BILL ANALYSIS �
AB 1234
Page 1
Date of Hearing: January 14, 2014
ASSEMBLY COMMITTEE ON JUDICIARY
Bob Wieckowski, Chair
AB 1234 (Levine) - As Amended: January 6, 2014
PROPOSED CONSENT (As Proposed to be Amended)
SUBJECT : INSURANCE HOLDING COMPANY SYSTEMS: CONFIDENTIALITY OF
INFORMATION
KEY ISSUE : SHOULD CERTAIN INFORMATION OBTAINED BY THE INSURANCE
COMMISSIONER PURSUANT TO THE INVESTIGATION OR REGISTRATION OF
INSURANCE HOLDING COMPANY MEMBER INSURERS BE SHIELDED FROM
DISCOVERY OR ADMISSIBILITY INTO EVIDENCE IN A PRIVATE CIVIL
ACTION?
SYNOPSIS
Under existing law, an insurer that is a member of an insurance
holding company system (IHCS member) is required to register
with the Insurance Commissioner and provide specified business
and transaction-related information as part of the registration
process. Existing law also authorizes the commissioner to
examine and conduct investigations of IHCS members, in which
certain information, much of it sensitive to the insurer, is
obtained by or disclosed to the commissioner. This bill,
sponsored by the California Department of Insurance (CDI), seeks
to exclude all such information from discovery from the
commissioner or admissibility into evidence in any private civil
action if obtained from the commissioner in any manner.
According to CDI, a strong policy of confidentiality for
IHCS-related information is necessary to ensure proper
regulation of those insurers because if regulated entities fear
inappropriate disclosure of information, there could be a
significant chilling effect on CDI's investigatory process,
possibly negatively impacting policyholders and consumers.
Proposed author's amendments clarify the scope of the bill's
non-disclosure provisions to avoid unintentionally creating a
blanket prohibition on discovery and admissibility in private
lawsuits. The bill also serves the purpose of updating
California law to achieve conformity to model laws developed by
the National Association of Insurance Commissioners and adopted
in many other states. This bill was previously approved by the
Assembly Insurance Committee by a unanimous vote, and has no
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known opposition.
SUMMARY : Protects from discovery or disclosure in civil
litigation certain information held by the Insurance
Commissioner (commissioner) pertaining to insurers that are
members of an insurance holding company system (IHCS member).
Specifically, this bill :
1)Provides that all information, documents, and copies thereof
obtained by or disclosed to the commissioner or any other
person in the course of an examination or investigation of an
insurer that is an IHCS member, and all registration
information required to be reported to the commissioner by
IHCS members, shall not be subject to discovery from the
commissioner or admissible into evidence in any private civil
action if obtained from the commissioner in any manner.
2)Clarifies that existing law prohibits disclosure of such
information specifically by the commissioner pursuant to the
California Public Records Act.
EXISTING LAW , the Insurance Holding Company System Regulatory
Act (Act):
1)Requires insurers authorized to do business in this state that
are part of an Insurance Holding Company System (IHCS) to
register with the Insurance Commissioner. (Insurance Code
Section 1215.4(a). All further references are to this code
unless otherwise stated.)
2)Requires registration forms to include specified information
regarding the legal and financial relationships between IHCS
members, including, for example, the capital structure,
general financial condition, ownership, and management of the
insurer. (Section 1215.4(b).)
3)Provides that all information, documents, and copies thereof
obtained by or disclosed to the commissioner or any other
person in the course of an examination or investigation of an
IHCS member, and all information required to be reported to
the commissioner in IHCS registration documents, shall be kept
confidential, shall not be subject to disclosure pursuant to
the California Public Records Act and shall not be subject to
subpoena. (Section 1215.8(a).)
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4)Further requires this information to not be made public by the
commissioner or any other person except to insurance
departments of other states without the prior written consent
of the insurance company to which it pertains, unless the
commissioner, after giving the insurer notice and an
opportunity to be heard, determines that the interests of
policyholders, shareholders, or the public will be served by
the publication of the information, as specified. (Section
1215.8(a).)
5)Authorizes specific circumstances under which the commissioner
may share otherwise confidential documents or information with
certain parties in order to assist in the performance of the
commissioner's duties. (Section 1215.8(b).)
6)Provides that documents, materials, or other information filed
in the possession or control of the National Association of
Insurance Commissioners (NAIC) pursuant to these provisions
shall be confidential by law and privileged, shall not be
subject to subpoena, and shall not be subject to discovery or
admissible in evidence in any private civil action. (Section
1215.8(e).)
