BILL ANALYSIS                                                                                                                                                                                                    �



                                                                  SB 621
                                                                  Page  1

          Date of Hearing:   August 17, 2011
          
                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                Felipe Fuentes, Chair

                   SB 621 (Calderon) - As Amended:  June 28, 2011 

          Policy Committee:                              Insurance Vote:10 
          - 0 

          Urgency:     No                   State Mandated Local Program: 
          No     Reimbursable:              

           SUMMARY  

          This bill invalidates any provision in a life insurance or 
          disability insurance policy that provides discretionary 
          authority to the insurer to determine eligibility for benefits 
          or coverage. Specifically, this bill:

          1)Provides that if any life insurance or disability insurance 
            policy reserves discretionary authority to the insurer or 
            agent to determine eligibility for benefits or coverage, or 
            provides standards of interpretation that are inconsistent 
            with the laws of this state, then that provision is void and 
            unenforceable.

          2)Defines discretionary authority to be a policy provision that 
            has the effect of conferring discretion on an insurer or other 
            administrator to determine entitlement to benefits or to 
            interpret policy language that could lead to a deferential 
            standard of review by a court.

           FISCAL EFFECT  

          Costs associated with this legislation would be minor and 
          absorbable. 

           COMMENTS  

           1)Rationale  .  The purpose of this bill is to prohibit life and 
            disability insurance policies from providing "discretionary 
            authority" to insurers.  The sponsor, the Department of 
            Insurance (DOI) states that an inherent conflict of interest 
            exists when an insurance company both determines eligibility 








                                                                  SB 621
                                                                  Page  2

            for benefits and bears the financial burden of paying for 
            them.  

            The Department of Insurance explains that a discretionary 
            authority provision reserves discretionary authority to the 
            insurer to determine eligibility for benefits or coverage, to 
            interpret the terms of the policy, or to provide standards of 
            interpretation or review that may be inconsistent with the 
            laws of this state.

           2)Related Legislation  . This bill is similar to AB 1868 (Jones) 
            of the 2009-10 Legislative Session which was vetoed by Gov. 
            Schwarzenegger, who stated the bill was unnecessary since the 
            Insurance Commissioner already has authority to prohibit 
            discretionary clauses.  

           Analysis Prepared by  :    Julie Salley-Gray / APPR. / (916) 
          319-2081