BILL ANALYSIS
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VETO
Bill No: SB 1406
Author: Senate Banking, Finance and Insurance Committee
Amended: 7/1/10
Vote: 21
SENATE BANKING, FINANCE, AND INS. COMMITTEE : 9-0, 4/21/10
AYES: Calderon, Cogdill, Correa, Florez, Kehoe, Lowenthal,
Padilla, Price, Runner
NO VOTE RECORDED: Cox, Liu
SENATE FLOOR : 33-0, 4/29/10
AYES: Aanestad, Alquist, Ashburn, Calderon, Cedillo,
Cogdill, Corbett, Correa, Cox, DeSaulnier, Ducheny,
Dutton, Florez, Hancock, Harman, Hollingsworth, Huff,
Kehoe, Leno, Liu, Lowenthal, Negrete McLeod, Oropeza,
Padilla, Pavley, Price, Runner, Simitian, Steinberg,
Walters, Wolk, Wright, Wyland
NO VOTE RECORDED: Denham, Romero, Strickland, Wiggins, Yee,
Vacancy, Vacancy
ASSEMBLY FLOOR : 78-0, 8/30/10 - See last page for vote
SENATE FLOOR : 37-0, 8/30/10
AYES: Aanestad, Alquist, Ashburn, Blakeslee, Calderon,
Cedillo, Cogdill, Corbett, Correa, Denham, DeSaulnier,
Ducheny, Dutton, Emmerson, Florez, Hancock, Harman,
Hollingsworth, Huff, Kehoe, Leno, Liu, Lowenthal, Negrete
McLeod, Padilla, Pavley, Price, Romero, Runner, Simitian,
Steinberg, Strickland, Walters, Wolk, Wright, Wyland, Yee
NO VOTE RECORDED: Oropeza, Wiggins, Vacancy
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SUBJECT : Earthquake insurance: coverage offer
SOURCE : Author
DIGEST : This bill states that existing law shall be
construed as authorizing an insurer for up to 60 days after
issuing or renewing a policy of residential property
insurance, to focus on claims and its resources on services
to existing policyholders in the event of an earthquake and
to temporarily defer the mandatory offer.
Assembly Amendments specify this bill does not vary the
requirement that all mandatory offers of earthquake
insurance be made prior to, concurrent with, or within 60
days following the issuance or renewal of residential
property insurance policy, and state that existing law
shall be construed as authorizing an insurer, for up to 60
days after issuing or renewing a policy of residential
insurance, to focus on claims and its resources on services
to existing policyholders in the event of an earthquake.
ANALYSIS : Existing law:
1.Specifies that no policy of residential property
insurance may be issued or delivered in California unless
the named insured is offered coverage for loss from the
peril of earthquake.
2.Authorizes the offer of earthquake coverage to be made
prior to, concurrent with, or within 60 days following
the issuance or renewal of a residential property
insurance policy.
This bill:
1.Provides in addition to affording administrative
flexibility to insurers for the routine management of
their business, existing law shall be construed as
authorizing an insurer, for a period not to exceed 60
days following the issuance or renewal of a residential
property insurance policy, to focus on claims and its
resources on services to existing policyholders in the
event of an earthquake and to temporarily defer the
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3
mandatory offer and its associated workload, including
any inspection or other underwriting activity.
2.Specifies this bill does not vary the requirement that
all mandatory offers of earthquake insurance be made
prior to, concurrent with, or within 60 days following
the issuance or renewal of residential property insurance
policy.
Background
California's mandatory earthquake offer law was adopted in
1984. At that time, it included the requirement that the
offer of earthquake coverage be provided prior to,
concurrent with, or within 60 days following the issuance
or renewal of the residential property insurance policy.
According to the analysis of the May 3, 1984, version of
that bill (AB 2865 McAlister) prepared by the Assembly
Finance and Insurance Committee:
"The 60 day "latitude" language serves two purposes.
First, in the event that there is an earthquake, a
company could offer the homeowner coverage at some
point within the 60 days following the earthquake.
This permits the insurers to reduce their risk because
an after shock could damage property with
newly-acquired earthquake coverage. The company's
underwriters would be able to rate the risk and
determine the appropriate premium.
Second, some insurers can continue to accept/nonaccept
the homeowner applicant prior to offering the
earthquake coverage."
As described in the 1984 Assembly Finance and Insurance
bill analysis, the "60 day latitude language" was intended
to have practical effects and to facilitate the ability of
insurers to comply with the requirement, while continuing
to offer homeowners insurance, and make offers of
earthquake insurance, even at a time of the occurrence of
an earthquake.
For approximately one week following the Northridge
earthquake in January 1994, when many individuals who had
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purchased earthquake insurance were seeking assistance,
insurance companies were criticized for focusing their
organizational resources on these current customers, rather
than making offers of earthquake insurance to new
customers. This produced confusion and disrupted the focus
on insured persons who had the foresight to buy earthquake
insurance. Within a short time, the Department of
Insurance concluded that as long as the 60 day offer
requirement was met, such a focus on current insureds after
an earthquake was in compliance with existing law.
This bill clarifies that the performance by an insurer of
its obligations to its existing earthquake insureds after
an earthquake has occurred is an appropriate priority and
is consistent with its obligations under the mandatory
offer law, as long as offers to extend earthquake coverage
to new customers are made on a timely basis in compliance
with existing law.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 8/26/10)
State Compensation Insurance Fund
GOVERNOR'S VETO MESSAGE :
"I am returning Senate Bill 1406 without my
signature.
This bill states that existing law shall be construed
as authorizing an insurer for up to 60 days after
issuing or renewing a policy of residential property
insurance, to focus on claims and its resources on
services to existing policyholders in the event of an
earthquake and to temporarily defer the mandatory
offer.
This bill does not change the responsibility or
timeframes for insurers that offer property insurance
and it does not make any substantive change to
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existing law.
For these reasons I cannot sign this bill."
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Bass, Beall, Bill
Berryhill, Tom Berryhill, Block, Blumenfield, Bradford,
Brownley, Buchanan, Caballero, Charles Calderon, Carter,
Chesbro, Conway, Cook, Coto, Davis, De La Torre, De Leon,
DeVore, Eng, Evans, Feuer, Fletcher, Fong, Fuentes,
Fuller, Furutani, Gaines, Galgiani, Garrick, Gatto,
Gilmore, Hagman, Hall, Harkey, Hayashi, Hernandez, Hill,
Huber, Huffman, Jeffries, Jones, Knight, Lieu, Logue,
Bonnie Lowenthal, Ma, Mendoza, Miller, Monning, Nava,
Nestande, Niello, Nielsen, Norby, V. Manuel Perez,
Portantino, Ruskin, Salas, Saldana, Silva, Skinner,
Smyth, Solorio, Audra Strickland, Swanson, Torlakson,
Torres, Torrico, Tran, Villines, Yamada, John A. Perez
NO VOTE RECORDED: Vacancy, Vacancy
JA:nl 10/5/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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