BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
SB 156
Senator Wright
As Amended April 14, 2009
Hearing Date: May 12, 2009
Insurance Code
SK:jd
SUBJECT
Insurance Fraud: Liability
DESCRIPTION
This bill would provide that the Insurance Commissioner or a
district attorney may convene meetings with representatives of
insurance companies to discuss emerging trends and schemes
involving insurance fraud. Under the bill, information shared
during those meetings would be protected by existing provisions
of law which provide for immunity from liability for insurers
and authorized governmental agencies, as specified.
(This analysis reflects author's amendments to be offered in
Committee.)
BACKGROUND
A May 2008 report from the Department of Insurance, Advisory
Task Force on Insurance Fraud entitled "Reducing Insurance Fraud
in California" contained 18 recommendations intended to provide
the Insurance Commissioner with "guidance and advice on reducing
insurance fraud in California." Recommendation number 12
suggested that the existing immunity provisions be strengthened
for "companies that report suspected fraud and cooperate
investigations in accordance with the National Association of
Insurance Commissioners (NAIC) Insurance Fraud Prevention Model
Act." According to the Advisory Task Force report, "the NAIC
Insurance Fraud Prevention Model Act has been substantially
updated since a predecessor version was enacted in California.
The updated Act provides greater civil immunity for insurers
sharing fraud information." This bill is intended to implement
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Recommendation 12.
This bill was approved by the Banking, Finance, and Insurance
Committee on May 6, 2009.
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CHANGES TO EXISTING LAW
Existing law requires an insurer to provide law enforcement,
upon a written request, with any or all relevant information
deemed important to the authorized governmental agency, as
defined, relating to any specific insurance fraud. Existing law
provides that such information includes insurance policy
information relevant to the fraud under investigation, policy
premium payment records, and history of previous claims made by
the insured. (Ins. Code Sec. 1873.)
Existing law provides that any information acquired is not part
of the public record and any authorized governmental agency or
insurer who receives any information pursuant to the statute
shall not release that information to the public until its
release is required in connection with a criminal or civil
proceeding. (Ins. Code Sec. 1873.1.)
Existing law provides that, in the absence of fraud or malice,
no insurer and no authorized governmental agency shall be
subject to any civil liability for libel, slander, or any other
relevant cause of action because of releasing or receiving the
information required to be disclosed under Sections 1873 or
1873.1. (Ins. Code Sec. 1873.2.)
Existing law specifies that the above-described provisions do
not apply to motor vehicle theft and motor vehicle insurance
fraud reporting or to workers' compensation fraud reporting.
(Ins. Code Sec. 1873.3(a).)
Existing law defines "authorized governmental agency" to mean
the California Highway Patrol, Department of Motor Vehicles,
Department of Insurance, Department of Justice, local police
department, sheriff's office, district attorney, any other law
enforcement agency, agencies employing other specified peace
officers including, among others, port police officers,
voluntary fire wardens, investigators of the Horse Racing Board,
and investigators in the Controller's office, and any licensing
agency governed by the Business and Professions Code. (Ins.
Code Sec. 1873.3(b).)
This bill would permit the Insurance Commissioner or a district
attorney to convene meetings with representatives of insurance
companies to discuss emerging trends and schemes involving
insurance fraud.
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This bill would provide that information shared during those
meetings shall be protected by the liability protections
contained in Section 1873.2.
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COMMENT
1.Stated need for the bill
The author writes:
According to a May 2008, report by the Insurance
Commissioner's Advisory Task Force on Insurance Fraud,
insurance fraud in California totals over $15 billion each
year, costing each resident an average of more than $500 per
year. Many cases of suspected fraud go undetected or
unprosecuted due to a lack of information. . . . The
language as introduced is based on the Model Act of the
National Association of Insurance Commissioners (NAIC). . . .
These discussions among insurers will be convened by the
Department of Insurance or a District Attorney. Because
everything occurs in the presence of law enforcement, these
discussions will not devolve into conspiracies among insurers.
These are not a threat to the legitimate interests of
employers, workers, trial attorneys, or medical providers. .
