BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2013-2014 Regular Session
AB 1234 (Levine)
As Amended January 17, 2014
Hearing Date: June 24, 2014
Fiscal: No
Urgency: No
TMW
SUBJECT
Insurance: Registration Statements
DESCRIPTION
Existing law provides that all information, documents, and
copies thereof obtained by or disclosed to the Insurance
Commissioner (Commissioner) or any other person in the course of
an examination or investigation of an insurance holding company
system (IHCS) member pursuant to the Insurance Holding Company
System Regulatory Act, 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 (CPRA) and shall
not be subject to subpoena.
This bill would further provide that information is also not
subject to discovery from the Commissioner or admissible into
evidence in any private civil action if obtained from the
Commissioner in any manner.
BACKGROUND
The California Department of Insurance (CDI) participates in an
insurance regulator accreditation program developed by the
National Association of Insurance Commissioners (NAIC). This
accreditation program provides uniformity among the member state
insurance departments as well as consumer protections.
Periodically, NAIC develops uniform insurance standards which
are included in NAIC's model laws. Each member of the
accreditation program must then adopt the model laws in order to
maintain its accreditation.
(more)
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The Insurance Holding Company System Regulatory Act provides
insurance regulators the tools to investigate "who" is
controlling "what" in an insurance holding company system (two
or more affiliated persons, one or more being an insurer) (IHCS)
since ownership and control of an IHCS may pass through a
variety of persons or entities. In 2010, the NAIC adopted
significant revisions to that Act in response to concerns that
insurance regulators lacked the necessary authority to
adequately understand how noninsurance entities within an IHCS
might pose a risk to an insurer, particularly given the
financial difficulties experienced by a noninsurance affiliate
of the American International Group (AIG) IHCS during the most
recent financial crisis.
SB 1448 (Calderon, Ch. 282, Stats. 2012) adopted those NAIC
revisions under California's Insurance Holding Company System
Regulatory Act, which requires insurers authorized to do
business in this state that are part of an IHCS to register with
the Insurance Commissioner (Commissioner) and, in the course of
an examination or investigation by the Commissioner, requires
information to be disclosed to the Commissioner. Existing law
provides that 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 (CPRA) and shall not be subject to
subpoena. In order to maintain its accreditation in the NAIC
program, California had to adopt those requirements.
Similarly, this bill would provide that information provided to
the Commissioner is also not subject to discovery from the
Commissioner or admissible into evidence in any private civil
action if obtained from the Commissioner in any manner.
This bill was heard by the Senate Insurance Committee on June
11, 2014, and passed out on a vote of 10-0.
CHANGES TO EXISTING LAW
Existing law , the Insurance Holding Company System Regulatory
Act (Act), 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
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(Commissioner). (Ins. Code Sec. 1215.4(a).)
Existing law 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. (Ins. Code Sec. 1215.4(b).)
Existing law 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 (CPRA) and shall
not be subject to subpoena. (Ins. Code Sec. 1215.8(a).)
Existing law requires that 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. (Ins. Code Sec. 1215.8(a).)
Existing law specifies 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. (Ins. Code Sec.
1215.8(b).)
Existing law provides that documents, materials, or other
information filed in the possession or control of the National
Association of Insurance Commissioners (NAIC) 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. (Ins. Code Sec.
1215.8(e).)
Existing law , the CPRA, generally requires records maintained by
public agencies to be accessible to the public. (Gov. Code Sec.
6250 et seq.) Existing law exempts from public disclosure
applications submitted by insurance companies to state agencies.
(Gov. Code Sec. 6254(d)(1).)
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This bill would provide 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
is not subject to discovery from the Commissioner or admissible
into evidence in any private civil action if obtained from the
Commissioner in any manner.
COMMENT
1. Stated need for the bill
The author writes:
Much of the National Association of Insurance Commissioners
(NAIC) recommendations were adopted in California under SB
1448 (Calderon 2012), and SB 1448 constitutes much of existing
law on the issue. Existing law allows for the Insurance
Commissioner to regulate insurance holding companies and in
doing so there is a need for the exchange of information with
both departments in other states as well as with NAIC.
