BILL ANALYSIS �
SENATE INSURANCE COMMITTEE
Senator Ronald Calderon, Chair
SB 631 (Evans) Hearing Date: April 27, 2011
As Amended: March 24, 2011
Fiscal: Yes
Urgency: No
SUMMARY Would confer upon the Office of the Insurance
Commissioner a new, broad authority to order restitution which
is made independent of both historic constraints on the office
that date to early statehood and others imposed as curative
provisions after controversial conduct in the last decade.
DIGEST
Existing law
1. California Insurance Code (CIC) Section 12921(a) is the
most fundamental Insurance Code provision establishing the
scope and responsibilities of the Office of the Insurance
Commissioner. It requires the Insurance Commissioner to
perform all duties imposed upon him or her by the
provisions of this code and other laws regulating the
business of insurance in this state, and requires as well
that he or she shall enforce the execution of those
provisions and laws.
2. Under the Insurance Code, the power of the Commissioner to
impose settlements is carefully circumscribed by a
post-Commissioner Quackenbush-era statute (CIC Sec.
12921(b)) which provides that "in an administrative action
to enforce the provisions of this code and other laws
regulating the business of insurance in this state, any
settlement is subject to all of the following:
a. The commissioner may delegate the power to
negotiate the terms and conditions of a settlement but
the commissioner may not delegate the power to approve
the settlement.
b. Unless specifically provided for in a
provision of this code, the commissioner may not agree
SB 631 (Evans), Page 2
to any of the following:
i. That the respondent contribute,
deposit, or transfer any moneys or other
resources to a nonprofit entity.
ii. That a respondent contribute,
deposit, or transfer any fine, penalty,
assessment, cost, or fee except to the
commissioner for deposit in the appropriate state
fund pursuant to Section 12975.7.
iii. That the commissioner may or shall
direct the transfer, distribution, or payment to
another person or entity of any fine, penalty,
assessment, cost, or fee.
iv. The use of the commissioner's name,
likeness, or voice in any printed material or
audio or visual medium, either for general
distribution or for distribution to specific
recipients.
3. The commissioner may only agree to payment to
those persons or entities to whom payment may be due
because of the respondent's violation of a provision of
this code or other law regulating the business of
insurance in this state.
4. A settlement may only include the sanctions
provided by this code or other laws regulating the
business of insurance in this state, except that the
settlement may include attorney's fees, costs of the
department in bringing the enforcement action, and
future costs of the department to ensure compliance
with the settlement agreement.
This bill
1. Makes legislative findings and declarations as follows:
a. Existing law permits the commissioner to order
restitution only in limited circumstances.
b. The commissioner regularly finds that, as a
result of legal violations, Californians are entitled
to refunds or restitution, but in many circumstances,
the commissioner has no specific authority to order
refunds or restitution.
c. This section is intended to provide the
SB 631 (Evans), Page 3
commissioner the authority to order refunds or
restitution in all instances where he or she finds
that an insurer, licensee, or other entity or person
has violated the code.
2. Provides that in addition to any other remedy provided
in this code, and "notwithstanding " Sections 12921,
(described above under existing law) and 12926.1, and
12975.7, in the exercise of his or her discretion to take
enforcement action, the commissioner may impose upon an
insurer, licensee, or other entity or person subject to the
commissioner's authority the remedies provided in this
section;
3. Provides that whenever the commissioner finds via a
settlement or after a hearing, that a party subject to this
act has violated any of the provisions of this code, he or
she may order the following remedies:
a. Order the party to pay restitution to a
person, defined as quantifiable monetary sums the
party owes to a person, but did not pay, in violation
of a law or regulation of the commissioner; the term
includes out-of-pocket expenses incurred or economic
harm suffered by a person because of the party's
violation of a law or regulation enforced by the
commissioner.
b. Order the insurer or other party to the DOI's
attorney's fees and costs, and future costs of the
department to ensure compliance with the settlement,
or order requiring restitution or other remedies.
4. Where restitution is ordered and paid to a person under
this act, the amount paid shall be credited to any
subsequent judgment obtained by that person in a civil
action arising from the same facts and circumstances.
5. Specifies nothing in this act is intended to limit or
restrict actions, remedies, or procedures otherwise
available to the department or any person under law.
