BILL ANALYSIS
SENATE COMMITTEE ON BANKING, FINANCE,
AND INSURANCE
Senator Ronald Calderon, Chair
AB 2022 (Gaines) Hearing Date: June 30, 2010
As Amended: May 11, 2010
Fiscal: No
Urgency: No
VOTES: Asm. Floor(05/20/10)72-0/Pass
Asm. Ins. (05/05/10)12-0/Pass
SUMMARY Would revise the disclosure notice required to be
provided to homeowners by insurers so it is shorter, easier to
read, and to make it easier for the homeowner to review the
adequacy of his or her coverage in the event of a loss or a
major catastrophe.
DIGEST
Existing law
1.Requires insurers that sell residential property insurance to
disclose to buyers the principal forms of insurance coverage
for residential dwellings, and the form of dwelling coverage
that the buyer has purchased. This notice is named the
California Residential Property Insurance Disclosure Statement
(disclosure statement);
2.Specifies that the disclosure statement shall contain the
following forms of dwelling coverages and defines the terms:
a. Guaranteed replacement cost coverage with full
building code upgrade;
b. Guaranteed replacement cost coverage with limited or
no building code upgrade;
c. Limited replacement cost coverage with an
additional percentage;
d. Limited replacement cost coverage with no additional
percentage;
e. Actual cash value coverage; and
f. Building code upgrade.
AB 2022 (Gaines), Page 2
3.Specifies that the disclosure statement does not explain the
types of contents coverage (furniture, clothing, etc.)
provided by the residential policy;
4.Requires the disclosure statement to be accompanied by a
California Residential Property Insurance Bill of Rights
(property bill of rights) that is printed in at least 10-point
type;
5.Requires this property bill of rights to contain both items of
advice (such as "keep accurate records of renovations and
improvements to the structure of your home") and information
that the consumer is entitled to receive (including a copy of
the residential policy and an explanation of how the policy
limits were established).
This bill
Would revise the current disclosure notice and the set of rights
that residential property insurers must provide to
policyholders, as follows:
1.Would require the California Residential Insurance Disclosure
Notice to Consumers (disclosure notice) to be printed in no
less than 10-point type.
2.Would require the disclosure notice to identify the coverage
purchased by the customer from among the following primary
forms of residential dwelling insurance coverage, and defines
the terms:
a. Actual cash value coverage;
b. Replacement cost coverage;
c. Extended replacement cost coverage;
d. Guaranteed replacement cost coverage; and
e. Building code upgrade coverage.
3.Would require the disclosure notice to identify several key
facts in a new category titled "Information You Should Know
About Residential Dwelling Insurance" and explains the terms:
a. Avoid being underinsured;
b. The residential dwelling coverage limit;
c. Demand surge;
d. Changes to property;
AB 2022 (Gaines), Page 3
e. Exclusions;
f. Contents (personal property) coverage disclosure;
and
g. Consumer assistance.
4.Would maintain the requirement the California Residential
Property Insurance Bill of Rights be printed in at least
10-point type, would restate various rights in the statement
now provided to residential property insurance policyholders,
add a requirement that explanation for a policy cancellation
or nonrenewal to be in writing, and adds the right to an offer
of coverage and premium quote for earthquake coverage if the
insured is eligible and removes material deemed not needed in
light of experience with the existing notice.
COMMENTS
1.Purpose of the bill To revise the disclosure notice required
to be provided to homeowners by insurers so it is shorter,
easier to read, and to make it easier for the homeowner to
review the adequacy of his or her coverage in the event of a
loss or a major catastrophe.
2.Background . The California Residential Property Insurance
Disclosure legislation, which was adopted in 1992, was the
response to the insurance claims issues arising from the
Oakland Hills Fire of 1991. There were approximately 3,000
houses and apartments that were completely destroyed by that
fire and many of the homeowners were significantly
underinsured. According to the author, the main purpose of
this disclosure legislation was to alert policyholders to the
various forms of coverage available so they would know the
importance of seeking Guaranteed Replacement Coverage and to
become aware of the their current coverages and options.
3.Arguments in support. Since the enactment of the disclosure
legislation in 1992, California has had the misfortune to
suffer several major disasters, including major wildfires in
Southern California. The author and the sponsoring Department
of Insurance (DOI) state that the disclosure notice, even with
amendments over the years, has become outdated in its content.
Guaranteed Replacement Cost coverage is offered by only four
or five insurers in the entire homeowners insurance market.
Further, due to the length of the disclosure notice, its
cumbersome charts, and the technical descriptions of coverage
and responsibilities, the disclosure notice fails to provide
AB 2022 (Gaines), Page 4
the readability necessary to effectively convey the important
information.
4.According to the author and the DOI, the revised disclosure
notice is easier to read, updates key terms in homeowners
policies, emphasizes the avoidance of underinsurance, and
describes the effect of a demand surge on construction costs.
This information will help homeowners in reviewing the
adequacy of their insurance coverages in the event of a
catastrophe such as a wildfire.
5.Questions None
6.Suggested Amendments . None
7.Prior and Related Legislation None
POSITIONS
Support
Department of Insurance (Sponsor)
Association of California Insurance Companies (ACIC)
United Policyholders
Oppose
None
Consultant: Kenneth Cooley (916) 651-4102