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
COMMENTS : Under the Insurance Holding Company System Regulatory
Act, an insurer that is a member of an insurance holding company
system is required to register with the Insurance Commissioner
and provide specified business and transaction-related
information as part of the registration process. The Act also
authorizes the commissioner to examine and conduct
investigations of IHCS members, in which certain information,
much of it sensitive to the insurer, is obtained by or disclosed
to the commissioner. This bill, sponsored by the California
Department of Insurance (CDI), seeks to exclude all such
information from discovery from the commissioner or
admissibility into evidence in any private civil action if
obtained from the commissioner in any manner.
Background on NAIC and its Model Laws . The National Association
of Insurance Commissioners (NAIC) is the regulatory support
organization created by and composed of the chief insurance
regulators from the 50 states, the District of Columbia and five
U.S. territories. The NAIC establishes standards and best
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practices, conducts peer reviews, and coordinates regulatory
oversight by insurance commissioners in the U.S. NAIC is a key
part of the national system of state-based insurance regulation.
NAIC's primary mission is to promote uniform practices amongst
states in regulating multi-state insurers. To support this
effort, NAIC maintains an insurance regulator accreditation
program and develops uniform standards known as Model Laws. The
model laws are intended to provide inter-jurisdictional
uniformity and cooperation among regulators in a manner that
builds in quality control and allows one jurisdiction to
comfortably rely on another NAIC-accredited jurisdiction
because, by statute, the regulatory processes and standards
applied would be substantially similar. Additionally, NAIC
performs an on-site accreditation review of each insurance
regulator at least every 5 years. An insurance regulator's
accreditation status is dependent on its adoption of statutes
and regulations that align with NAIC Model Laws.
Need for the bill . According to the author, the bill is needed
to enact a technical and clarifying language to conform
California law to model laws developed by the NAIC and adopted
in many other states. The proposed changes seek to ensure that
confidential information obtained by the commissioner in the
course of enforcing the Act remains confidential by protecting
it from discovery or admissibility into evidence in a private
civil action, as specified.
According to CDI, proper regulation and investigation of
insurers by the commissioner and his counterparts in other
states requires a strong protective policy of confidentiality,
particularly with respect to the commissioner's regulation of
IHCS member insurers who tend to operate across state and
international borders. The department states:
Ensuring that CDI investigations and examinations, as
well as those of our insurance regulator counterparts
in other states, remain confidential is a fundamental
tenet of proper regulation. Otherwise there could be a
significant chilling effect on the investigatory
process that could negatively impact millions of
policyholders and consumers if regulated entities fear
inappropriate disclosure of information. Many insurers
that are domiciled in other countries, particularly in
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Europe, have been quite aggressive in attempting to
rebuff appropriate regulatory investigative activities
of not only CDI but other states within the NAIC
framework. Ensuring confidentiality of information is
fundamental to counter such attempts to thwart proper
regulatory activity.
Author's Clarifying Amendments : As currently in print, the bill
provides that information obtained by the commissioner from IHCS
members "shall not be subject to discovery or admissible into
evidence in any private civil action." According to the author,
this provision is not intended to absolutely prohibit discovery
in a separate legal action of any and all information obtained
by CDI as part of its regulatory process of member insurers, nor
to make all such information inadmissible into evidence in a
separate legal action. Instead, the author proposes amendments
to clarify that in a private civil action, IHCS-related
information is not discoverable from the commissioner and is not
admissible into evidence if obtained from the commissioner, but
otherwise is not specifically limited by the scope of the bill.
The amendments are:
On page 2, line 8, after "disclosure", insert "by the
commissioner"
On page 2, line 11, after "discovery", insert "from the
commissioner"
On page 2, line 12, after "action", insert "if obtained from
the commissioner in any manner"
Previous Legislation . SB 1448 (Calderon), Ch. 282, Stats. 2012,
adopted numerous provisions to conform California law to the
NAIC model law regarding the regulation of insurance holding
companies. Among other things, that bill substantially
broadened the commissioner's authority to obtain otherwise
proprietary information from insurers, and established that
confidential information shared with the commissioner under that
authority is not subject to disclosure under the California
Public Records Act.
REGISTERED SUPPORT / OPPOSITION :
Support
AB 1234
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California Department of Insurance (CDI)
Opposition
None on file
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334