6. Provides that the absence of an order by the
Commissioner to impose restitution shall not be a defense
in an administrative or private civil action.
7. Provides that for proceedings required to be conducted
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in accordance with the Administrative Procedure Act:
a. An order requiring restitution shall become
effective 45 days after it is delivered or mailed to
the subject insurer or other party, unless a stay of
execution is granted.
b. Judicial review of a restitution order may be
had by filing a petition for a writ of mandate within
45 days after the delivery or mailing of the order
requiring restitution in accordance with the Code of
Civil Procedure.
8. If restitution is not paid to a person within 10 days
after an order becomes effective, the commissioner shall
proceed in accordance with Section 12976 for the purpose of
recovering those moneys due to that person.
9. Defines person for purposes of this law as any person,
association, organization, partnership, business trust,
limited liability company or corporation.
COMMENTS
1. Purpose of the bill: According to the Author, this
bill provides express authority for the Insurance
Commissioner to order restitution as part of any
non-Proposition 103 enforcement action to compensate
a consumer for economic harm arising directly from a
violation of insurance law.
The Author states this bill ensures any restitution
order by the Commissioner may be open to judicial
review, at the request of the party being ordered to
pay restitution, before restitution is collected, and
does not diminish a consumer's right to pursue direct
civil action against an insurer or licensee when
authorized by law in lieu of the Commissioner's
ordered restitution remedy.
2. Background and Discussion:
a. Office of the Insurance Commissioner: California's
most basic statute governing the powers and duties of the
office of Insurance Commissioner states "The commissioner
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shall perform all duties imposed upon him or her by the
provisions of this code and other laws regulating the
business of insurance in this state, and shall enforce
the execution of those provisions and laws".
The Insurance Commissioner's duties are anchored in the
statutory law that specifies the duties of insurers,
their powers and structure, producers, adjusters and the
other matters contained within the Insurance code.
This basic statute stood essentially unchanged from the
adoption of California's early Political Code (1873-74),
although it was placed in California's Insurance Code
upon its adoption in 1935.
Nothing in this general statement of the Commissioner's
powers authorizes him to promulgate rules or regulations
establishing new legal duties, obligations or
requirements; as an elected Administrator, this section
authorizes the Commissioner to enforce existing
"provisions of this code and other laws regulating the
business of insurance?."
b. Limitations Upon Power to Approve Settlements: In
2000, in the aftermath of abuses by California's second
elected Insurance Commissioner, this basic statute was
revised by Chapter 1091 of the Statutes of 2000 (SB 2107,
Speier). That measure added a new subdivision (b) which
provides that " in an administrative action to enforce
provisions of this code and other laws regulating the
business of insurance in this state, any settlement is
subject to all of the following (emphasis added):
i. The commissioner may delegate the power to
negotiate the terms and conditions of a
settlement but the commissioner may not delegate
the power to approve the settlement.
ii. Unless specifically provided for in
a provision of this code, the commissioner may
not agree to any of the following :
1. That the respondent
contribute, deposit, or transfer any moneys
or other resources to a nonprofit entity.
2. That a respondent
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contribute, deposit, or transfer any fine,
penalty, assessment, cost, or fee except to
the commissioner for deposit in the
appropriate state fund pursuant to Section
12975.7.
3. That the commissioner may
or shall direct the transfer, distribution,
or payment to another person or entity of
any fine, penalty, assessment, cost, or fee.
4. The use of the
commissioner's name, likeness, or voice in
any printed material or audio or visual
medium, either for general distribution or
for distribution to specific recipients.
iii. The commissioner may only agree to
payment to those persons or entities to whom
payment may be due because of the respondent's
violation of a provision of this code or other
law regulating the business of insurance in this
state.
iv. A settlement may only include the
sanctions provided by this code or other laws
regulating the business of insurance in this
state, except that the settlement may include
attorney's fees, costs of the department in
bringing the enforcement action, and future costs
of the department to ensure compliance with the
settlement agreement. (emphasis added)
c. As amended in the 1999-2000 Session, the powers of
the office of the Insurance Commissioner have been
intentionally circumscribed so that they only include the
"sanctions provided by this code or other laws regulating
the business of insurance in this state". (CIC
12921(b)(4))
d. Section 12921(b) is clearly a statute imposing
limitations upon the power of the office of California's
Insurance Commissioner to agree to any settlement,
whether negotiated by him or her or any member of his or
her staff, unless that settlement is "specifically
provided for in a provision of this code".
