BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
SB 1164 (Emmerson)
As Amended March 26, 2012
Hearing Date: May 1, 2012
Fiscal: No
Urgency: No
TW
SUBJECT
Professional Liability Insurers: Immunity
DESCRIPTION
This bill would extend the sunset date from January 1, 2013 to
January 1, 2016 of limited liability immunity for professional
liability insurers issuing non-renewal notice statements, which
specify the reason for the nonrenewal, sent to a healthcare
provider policyholder.
BACKGROUND
Under existing law, insurers are required to give written notice
of a policy cancellation or nonrenewal and include in that
notice the reasons for the cancellation or nonrenewal. Existing
law also provides that insurers are immune from liability for
statements made in the notice of cancellation unless the
statements are shown to have been made in bad faith with malice
in fact.
In 2005, AB 1123 (Wyland, Ch. 327, Stats. 2005) was enacted and
extended this same immunity from liability to statements made by
professional liability insurers in notices of nonrenewal to
health care providers. Similarly, this immunity from liability
does not apply to statements which are shown to have been made
in bad faith.
At the time AB 1123 was heard in this committee, supporters of
the bill asserted that they had been penalized for giving
specified reasons for nonrenewal. Specifically, NORCAL Mutual
Insurance Company stated that it had been sued twice since 2002
(more)
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for defamation based upon the reason given for nonrenewal.
NORCAL asserted that because insurers are required to state the
reason for nonrenewal but were subject (at that time) to a civil
action for the stated reason, it was faced with "a Hobson's
choice to change guidelines for nonrenewal notices to give a
plain vanilla response or face a lawsuit from a physician who
may not want the true reasons for his or her nonrenewal
disclosed. Without a qualified immunity such as that contained
in �AB 1123] (which does not immunize bad faith communications),
carriers will choose not to give a detailed reason, but instead
will simply state the doctor is being nonrenewed at 'Company
Election' or 'Does Not Meet Guidelines.'" When AB 1123 was
heard in this committee, it was amended to provide that its
provisions sunset on January 1, 2011. The sunset was extended
to January 1, 2013 by AB 119 (Wyland, Ch. 30, Stats. 2009).
This bill, sponsored by the California Association of
Professional Liability Insurers, would further extend the sunset
date of the limited liability immunity from January 1, 2013 to
January 1, 2016.
CHANGES TO EXISTING LAW
Existing law requires a professional liability insurer who
intends not to renew a policy, or to condition a policy renewal
as specified, to give written notice of the nonrenewal and the
reasons for the nonrenewal at least 60 days, but not more than
120 days, in advance of the end of the policy period. (Ins.
Code Sec. 678.1.)
Existing law , until January 1, 2013, provides that there is no
liability on the part of, and no cause of action of any nature
shall arise against, a professional liability insurer, who
provides insurance to health care providers, for any statement
made in any of the following:
a written notice of nonrenewal, or any other oral or written
communication specifying the reasons for nonrenewal of a
policy issued to a health care provider;
any communication providing information pertaining to the
nonrenewal; or
evidence submitted at any court proceeding or informal inquiry
in which the nonrenewal is an issue. (Ins. Code Sec. 678.3.)
Existing law , until January 1, 2013, provides that the above
immunity from liability extends to statements made by a
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professional liability insurer's authorized representatives,
agents, or employees or any licensed authorized insurance agent
or broker and does not extend to statements shown to have been
made in bad faith. (Id.)
This bill would extend the sunset date of these provisions to
January 1, 2016.
COMMENT
1. Stated need for the bill
The author writes:
Over the years, the California Insurance Code has been amended
to require an insurer to give written notice of a policy
cancellation (Insurance Code Section 677.2) and nonrenewal
(Section 678.1). The written notice must contain the reasons
for the cancellation or nonrenewal. Unfortunately, there were
a number of lawsuits filed against insurers alleging slander
or defamation arising from compliance with the above statutory
requirement. In 1968, Insurance Code Section 667 was added to
provide an immunity for notices of cancellation of auto
policies, and in 1969 the section was amended to cover
nonrenewal as well. Insurance Code Section 679 (which covers
property and other commercial insurers) provides that insurers
or their agents are not liable for any statement made in the
cancellation of a policy, unless the statement was made in bad
faith with malice in fact. Unlike Section 667, however,
Section 679 does not specifically address the nonrenewal of a
policy. Because Section 679 was not amended to parallel the .