. . The purpose of the bill is to allow people who see
different parts of a puzzle to put their pieces together to
reveal patterns of fraud. It is understandable that someone
who is usually on the opposing side from the insurers to be
concerned about their acting in concert. These meetings
convened by law enforcement will not become conspiracies but
will help to fight insurance fraud.
The San Diego County District Attorney supports the measure and
writes that it "will provide the Department of Insurance and
prosecutors with a new tool to help deter and discover insurance
fraud." The office "handles hundreds of these cases.
Typically, they are complex, time-consuming, and expensive to
investigate and prosecute. . . . [SB 156] gives us a specific
tool to prevent, detect and investigate these costly crimes by
allowing certain persons to share information about fraud while
being protected from civil liability."
2.Whether extending immunity is appropriate in these instances
This bill would extend existing provisions of law which provide
for immunity from liability for insurers who respond to written
requests from law enforcement and authorized governmental
agencies that receive the information. Under this bill,
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information shared by those same entities at meetings to
"discuss emerging trends and schemes involving insurance fraud"
would be protected. This language raises several concerns, as
discussed below.
a. Bill would protect information shared at meeting
Existing law already provides immunity from liability to
insurers and authorized governmental agencies when insurers
release information required to be disclosed under Insurance
Code Sections 1873 and 1873.1. Those sections require an
insurer to provide law enforcement with information deemed
important to the authorized governmental agency relating to
any specific insurance fraud. Such information includes
insurance policy information relevant to the insurance fraud
under investigation, policy premium payment records, history
of previous claims made by the insured, and information
relating to the investigation of the insurance fraud,
including statements of any person, proof of loss, and notice
of loss.
This bill, on the other hand, is more open-ended and extends
the immunity protections to information shared at a meeting
with insurance company representatives to "discuss emerging
trends and schemes involving insurance fraud." This language
also raises concerns about the relationship between the
regulator and the regulated which should be carefully
scrutinized. In the past, as this Committee will likely
recall, there were issues concerning the relationship between
Insurance Commissioner Chuck Quackenbush and the insurance
companies he was in charge of regulating. For these reasons,
this bill's proposed immunity protections are broad in scope,
and the bill should be amended to narrow the scope of the
meeting provisions so that the meeting covers only a specific
insurance fraud, rather than "emerging trends and schemes
involving insurance fraud" and only information relating to
that specific fraud should be protected.
SHOULD THE BILL BE AMENDED TO NARROW THE IMMUNITY PROTECTION
SO THAT IT IS EXTENDED ONLY TO INFORMATION SHARED AT MEETINGS
CONVENED TO DISCUSS A SPECIFIC INSURANCE FRAUD AND ONLY TO
INFORMATION RELATING TO THAT SPECIFIC FRAUD?
b. Bill's immunity protections not limited to insurance fraud
Although this bill would provide immunity from liability
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protection for information shared during meetings convened by
the Insurance Commissioner or a district attorney to discuss
"emerging trends and schemes involving insurance fraud," as
currently in print, its protections are not limited to
insurance fraud. The bill protects information shared during
the course of the meetings, including possible evidence of
other criminal activity not involving insurance fraud. The
author has indicated a desire to delete this language. Even
without the language, however, the bill's immunity protections
are overly broad.
ARE THE IMMUNITY PROTECTIONS CONTAINED IN THIS BILL OVERLY
BROAD? ALTERNATIVELY, SHOULD THE BILL BE AMENDED TO NARROW
THE IMMUNITY PROTECTION AS SUGGESTED IN COMMENT 2A?
c. Immunity under the Insurance Fraud Prevention Model Act
As noted above, this bill is intended to implement a
recommendation of the Department of Insurance's Advisory Task
Force on Insurance Fraud which cited the "greater civil
liability" in the NAIC's Insurance Fraud Prevention Model Act.
That Act provides "[t]here shall be no civil liability
imposed on and no cause of action shall arise from a person's
furnishing information concerning suspected, anticipated or
completed fraudulent insurance acts if the information is
provided to or received from [specified public entities]."