e. SB 631 Expands & Redefine the Office of Insurance
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Commissioner: The restitution power proposed by SB 631 is
specifically designed to be exercised "Notwithstanding"
the clear language of Section 12921 and also
"Notwithstanding" two other "Quackenbush-era" statutes,
Sections 12926.1 and 12975.7 (See SB 631 at page 2, line
16).
f. Whereas, historically, CIC Section 12921 (a) and (b)
has required occupants of the Insurance Commissioner to
enforce the laws, including imposing sanctions, as set
forth in those laws (Sec. 12921 (b) (4) "a settlement may
only include the sanctions provided by this code or other
laws regulating the business of insurance in this state")
SB 631 would permit the Insurance Commissioner to impose
remedies crafted on the new authority of SB 631 across
the entire sweep of the Insurance Code.
g. Accordingly, SB 631's broad conferral of a express
authority (See page 2, lines 11 & 12) to:
i. Authorize the Commissioner to act
without regard ("Notwithstanding") to the express
language limiting the Commissioner's authority to
that expressed by statute (a limit clearly stated
in both the original subdivision (a) and the
post-Quackenbush-era (b)constraints of (b)), and
ii. Impose restitution remedies "in all
instances where he or she finds that an insurer,
licensee, or other entity has violated the Code."
(See SB 631 at page 2, lines 12 to 14)
Can be seen as a historic shift and increase in the power
of the Insurance Commissioner's office to impose by
order, sanctions across the full breadth of the Insurance
Code which have no other foundation in the Insurance Code
except the broad statement of power set forth in this
bill.
This is a significant policy change from current law
which, as it has existed for more than 130 years, has
tied the power of the Commissioner, as the state's
administrator and custodian of the insurance laws, to
those matters "specifically provided for in a provision
of this code".
h. In practical effect, therefore, the most significant
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policy issue presented by SB 631 is its intentional
design to write itself not just around the limitations of
Chapter 1091 of the Statutes of 2000 which were enacted
after a grave crisis involving the conduct of this
Office, but indeed around the fundamental conception of
the powers of the Insurance Commissioner which have
existed since the earliest decades of California
statehood.
i. The DOI's Assertion of a Prop 103 "Restitution"
Authority: Since, under Section 12921 (a) and (b), the
Office of Insurance Commissioner has been subject to
express limitations upon its power, except insofar as
sanctions can be demonstrably tied to those "provided by
this code or law regulating the business of insurance in
this state" (CIC Section 12921(b) (4)) the Department of
Insurance's assertions that Proposition 103 confers
"restitution authority" seem strained.
Upon request by this committee, the DOI offered as Prop
103 citations which confer an authority in the
Commissioner to order restitution for Proposition 103
violations California Insurance Code Sections 1858.3,
1861.03 and 1861.10
However as to these:
i. Section 1858.3 does not reference
restitution nor was it added by Proposition 103.
ii. Section 1861.03 states in (a) only that the
business of insurance shall be "subject to the laws of
California applicable to any other business,
including, but not limited to, the Unruh Civil Rights
Act, and the antitrust and unfair business practices
laws.
This does not constitute a clear conferral of a power
in the Commissioner's office to order restitution.
Furthermore, subdivision (c) (2) of Sec. 1861.03
refers to penalties under CIC Sec. 1861.14, which
allude to other penalty provisions that lead to CIC
Section 1858.07 as discussed in Footnote 6 of the
McKay decision (cited by the Association of California
Insurance Companies in their opposition comments),
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Subdivision (c)(2) of 1861.03 was not included in
Proposition 103. It was added by an urgency bill as
Chapter 1099, Statutes of 1989, effective September
30, 1989.
iii. Section 1861.10 was added by Proposition 103 but
it contains no provision for restitution.
