
background for the bill:
The Insurance Code provides California elders with
important protections against deceptive insurance sales
practices. For example, it requires that agents give
elders 24 hour written notice before coming into their
homes to make sales presentations, and imposes a duty of
good faith and fair dealing on insurance agents when
dealing with seniors.
Under current law, violations of the senior insurance laws
may result in disciplinary proceedings against the agent by
the Insurance Commissioner and/or injunctive relief and
damages sought in a civil action by the Attorney General, a
district attorney, or a city attorney. However, under
current law, an elder who is harmed by a violation of these
laws may not himself or herself seek to recover for the
harm caused. While disciplinary proceedings brought
against violators are an important administrative tool to
maintain licensee standards, they do nothing to help elders
recover from their losses. The Attorney General, district
attorneys, and city attorneys have never brought a civil
action for damages on behalf of an affected elder. This
bill corrects this problem by allowing individual elders
who have been harmed by violations of the senior insurance
laws to recover on their own behalf.
3)Arguments in support. The California Advocates for Nursing
Home Reform (CANHR) states that California has over 200,000
individuals licensed to sell annuities to seniors. According
to CANHR, California's 3.8 million seniors cannot expect the
state to protect them when malfeasance has occurred and
insurance agents violate the senior insurance laws. CANHR
notes that the Department of Insurance, which recently cut
back staff, has fewer than three full-time attorneys working
on senior annuity issues.
CANHR states that law enforcement is generally not interested
in having to spend scarce resources on elder financial abuse
cases. According to this organization, financial elder abuse
is not a priority, and only a few district attorney offices
have attempted any prosecutions. CANHR concludes that since
public authorities cannot adequately protect senior rights,
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seniors need a private right of action so that they may enlist
the support of attorneys who can help to seek restitution.
The Consumer Attorneys of California (CAOC) states that
government agencies often lack the resources to seek and
obtain administrative penalties against violators and they
cannot vindicate the legal rights of elders who have been
harmed by these tactics. CAOC also states that providing
individual seniors with the right to enforce these provisions
would require no public funding and would promote the
Legislature's objectives in enacting protective measures for
the senior community in California.
4)Arguments in opposition. The Association of Life and Health
Insurance Companies (ACLHIC) and the American Council of Life
Insurers (ACLI) state that the bill would do nothing to
enhance the many protections in place for senior consumers,
and would more likely create a class action vehicle that would
dramatically increase insurers' expenses and drive up the cost
of life insurance and annuities to California consumers.
ACLHIC and ACLI state that depending on the size of the class
and claims involved, merely filing a class action or
certifying a class may be sufficient to induce a settlement
that has nothing to do with the ultimate merits of the case.
The costs of the settlements must be passed on to insureds in
the form of higher insurance premiums and annuity
considerations.
According to ACLHIC and ACLI, the bill would also significantly
increase burdens on California's court system because the bill
would require the courts to assert jurisdiction over a new and
potentially large class of cases. Also, since these cases
would be attractive to class-actions, they are more likely to
prove complex and time-consuming, with the added potential for
having to coordinate between "private" prosecutors and public
prosecutors. Additionally, the bill would encourage private
plaintiffs to consider only their personal costs and benefits,
and not the cost to the public generally. Additionally,
ACLHIC and ACLI state that the Commissioner's regulatory
authority would be usurped by generating inconsistent
regulation through isolated and inconsistent jury verdicts and
judicial opinions.
The Civil Justice Association of California (CJAC) states that
this bill could allow a lawsuit by a person who is not even a
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policyholder against an insurance company. In the case of
senior insurance, it could permit a lawsuit by an heir against
an insurance company, even if it is technical violation to
justify the lawsuit.
REGISTERED SUPPORT / OPPOSITION :
Support
California Advocates for Nursing Home Reform (CANHR)
Consumer Attorneys of California (CAOC)
Professional Fiduciary Association of California (PFAC)
Opposition
American Council of Life Insurers (ACLI)
Association of California Life & Health Insurance Companies
(ACLHIC)
California Insurance Wholesalers Association (CIWA)
Civil Justice Association of California (CJAC)
Insurance Brokers & Agents of the West (IBA West)
National Association of Insurance and Financial Advisors of
California (NAIFA-CA)
The Surplus Line Association of California
Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086