This immunity does not apply to statements made with actual
malice.
Although this bill is intended to implement the immunity
provided in the Model Act, the language of that Act appears to
be narrower than this bill. While this bill provides immunity
for information shared at meetings convened to discuss
emerging trends and schemes, the Model Act suggests immunity
for information concerning fraudulent insurance acts only, an
arguably narrower immunity than the one provided under this
bill.
ARE THE IMMUNITY PROTECTIONS CONTAINED IN THIS BILL BROADER
THAN THE MODEL ACT AND SHOULD THE BILL THEREFORE BE AMENDED TO
APPLY ITS PROTECTIONS ONLY TO INFORMATION RELATING TO A
SPECIFIC INSURANCE FRAUD AS SUGGESTED IN COMMENT 2A?
d. Immunity provided to authorized governmental authorities
Existing law provides immunity from liability for an insurer
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who responds to a written request from law enforcement for
information about a specific insurance fraud and for an
"authorized governmental agency" that receives that
information. Existing law defines an authorized governmental
agency to mean the California Highway Patrol, Department of
Motor Vehicles, Department of Insurance, Department of
Justice, local police department, sheriff's office, district
attorney, any other law enforcement agency, agencies employing
other specified peace officers including, among others, port
police officers, voluntary fire wardens, investigators of the
Horse Racing Board, and investigators in the Controller's
office, and any licensing agency governed by the Business and
Professions Code.
Although this bill would permit only the Insurance
Commissioner or a district attorney to convene a meeting with
insurance company representatives, existing immunity
protections also apply to authorized governmental agencies.
As a result, if employees of such agencies were included in
the meeting, they too would appear to be protected from
liability.
IS IT APPROPRIATE TO EXTEND IMMUNITY TO ALSO ARGUABLY INCLUDE
OTHER GOVERNMENTAL AUTHORITIES? ALTERNATIVELY, SHOULD THE BILL
BE AMENDED TO NARROW THE IMMUNITY PROTECTION AS SUGGESTED IN
COMMENT 2A?
3.Whether it is appropriate to provide antitrust protections in
these instances
This bill, by permitting the Insurance Commissioner or a
district attorney to convene meetings with insurance company
representatives to discuss "emerging trends and schemes
involving insurance fraud" arguably raises antitrust concerns.
The bill could undermine long-standing precedents established by
the California Supreme Court that subject the insurance industry
to state antitrust laws, including Manufacturers Life Ins. Co.
v. Superior Court (1995) 10 Cal.4th 257 (rejecting claim of
implied immunity and holding that the Legislature had not
granted the insurance industry a general exemption from state
antitrust and unfair business practices statutes) and Quelimane
Co. v. Stewart Title Guaranty Co.. (1998) 19 Cal.4th 26
(defendants were not immune from state antitrust and unfair
competition statutes simply because they were covered by the
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state's insurance code). Further, the bill is proposed at a
time when Congress is considering removing federal antitrust
exemptions for the insurance industry and the Department of
Justice has warned about possible collusion in the insurance
industry related to the American Recovery and Reinvestment Act
of 2009 economic stimulus bill.
Antitrust has long been concerned about the anticompetitive
effects of information sharing among competitors because it is
considered a facilitating device for unlawful collusion, having
numerous anticompetitive effects, including price-fixing and
price discrimination. This bill would allow for information
sharing among competitors on a broad range of issues. "Emerging
trends" could be read to mean just about any sort of
information, including competitively sensitive information.
Further, while antitrust law provides guidance for certain
transparency or efficiency enhancing information exchanges, the
bill provides for none of the safeguards recognized as necessary
to protect market integrity. The bill's involvement of
government officials in the information sharing is particularly
troubling and could lead to unintended consequences including
their unwitting involvement in or facilitation of collusion and
claims of state action immunity. The bill offers no
justification for allowing rival firms to have access to
competitively sensitive information. Immunizing the sharing of
competitively sensitive information would allow competitors to
engage in conduct that could lead to price fixing, bid rigging,
or market division or allocation schemes, all antitrust
violations.
