BILL ANALYSIS �
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UNFINISHED BUSINESS
Bill No: SB 621
Author: Calderon (D)
Amended: 6/28/11
Vote: 21
SENATE INSURANCE COMMITTEE : 8-0, 3/23/11
AYES: Calderon, Gaines, Anderson, Corbett, Lieu,
Lowenthal, Price, Wyland
NO VOTE RECORDED: Correa
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SENATE FLOOR : 37-0, 5/16/11
AYES: Alquist, Anderson, Berryhill, Blakeslee, Calderon,
Cannella, Corbett, Correa, De Le�n, DeSaulnier, Dutton,
Emmerson, Evans, Fuller, Gaines, Hancock, Harman,
Hernandez, Huff, Kehoe, La Malfa, Leno, Lieu, Liu,
Lowenthal, Negrete McLeod, Padilla, Pavley, Price, Rubio,
Runner, Simitian, Steinberg, Vargas, Wolk, Wright, Yee
NO VOTE RECORDED: Strickland, Walters, Wyland
ASSEMBLY FLOOR : 78-0, 8/25/11 (Consent) - See last page
for vote
SUBJECT : Insurance: life: disability: discretionary
clauses
SOURCE : Department of Insurance
DIGEST : This bill invalidates any provision in a life
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insurance or disability insurance policy that provides
discretionary authority to the insurer to determine
eligibility for benefits or coverage.
Assembly Amendments delete language which prohibited the
Insurance Commissioner (IC) from approving disability
insurance policies that contain discretionary clause,
specify this bill applies to both group and individual
insurance products, authorize the IC to adopt regulations
to implement this bill, and specify that the authority
provided by this bill is self-executing.
ANALYSIS : Existing law generally regulates life and
disability insurance policies, and requires the IC to
disapprove any disability policy for issuance or delivery
in this state in specified circumstances.
This bill:
1. Makes void and unenforceable a provision in a life
insurance or disability insurance policy, contract,
certificate, or agreement that is issued, delivered or
renewed, as defined, for a California resident, if the
provision reserves discretionary authority to the
insurer, or its agent, to:
A. Determine eligibility for benefits or coverage;
B. Interpret the terms of the policy, contract,
certificate, or agreement; or
C. Provide standards of interpretation or review that
are inconsistent with the laws of this state.
2. Defines "renewed" as continued in force on or after the
policy's anniversary date.
3. Provides that nothing in this bill prohibits an insurer
from including contract language informing their insured
that as part of its routine operations the insurer
applies the terms of its contracts for making decisions,
including making determinations regarding eligibility,
receipt of benefits and claims, or explaining policies,
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procedures, and processes, so long as the provision
could not give rise to a deferential standard of review
by any reviewing court.
4. Specifies this bill applies to both group and
individual insurance products.
5. Authorizes the IC to adopt regulations to implement
this bill.
6. Specifies that the authority provided by this bill is
self-executing. If a life insurance or disability
insurance policy, contract, certificate, or agreement
contains a provision rendered void and unenforceable by
this bill, then the parties to the policy, contract,
certificate, or agreement and the courts shall treat the
provision as void and unenforceable.
Comments
Purpose of the bill . This bill, sponsored by the
Department of Insurance, prohibits life and disability
insurance policies from containing a discretionary clause,
and prohibits the IC from approving disability insurance
policies that contain a discretionary clause.
The Department of Insurance explains that a discretionary
clause is a provision that 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 are
inconsistent with the
laws of this state.
Under existing law, the IC must not approve disability
insurance policies containing any clause or provision that
is "unintelligible, uncertain, ambiguous, abstruse, or
likely to mislead a person to whom the policy is offered,
delivered, or issued."
In 2002, The National Association of Insurance
Commissioners, in recognition of the issues this bill seeks
to address, adopted a Model law (Model 42) which it
describes as follows:
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"(MDL-42) This models helps ensure that health insurance
benefits and disability-income protection coverage are
contractually guaranteed, and helps avoid the conflict of
interest that occurs when the carrier responsible for
providing benefits has discretionary authority to decide
what benefits are due."
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 8/23/11)
Department of Insurance (source)
California Conference Board of the Amalgamated Transit
Union
California Conference of Machinists
California Official Court Reporters Association
California Teamsters Public Affairs Council
Congress of California Seniors
Consumer Attorneys of California
Engineers and Scientists of California
International Longshore and Warehouse Union
Professional and Technical Engineers, Local 21
UNITE HERE!
United Food and Commercial Workers - Western States
Conference
United Policyholders
Utility Workers Union of America, Local 132
ARGUMENTS IN SUPPORT : The Consumer Attorneys of
California state: "Under current law, when an ERISA
�Employee Retirement Income Security Act] disability
carrier in California decides a claim, the consumer has the
right to an administrative appeal (before a different
reviewer, employed by the same insurance company). Most
ERISA disability policies reserve broad discretion to
interpret the language and terms of the contract. Thus, if
the consumer chooses to appeal his or her claim, it must be
done in Federal Court. But, the claimant's hands are tied
and he or she must show that the insurance company abused
its discretion in reaching its decision without the ability
to bring in new information or facts. This makes it near
impossible for the consumer to have a fair and impartial
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hearing."
ASSEMBLY FLOOR : 78-0, 8/25/11 (Consent)
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall,
Bill Berryhill, Block, Blumenfield, Bradford, Brownley,
Buchanan, Butler, Charles Calderon, Campos, Carter,
Cedillo, Chesbro, Conway, Cook, Davis, Dickinson,
Donnelly, Eng, Feuer, Fletcher, Fong, Fuentes, Furutani,
Beth Gaines, Galgiani, Garrick, Gatto, Gordon, Grove,
Hagman, Halderman, Hall, Harkey, Hayashi, Roger
Hern�ndez, Hill, Huber, Hueso, Huffman, Jeffries, Jones,
Knight, Lara, Logue, Bonnie Lowenthal, Ma, Mansoor,
Mendoza, Miller, Mitchell, Monning, Morrell, Nestande,
Nielsen, Norby, Olsen, Pan, Perea, V. Manuel P�rez,
Portantino, Silva, Skinner, Smyth, Solorio, Swanson,
Torres, Valadao, Wagner, Wieckowski, Williams, Yamada,
John A. P�rez
NO VOTE RECORDED: Bonilla, Gorell
JJA:kc 8/26/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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