. . statute covering auto policies, professional liability
insurers continued to be threatened with and occasionally sued
for defamation or libel arising from compliance with the
requirement to give a written notice and reasons for
nonrenewal. This bill would extend the life of Section 678.3,
which was enacted to rectify this problem.
The California Association of Professional Liability Insurers
(CAPLI), the sponsor of this bill, expresses its desire for an
extension of the sunset by asserting that the immunity provided
by AB 1123 to insurers who issue professional liability policies
to health care providers "promotes more candor in communications
made to the insured and should continue to be preserved."
2. Extension of sunset of limited liability immunity
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Existing law requires a professional liability insurer, who
intends not to renew a policy, or to condition a policy renewal,
to give written notice of the nonrenewal and the reasons for the
nonrenewal in advance of the end of the policy period. (Ins.
Code Sec. 678.1.) Existing law, until January 1, 2013, provides
that there is no liability on the part of, and no cause of
action of any nature shall arise against, a professional
liability insurer, who provides insurance to health care
providers, for any statement made regarding the nonrenewal.
(Ins. Code Sec. 678.3.) This bill would extend the sunset of
these provisions from January 1, 2013 to January 1, 2016.
The author argues that the limited liability immunity statute
allows professional liability insurers to be more candid when
providing the reasons for nonrenewal, which provides the
insured, and any additional individuals covered under the
policy, with clear and specific information about why the
insured is being cancelled from coverage. CAPLI asserts that in
the seven years since its enactment, Insurance Code Section
678.3, added by AB 1123, has "demonstrated its value."
Professional liability insurers are providing more detailed
information to the policyholder who is not being renewed.
In response to concerns raised when this committee reviewed AB
119 (Wyland, Ch. 30, Stats. 2009), which provided the existing
sunset date, the sponsor of that bill presented a letter written
prior to the enactment of Section 678.3. This letter stated
that the reason for nonrenewal was "Does not meet Underwriting
Guidelines." The nonrenewal reason in the letter written after
enactment was "Practice Profile - Hospital Action." The sponsor
of AB 119 pointed out that the second letter stated a more
specific, detailed reason for the nonrenewal, and the company's
underwriting department would have no information about the
underlying claims, or action taken against the doctor.
CAPLI submitted to this committee recent examples of letters
providing detailed statements for the nonrenewal, which included
"claims matter and care below the standard," "practice profile,"
and "failure to comply w/underwriting request." CAPLI also
submitted a risk assessment letter provided by NORCAL Mutual
Insurance Company. This letter to the policyholder listed 11
areas in which the policyholder needed improvement to enhance
patient care and reduce liability exposure. Some of the areas
for improvement listed in the letter included physician decision
making process, medical records documentation, medication
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management: drug allergies, medical records: security, telephone
liability - after-hours telephone calls and triage, and
employment practices: identification. NORCAL advised that the
policyholder was informed that he would be nonrenewed if these
areas were not improved and ultimately NORCAL ceased coverage
for these reasons.
CAPLI argues that extending the sunset is appropriate because
these letters help demonstrate that professional liability
insurers are issuing more detailed statements because of the
immunity statute. CAPLI further states that, should the
immunity from liability be removed by operation of the current
sunset, insurers will resort to merely providing policyholders
with a statement that the policy is being cancelled for
"underwriting concerns." CAPLI notes that broad nonrenewal
statements such as this do not provide the public with
sufficient information regarding the nonrenewal. CAPLI states
that providing the public with effective information regarding
nonrenewals is good public policy.
Support : None Known
Opposition : None Known
HISTORY
Source : California Association of Professional Liability
Insurers
Related Pending Legislation : None Known
Prior Legislation :
AB 119 (Wyland, Ch. 30, Stats. 2009) See Background; Comment 2.
AB 1123 (Wyland, Ch. 327, Stats. 2005) See Background; Comments
1 and 2.
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