BILL ANALYSIS
------------------------------------------------------------
|SENATE RULES COMMITTEE | AB 2022|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
------------------------------------------------------------
THIRD READING
Bill No: AB 2022
Author: Gaines (R)
Amended: 5/11/10 in Assembly
Vote: 21
SENATE BANKING, FINANCE, AND INS. COMMITTEE : 10-0, 6/30/10
AYES: Calderon, Cogdill, Correa, Florez, Kehoe, Liu,
Lowenthal, Padilla, Price, Runner
NO VOTE RECORDED: Cox
ASSEMBLY FLOOR : 72-0, 5/20/10 - See last page for vote
SUBJECT : Property insurance: residential disclosure
SOURCE : Department of Insurance
DIGEST : This bill revises 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.
ANALYSIS :
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.
CONTINUED
AB 2022
Page
2
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 coverage 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.
F. Building code upgrade.
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
1. Revises the current disclosure notice and the set of
rights that residential property insurers must provide
CONTINUED
AB 2022
Page
3
to policyholders, as follows:
A. Requires the California Residential Insurance
Disclosure Notice to Consumers (disclosure notice)
to be printed in no less than 10-point type.
B. Requires 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:
(1) Actual cash value coverage
(2) Replacement cost coverage
(3) Extended replacement cost coverage
(4) Guaranteed replacement cost coverage
(5) Building code upgrade coverage
3. Requires 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
E. Exclusions
F. Contents (personal property) coverage disclosure
G. Consumer assistance
4. Maintains the requirement the California Residential
Property Insurance Bill of Rights be printed in at least
10-point type, restates various rights in the statement
now provided to residential property insurance
policyholders, adds 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.
Background
The California Residential Property Insurance Disclosure
CONTINUED
AB 2022
Page
4
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 coverage and options.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 7/28/10)
Department of Insurance (source)
United Policyholders
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's
office and the Department of Insurance, the sponsor 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 the readability necessary to effectively convey
the important information.
According to the author's office and the Department of
Insurance, 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 coverage in the event of a catastrophe such as a
wildfire.
CONTINUED
AB 2022
Page
5
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Bass, Beall,
Bill Berryhill, Tom Berryhill, Blakeslee, Block,
Blumenfield, Bradford, Brownley, Buchanan, Caballero,
Charles Calderon, Carter, Chesbro, Conway, Cook, Coto,
Davis, De Leon, DeVore, Emmerson, Eng, Feuer, Fong,
Fuentes, Fuller, Furutani, Gaines, Galgiani, Garrick,
Gilmore, Hagman, Hall, Hayashi, Hernandez, Hill, Huber,
Huffman, Jeffries, Jones, Knight, Lieu, Logue, Bonnie
Lowenthal, Ma, Mendoza, Miller, Monning, Nestande,
Niello, Nielsen, Norby, V. Manuel Perez, Portantino,
Ruskin, Salas, Saldana, Silva, Skinner, Smyth, Solorio,
Audra Strickland, Swanson, Torlakson, Torres, Torrico,
Tran, Yamada
NO VOTE RECORDED: De La Torre, Evans, Fletcher, Harkey,
Nava, Villines, John A. Perez, Vacancy
JJA:do 8/4/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****
CONTINUED