As a result, the bill should be amended to apply its protections
only to a meeting with one insurance company at a time, rather
than to a meeting with more than one insurance company.
SHOULD THE BILL BE AMENDED TO APPLY ITS PROTECTIONS ONLY TO A
MEETING WITH ONE INSURANCE COMPANY TO AVOID ANTITRUST
IMPLICATIONS?
4.Application of Public Records Act exemption
This bill's provision permitting the Insurance Commissioner or a
local district attorney to convene meetings to discuss emerging
trends and schemes involving insurance fraud raises public
policy questions concerning the Public Records Act (PRA). The
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PRA generally provides that records of state and local agencies
are open and subject to public inspection, with a number of
exceptions. One such exemption would exempt from public
disclosure records showing the deliberative process of
government officials. Another exempts records of investigations
conducted by any local police agency or any investigatory or
security files compiled by any other state or local agency for
correctional, law enforcement, or licensing purposes. These
exceptions would arguably apply to the meetings convened by the
Insurance Commissioner or a local district attorney pursuant to
the provisions of this bill.
This Committee should consider the impact of the PRA's
exemptions on the information shared at meetings convened by the
Insurance Commissioner or a district attorney under this bill,
particularly in light of the antitrust concerns described above.
5.Bill does not currently apply to workers' compensation fraud or
auto insurance fraud
Existing Insurance Code Section 1873.2, which this bill amends,
does not include motor vehicle theft and motor vehicle insurance
fraud reporting or workers' compensation fraud reporting. As a
result, although this bill contains findings related to workers'
compensation, the substantive provisions of the bill do not
affect the workers' compensation program. It may be the case
that these findings were relevant to a prior version of the
bill. The author's office intends that this bill apply to motor
vehicle theft and motor vehicle insurance fraud reporting or
workers' compensation fraud reporting and the author's
amendments in Comment 7 are intended to achieve that.
6.Opposition arguments
The Consumer Attorneys of California oppose the measure,
writing:
This bill would create an unnecessary immunity to protect
meetings convened by the Department of Insurance or a district
attorney to discuss trends in insurance fraud with private
insurers. While we appreciate the desire for frank and open
discussions, it is not at all clear why an immunity is
necessary. First, we have not heard of any other code section
where discussions of this sort are immunized. This seems a
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rather novel and sweeping immunity that would be quite
unusual. Second, we are not aware of any litigation in this
area that should prompt a statutory response; it appears to be
addressing a problem that has never arisen. Third, the bill's
findings refer to the need to have frank discussions about
workers' compensation fraud, yet the bill does not actually
cover discussions about workers' compensation. Fourth, the
bill immunizes all information shared, including "possible
evidence of other criminal activity." This broad language goes
well beyond the topic of insurance fraud.
7.Author's amendments
The author would like to make the following amendments to the
bill:
1) In line 1 of the title, strike out "1873.5" and
insert:1879.1
2) On page 2, line 12, strike out "of fraud often involved"
and insert:
often defraud
3) On page 2, strike out lines 16 to 22, inclusive
4) On page 2, line 23, strike out "(e)" and insert:(d)
5) On page 2, strike out lines 26 and 27, and insert:
SEC. 2. Section 1879.1 is added to the Insurance Code, to
read:
1879.1. The commissioner, his or her designated deputy
6) On page 2, line 28, after the first comma insert: or
7) On page 2, lines 32 and 33, strike out ", including
possible evidence of other criminal activity not involving
insurance fraud,"
Support : California Peace Officers' Association; California
Police Chiefs Association; CAN Insurance; California Society of
Industrial Medicine and Surgery; California Society of Physical
Medicine and Rehabilitation; U.S. Health Works; Bonnie M.
Dumanis, District Attorney of San Diego County; 6 individuals
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Opposition : Consumer Attorneys of California
HISTORY
Source : Author
Related Pending Legislation : None Known
Prior Legislation : None Known
Prior Vote : Banking, Finance, and Insurance Committee (Ayes 11,
Noes 0)
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