23 states in addition to California have fully or
substantially adopted the recommended NAIC language. . . .
While the changes in the bill are CDI's current practice the
bill is needed because the lack of clarity without the bill
could lead to future issues with sharing info with both NAIC
and other state agencies. Lastly to be NAIC accredited the
state must [adopt] the NAIC Act by January 1, 2016.
2. Exempting IHCS information from discovery and as trial
evidence
Under this bill, all information, documents, and copies thereof
obtained by or disclosed to the Commissioner regarding an IHCS
in the course of an examination or investigation or reported as
required under existing law would not be subject to production
pursuant to discovery or admissible as evidence in any private
party civil action. Existing law already makes that information
exempt from production pursuant to a subpoena. (Ins. Code Sec.
1215.8(a).)
The California Department of Insurance (CDI), sponsor, writes:
To ensure adequate consumer protections and sufficient
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mitigation of risk, California has actively worked within the
NAIC to update their model Holding Company Act, most recently
doing so in 2012. The contents of AB 1234 reflect a technical
and clarifying amendment that confirms both current California
Insurance Code and CDI practice such that relevant CDI
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 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 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.
Generally, all working papers, recorded information, documents,
and copies thereof produced by, obtained by, or disclosed to the
Commissioner or any other person in the course of an examination
shall be given confidential treatment and are not subject to
subpoena and shall not be made public by the Commissioner or any
other person. (Ins. Code Sec. 735.5(c).) Existing law protects
various types of insurance documents submitted to the
Commissioner from discovery or use as evidence in civil actions.
(See, i.e., Ins. Code Sec. 923.6(f)(1) (insurer certification
examination); Ins. Code Sec. 935.8 ( own risk and solvency
information).) More importantly, existing law already makes
IHCS documents, materials, or other information filed in the
possession or control of the NAIC confidential by law and
privileged, not be subject to subpoena, and not subject to
discovery or admissible in evidence in any private civil action.
(Ins. Code Sec. 1215.8(e).) This bill would clarify that IHCS
information would not be subject to discovery or admissible as
evidence in a private civil action, which would bring California
into conformity with NAIC requirements and maintain California's
NAIC accreditation.
3. Author's amendment
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The California Constitution declares the people's right to
transparency in government. ("The people have the right of
access to information concerning the conduct of the people's
business, and therefore, the meetings of public bodies and the
writings of public officials and agencies shall be open to
public scrutiny....") (Cal. Const., art. I, Sec. 3.)
Accordingly, the Constitution provides that a statute, court
rule, or other authority, shall be broadly construed if it
furthers the people's right of access, and narrowly construed if
it limits the right of access; a statute, court rule, or other
authority that limits the right of access must be adopted with
findings demonstrating the interest protected by the limitation
and the need for protecting that interest. (Cal. Const., art.
I, Sec. 3.)
While this bill would limit the public's right of access to
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, this bill
does not currently provide findings and declarations regarding
this limitation. To correct this issue, the author offers the
following amendment, which would state the interest protected by
the limitation and the need to protect that interest.
Author's amendment
On page 4, after line 16, insert:
SEC. 2.
The Legislature finds and declares that Section 1 of this
act imposes a limitation on the public's right of access to
the writings of public officials and agencies within the
meaning of Section 3 of Article I of the California
Constitution. Pursuant to that constitutional provision,
the Legislature makes the following findings to demonstrate
the interest protected by this limitation and the need for
protecting that interest:
In order to protect proprietary information, it is
necessary to enact legislation that the insurance holding
company system information provided pursuant to this act is
kept confidential.
Support : None Known
AB 1234 (Levine)
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Opposition : None Known
HISTORY
Source : California Department of Insurance
Related Pending Legislation : None Known
Prior Legislation :
SB 1448 (Calderon, Ch. 282, Stats. 2012) See Background; Comment
1.
Prior Vote :
Senate Committee on Insurance (Ayes 10, Noes 0)
Assembly Floor (Ayes 72, Noes 0)
Assembly Committee on Judiciary (Ayes 9, Noes 0)
Assembly Committee on Insurance (Ayes 12, Noes 0)
Assembly Committee on Rules (Ayes 9, Noes 0)
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