Based upon the foregoing, it does not appear as yet that
the Department has provided documentation for the
assertion that Proposition 103 includes a power in the
Office of the Insurance Commissioner to order restitution
as their argument on behalf of the bill asserts.
a. Power to fashion remedies on Principles of Equity:
Since, as CIC Section 12921 makes clear, the power of the
Office of Insurance Commissioner enter into a settlement
"may only include the sanctions provided by this code or
other laws applicable to the business of insurance, it
does not include a power to fashion sanctions based upon
general principles.
b. Construing Scope of California Insurance
Commissioner Office by Reference to Other States:
Finally, and for the same reason, since under California
law the powers of the Insurance Commissioner's office to
enter into settlements have in the comparatively few
years since Proposition 103's 1988 adoption been
purposefully circumscribed, whatever powers may exist in
other insurance departments would seem to be less
compelling than the lessons embodied in Senator Speier's
1999-2000 session addition of Subdivision (b) of Section
12921 to the Insurance Code and the related statutes SB
631 seeks, at page 2, line 16, to bypass.
c. Practical Issue # 1: Changing Standards Applicable
to Claims Practice: As proposed, the restitution power
contained in SB 631 may be problematic in practice.
During the last 20 years, there are numerous instances of
standard claim settlement practices which at a point in
time, came to be superseded by an updated conception of
what was "fair".
Examples include:
Matters of "Preference", such as:
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How extensively the interior walls of a
home must be repainted following a kitchen fire.
How much carpeting is to be replaced when
a portion of the carpeting in a home is damaged by a
covered cause.
Matters of "Updated Science/Engineering" such as:
What manner of repairs are required under
the language of an insurance policy when the loss
requires replacement of a foundation and the
applicable codes require a significant change, as
commonly occurs with hillside construction in
earthquake or unstable hillside settings.
Matters of "Legal Flux"
In the 1980's a series of lawsuits was
working its way through the courts dealing with the
obligation of an insurer to provide coverage in
cases of concurrent causation, where one cause
contributing to the loss was covered and a second
cause was excluded. In the early 1980's court
rulings in this area of law were seen as adverse to
property insurers. While this area of law was
unsettled, and while the most important trial court
rulings were adverse to insurers, the May 1983
Coalinga earthquake struck. Coalinga, an old central
valley town (it's founding dated to the days of
California's earliest steam railroads when the spot
on the track was a refueling stop - "Coaling A") had
lots of unreinforced masonry buildings which failed.
While few of them were covered for earthquake,
researchers subsequently determined that in the
adverse legal environment, Coalinga's
earthquake-related insurance payments were the
highest in California since the 1906 San Francisco
earthquake.
Each of these scenarios, whether of changing taste,
science, or law, poses the difficult question of how the
new standard should be applied. Traditionally, since
insurance carriers are subject to antitrust laws, and
cannot therefore act in concert, (even if their regulator
is seeking their "agreement" to a seemingly laudable
purpose) over time insurance regulators establish new
rules via statute and regulation and thus effect
marketplace-wide changes.
A power to enforce change by orders of restitution,
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directed at a single company, does not address how the
broader marketplace issues are to be handled. However,
it is market oversight which is the most prominent and
specialized duty of the Insurance Commissioner and a
responsibility to which much of his or her energies are
invariable devoted. SB 631 does not address how it is to
achieve market-wide results in a fashion tailored to the
reality of changing views and conceptions of what is
fair.
a. Practical Issue # 2: Changing Standards and Rate
Approvals: As a remedy, restitution has traditionally
been applied to force a disgorgement of gain unfairly
obtained so as to preclude the unjust enrichment of the
malefactor.
In the insurance context, if the conduct for which
restitution is being demanded is already the norm, then
it should be so standard and pervasive that it is
reflected in the underlying contracts for which rate
approvals have been obtained. If however a restitution
remedy, fashioned on broad principles of equity and
fairness, seeks to hold an insurer to a new standard not
previously reflecting market practice, how then does an
unjust enrichment analysis proceed? If the claims
settlement practice has not been a norm, such that the
underlying policies were not drafted, filed, approved and
accompanying rates adopted, how does the failure to meet
the new unforeseen standard amount to "unjust enrichment"
of the insurer.
