BILL ANALYSIS �
SENATE INSURANCE COMMITTEE
Senator William W. Monning, Chair
AB 1234 (Levine) Hearing Date: June 11, 2014
As Amended: January 17, 2014
Fiscal: No
Urgency: No
VOTES: Asm. Floor (01/23/14)72-00/Pass
Asm. Jud. (01/14/14) 09-00/Pass
Asm. Ins. (01/08/14) 12-00/Pass
Asm. Rules (01/06/14)09-00/Pass
SUMMARY Would exclude information and documents provided to
the Insurance Commissioner pursuant to the Insurance Holding
Company System Regulatory Act from the civil discovery process
and prohibit admission of that information and materials as
evidence in private civil actions.
DIGEST
Existing law
1. Empowers the Insurance Commissioner (IC) to examine an insurer
subject to the Insurance Holding Company System Regulatory Act
("Holding Company Act") to ascertain the enterprise risk to
which the insurer is subjected by the ultimate controlling party
or by any entity or combination of entities within the insurance
holding company system.
2. Requires certain insurers to file with the IC a registration
that discloses material information and documents that might
reveal potential financial vulnerabilities, including:
a. General financial and structural information;
b. Information related to debts, guarantees, and liabilities;
AB 1234 (Levine), Page 2
c. Management agreements, service agreements, and
cost-sharing arrangements;
d. Financial statements, at the request of the IC, that may
include the annual audited financial statements filed with the
U.S. Securities and Exchange Commission (SEC) or the most
recently filed parent corporation financial statements filed
with the SEC; and
e. Other information that may be helpful to insurance
regulators in assessing the condition of the insurer. (Ins.
Code � 1215.4)
1. Requires certain insurers to file:
a. Summaries of, and amendments or modifications to,
registration statements;
b. Notices of specified dividends;
c. Notices of certain transactions between affiliates within
a holding company system;
d. Notices of investments in any one corporation if the total
investment by the holding company system exceeds 10 percent of
the corporation's voting securities;
e. And other documents and information.
2. Protects specified information and documents gathered by the IC
pursuant to the Holding Company Act from subpoena or disclosure
pursuant to the Public Records Act.
3. Permits the IC to share information with other insurance
AB 1234 (Levine), Page 3
regulators that have statutes or regulations with similar
confidentiality and privilege protections and who agree not to
disclose the information.
4. Permits the IC to enter into written agreements with the
National Association of Insurance Companies (NAIC) governing the
sharing and use of information obtained pursuant to the Holding
Company Act on the condition that the agreements provide the
following:
a. Procedure and protocols regarding the confidentiality and
security of the information shared.
b. Ownership of the information remains with the IC and the
use of the information is subject to the IC's direction.
c. Prompt notice be given to the insurer if disclosed
information is subject to a request or subpoena to the NAIC
for disclosure or production.
d. Require the NAIC to consent to intervention by an insurer
in any judicial or administrative action in which the NAIC may
be required to disclose protected and confidential information
pursuant to the Holding Company Act.
This bill
1. Would prohibit the discovery of information and documents
provided to the IC pursuant to the Holding Company Act in a
private civil action.
2. Would also deem that information and those documents
inadmissible in a private civil action.
AB 1234 (Levine), Page 4
COMMENTS
1. Purpose of the bill . According to the California Department
of Insurance (CDI), the sponsor of the bill, AB 1234
confirms both current California Insurance Code and CDI
practice such that relevant investigations, as well as those
of other state insurance regulators, remain confidential.
These investigations protect policyholders and consumers by
ensuring the proper solvency of CDI-regulated entities.
Ensuring that CDI investigations and examinations, as well
as those of 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.
2. Background
a. Insurance Holding Company System Regulatory Act. An
insurance holding company system consists of two or more
affiliated persons, and one or more is an insurer. These
systems can grow very complex and involve transactions
that shift control and accountability to a remote person
or entity. Ownership and control of a holding company
system may pass through variety of persons or entities so
that a regulator may have a difficult time identifying who
is actually controlling the insurer. In order to provide
insurance regulators the appropriate tools to track down
"who" is controlling "what" in a holding company system,
the National Association of Insurance Commissioners (NAIC)
developed the model Holding Company Act and accompanying
model regulations. (The NAIC is the U.S. standard-setting
and regulatory support organization created by and
composed of the chief insurance regulators from the 50
states.)
In December 2010, the NAIC adopted significant revisions
to the model Holding Company Act in response to concerns
that insurance regulators lacked the necessary authority
to adequately understand how non-insurance entities within
a holding company system might pose a risk to an insurer,
particularly given the financial difficulties experienced
AB 1234 (Levine), Page 5
by a noninsurance affiliate of the AIG insurance holding
company system during the most recent financial crisis.
Senate Bill 1448 (Calderon), Chapter 282, Statutes of
2012, conformed California law to the revised model law
and regulations. One purpose of that bill was to
considerably broaden the insurer's obligation to provide,
and the IC's authority to obtain, proprietary and
confidential information.
b. Confidentiality and Privilege of Information Gathered
for Regulatory Purposes. Because of the sensitive nature
of the information shared under the Holding Company Act,
SB 1448 provided that confidential information shared with
the IC under that authority is not subject to subpoena or
disclosure under the Public Records Act. The additional
protection against disclosure to third parties helps to
ensure the critical cooperation and full disclosure of
insurers and affiliates who otherwise may be forced seek
protection under other law.
AB 1234 would also protect the IC from being forced to
turn over those sensitive materials pursuant to the civil
discovery process and prohibit those materials from being
admitted into evidence in a civil proceeding. However,
these protections only apply to materials obtained by the
IC pursuant to the Holding Company Act. This bill would
not affect the ability of a litigant to obtain information
or documents through the normal discovery process. The
bill has been double-referred and further consideration of
the impact of this bill on civil litigation will be held
by the Senate Committee on Judiciary.
1. Arguments in Support
According to the CDI, many insurers that are domiciled in
other countries, particularly 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.
AB 1234 (Levine), Page 6
2. Arguments in Opposition
None received.
POSITIONS
Support
Department of Insurance (sponsor)
Oppose
None received.
Consultant: Hugh Slayden (916) 651-4773