Under existing practice, as described above, standards do
evolve over time and along the way, new claims practice
norms are recognized and policy forms and rates
established that bring these practices into the
marketplace in via orderly and actuarially well-supported
practices. It is not apparent how SB 631's power
supports this methodical and actuarially supported
method.
While there is no fixed requirement that the law work in
a neat and orderly way, a stable method to evolve
marketplace duties that allows for evolution in coverage,
and the adoption of revised policy forms with associated
and appropriate rate filings does support an orderly
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marketplace and a marketplace that safeguards solvency,
which of course is a clear duty of the Insurance
Commissioner's Office.
b. Practical Issue #3: If Restitution is Authorized,
How is Restitution Paid Factored into Future Rating
Action: This is a practical problem presented by the
imposition of this penalty authority in a commercial
setting where rates are subject to prior approval. SB 631
is silent on this issue.
1. Summary of Arguments in Support:
2. According to the Department of Insurance , who is the
Sponsor, "(t)his bill provides the Insurance Commissioner
express authority to order restitution to consumers who have
incurred a financial loss because of an insurer's or other
insurance licensee's violation of insurance law.
Currently, the Commissioner may negotiate a settlement that
includes restitution to consumers who have suffered a
monetary loss due to an insurer's or insurance licensee's
violation of law. However, if the insurer or licensee does
not settle and the matter is pursued through the
administrative hearing process, then the Commissioner's
ability to right the wrong is often limited primarily to
ordering the insurer or licensee to pay fines and penalties,
leaving the consumer with the only recourse of having to
pursue his/her financial loss through the courts.
SB 631 authorizes the Insurance Commissioner to order
restitution as part of any enforcement action to compensate
a consumer for economic harm. Additionally, it ensures that
the restitution order will be open to judicial review before
restitution is collected and preserves the consumer's right
to pursue direct civil action against the insurer or
licensee when authorized by law. Lastly, in cases where a
violation of law is found, it provides for the insurer or
licensee to pay the costs incurred by the Department to
pursue the enforcement action."
In addition, the DOI states SB 631 is "consistent with
Proposition 103, which already recognizes a consumer's right
to restitution in cases relating to this law."
Finally, the DOI indicates that it "is aware of 15 other
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states in which the insurance regulator has statutory
authority to order restitution including New York, Texas and
Florida" and that this bill will make the Insurance
Commissioner's authority "comparable with several other
California state agencies, such as the Public Utilities
Commission, the Department of Fair Employment and Housing,
and the Workers' Compensation Appeals Board".
3. The Congress of California Seniors indicates it
"enthusiastically" supports SB 631.
4. According to Consumer Watchdog , current law permits
restitution only in limited circumstances, generally related
to overcharges stemming from violations of California's
ratemaking statutes. In other situations, however egregious
a violation may be, California law lacks the clarity
necessary to authorize the Department of Insurance to order
refunds without the threat of a legal challenge. SB 631
rectifies this situation by making unequivocal the
Department of Insurance's authority to get consumers their
money back.
Current law allows the Department to bring an enforcement
action against an insurer for violations of the law and,
further, impose penalties if the insurer or licensee is
found culpable. Consumer Watchdog states that while these
fines boost state's General Fund some, they are insufficient
since:
Californians who've lost money due to illegal
acts do not get it back, and
Enforcement's deterrent effect is weakened if a
law-breaker gets to keep what they should not have.
1. The California Autobody Association states providing
additional enforcement tools will help the IC take
additional actions against insurers who commit unfair trade
practices, such as illegal steering, capping of auto body
labor rates, forcing consumers to use inferior crash parts
and failing to pay for proper and necessary repairs.
2. The Collision Repair Association of California states
"(p)assage of this important piece of legislation will
provide the average Californian the ability to be heard and
compensated for amounts due under his/her policies of
insurance without the prohibitive cost of litigation.
SB 631 (Evans), Page 14
Litigation is virtually impossible due to a lack of a
private cause of action for violations, relating to the
statutes and regulations regarding the business of insurance
in California. Currently consumers have no practical
methodology to seek redress when insurers violate statutory
requirements that result in them being short changed in the
claims process."
3. Summary of Arguments in Opposition:
4. The Association of California Insurance Companies (ACIC)
first expresses concern SB 631 may be an attempt to overturn
the 2010 MacKay v. Superior Court decision (188 Cal.App.4th
1427 at 1436). Among other things, as summarized by the
ACIC, this case sought a return of funds received previously
by the insurer under a DOI-approved rate structure based
upon its subsequent challenge and invalidation. Footnote 6
in that case states:
a. "Insurers are statutorily prohibited from
charging a rate which has not been preapproved by the
DOI. (Ins. Code, � 1861.01, subd. (c).) An approved
rate has the imprimatur of the DOI; it has been
approved as compliant with the law, to the best of the
DOI's determination. If that rate is subsequently
determined to have been illegal, the insurer may no
longer charge the rate, but that cannot retroactively
invalidate the DOI's prior approval. Insurance Code
section 1858.07, subdivision (a) provides for a civil
penalty for the use of "any rate, rating plan, or
rating system in violation of this chapter." However,
subdivision (b) of that section provides that "no
penalty shall be imposed by the �DOI] if a person has
used any rate, rating plan, or rating system that has
been approved for use by the commissioner in
accordance with the provisions of this chapter."
The ACIC also states the bill "provides no explanation of
the procedural due process. There is no adjudicatory
process outlined, no reference to the Administrative
Procedures Act and no explanation of how this quasi-judicial
process will be separate from other functions within the
department or who will have authority to make awards under
what specific circumstances."
Finally, the ACIC states the "commissioner already has
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authority to commence administrative proceedings, to impose
large fines, to revoke the license of the insurer. The
commissioner has often leveraged this authority to achieve
voluntary restitution within a settlement. The current
statute at least provides some protections under a
settlement agreement, whereas this bill would provide
additional authority to order restitution, "notwithstanding"
those provisions."
5. The Personal Insurance Federation of California (PIFC)
states "vesting the Commissioner with the authority to award
restitution, as broadly defined, invokes constitutional
questions of both due process and separation of powers."
PIFC cites a 3/25/2011 author "Fact Sheet" which describes
situations that point to the need for the bill:
"For example, they (consumers) may be charged a higher
premium that is allowed or receive less money than to
which they are entitled on a claim?"
PIFC states, as to the claim example, "interpretation of an
insurance policy contract and any accompanying order to pay
damages and restitution are judicial functions that the
legislature may not confer on an administrative agency. The
California Constitution vests the courts, not administrative
agencies, with jurisdiction over breach of contract disputes
that require application of common law."
6. PIFC also addresses the argument that restitution powers can
be found in certain California state agencies, such as the
Public Utilities Commission, the Department of Fair
Employment and Housing, and the Workers' Compensation
Appeals Board. PIFC states these agencies are
distinguishable by the fact "they were established under the
California Constitution and its powers thereby conferred.
Additionally, even in these examples, quasi-judicial due
process proceedings are specified and provided. Procedural
due process safeguards are in place, such as notice, (or
verified complaint in the case of DFEH), witness and
evidence provisions, findings of fact and conclusions of
law. In the case of DFEH, the respondent has the option to
remove the action to court. Due process is, at a minimum,
not clearly defined in this bill, though it appears to be
entirely lacking."
7. PIFC states SB 631's authority to order restitution is not
SB 631 (Evans), Page 16
necessary given the substantial, enumerated statutory
authority in current law. The commissioner already has
authority to commence administrative proceedings, to impose
large fines, and to revoke the license of the insurer. The
commissioner has often leveraged this authority to achieve
voluntary restitution within a settlement. In addition, PIFC
notes current laws which affords insurers some protections
under a settlement agreement, are bypassed under SB 631
which provides the additional authority to order
restitution, "notwithstanding" those provisions.
8. PIFC comments at length upon an assertion, set forth in
various materials provided by the DOI that it currently has
authority under Proposition 103 to order restitution. PIFC
notes:
a. "the sweeping language of the bill allows the
commissioner to impose upon an insurer subject to the
commissioner's authority, the remedies provided.
Insurers subject to Proposition 103 are within the
authority of the commissioner and therefore, subject
to these new powers by the commissioner. The
Department claims, in the revised "Fact Sheet"
(3-14-11), that the bill "Provides the express
authority for the Insurance Commissioner to order
restitution as part of an enforcement action to
compensate a consumer for economic harm arising from a
violation of insurance law, except for cases under
Proposition 103 " (emphasis added). This statement
suggests the bill is not intended to apply to cases
under Proposition 103 - in which case, this bill would
not be attempting to amend Proposition 103 and would
not need a two-thirds vote of the legislature. In
contrast, the actual legislative language clearly does
not provide any exemptions to its provisions.
However, if, as the Department suggests by the
examples provided, and has asserted during discussions
regarding the bill, it has existing authority to order
restitution and, therefore, SB 631 simply does not
impact cases under Proposition 103, we strongly
disagree. When asked to provide citations to
authority for ordering restitution, the Department
replied with Insurance Code sections that do not
provide any authority for the commissioner to order
restitution, nor has the commissioner relied upon
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these sections in the past to effectively order
restitution.
9. Finally, the PIFC states the terms in SB 631 are overly
broad. The key term "restitution" is not defined, nor
related terms like "economic harm." PIFC also objects to
the breadth of the provision authorizing the DOI to order an
insurer to pay "attorney's fees and costs of the department
and all future costs of the department?." It characterizes
these provisions of SB 615 as "an unprecedented grant of
authority for a state agency".
10. The State Farm Insurance Companies states:
a. "SB 631 confers unprecedented authority on
the Insurance Commissioner to act as judge and jury
and order insurance companies to refund premiums on
policyholders or pay contested claims including
asserted expenses and monetary damages related to the
claim if he or his staff finds that the insurance
company did not comply with their interpretation of
the law. SB 631 confers sweeping authority to order
the payment of damages, but fails to provide
fundamental due process in terms of a fair hearing
procedure or final resolution of the policyholder or
claimant's claim.
Ordering the payment of damages is a role for the
courts; not for a regulator whose authority is
appropriately limited to imposing fines, after a due
process hearing, for established violations of law. SB
631 violates the separation of powers provision of the
California Constitution."
Finally, State Farm also objects to the asserted lack in SB 631
of "even a modicum of due process" and notes there is no process
in SB 631 comparable to the due process procedural requirements
set forth in the California Administrative Procedures Act at
Government Code Section 11500 et seq.
11. Other opponents of SB 631, including the American Insurance
Association (AIA) , the Association of California Life and
Health Insurance Companies (ACLHIC) , the Pacific Association
of Domestic Insurance Companies (PADIC) , the Insurance
Agents and Brokers of the West (IBA West) and the California
Insurance Wholesalers Association (CIWA) present similar
SB 631 (Evans), Page 18
concerns.
12. The Civil Justice Association of California (CJAC) states
SB 631 "creates a new breed of hybrid lawsuit that
substantially expands the Insurance Commissioner's powers by
allowing him to order restitution for economic harm in
enforcement actions against insurers". CJAC claims this
"appears broader than the current law definition of a fair
but "minimum, quantifiable sum." ( Walnut Creek Manor v. Fair
Employment and Housing Com ., (1991) 54 Cal.3d 245)." Also
under SB 631, CJAC writes, such awards "are not preclusive,
so a consumer can thereafter sue the company for the alleged
harm. Although this bill provides that there would be a
"credit" in a subsequent consumer's award, it is unclear",
CJAC writes, "whether the department pays the money to the
consumer or whether the judgment is automatically reduced.
Thus", CJAC asserts, "this bill substantially increase's a
business's liability and will lead to multiple lawsuits
arising from the same set of facts."
13. Amendments: None proposed
14. Prior and Related Legislation: None
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
California Department of Insurance (Sponsor)
Congress of California Seniors
Consumer Watchdog
California Autobody Association
The Collision Repair Association of California
Opposition
American Insurance Association
Association of California Insurance Companies
Association of California Life and Health Insurance Companies
(ACLHIC)
California Insurance Wholesalers Association (CIWA)
Civil Justice Association of California (CJAC)
Insurance Agents and Brokers of the West (IBA West)
Pacific Association of Domestic Insurance Companies (PADIC)
State Farm Insurance Companies
SB 631 (Evans), Page 19
Personal Insurance Federation of California (PIFC
Consultant: Ken Cooley (916) 651-4110