BILL NUMBER: AB 2064 AMENDED
BILL TEXT
AMENDED IN SENATE JUNE 12, 2014
AMENDED IN ASSEMBLY APRIL 21, 2014
INTRODUCED BY Assembly Member Cooley
FEBRUARY 20, 2014
An act to amend Sections 10089.6 and 10089.26 of, to
amend, add, and repeal Sections 10083 and 10086 of, to amend, repeal,
and add Sections 10083, 10086, 10089.6, 10089.26, and
Section 10089.28 of, and to add Section 10089.42
to, the Insurance Code, relating to earthquake insurance.
LEGISLATIVE COUNSEL'S DIGEST
AB 2064, as amended, Cooley. Earthquake insurance: mandatory
offer.
Existing law prohibits a policy of residential property insurance
from being issued or delivered or initially renewed in this state
unless the named insured is offered coverage for loss or damage
caused by an earthquake, as provided, and, if the offer of earthquake
coverage is accepted, requires the insurer to provide certain
disclosures based on whether the policy was issued by the California
Earthquake Authority (CEA).
Existing law created the CEA, to be administered under the
authority of the Insurance Commissioner, and authorized it to
transact insurance in this state as necessary to sell policies of
basic residential earthquake insurance in the manner provided. The
CEA has no authority to transact any other type of insurance
business. The CEA's operating expenses are capped at 3% of its
premium income.
This bill would revise and recast these provisions by revising the
disclosure language an insurer is required to use in offering
earthquake coverage and making the contents of that disclosure
language dependent upon whether the insurer is a member of the CEA or
not and by requiring insurers who are members of the CEA to
provide their insureds to be provided with
specified disclosures with regard to coverage of losses, the CEA's
liability limitations, and premiums concurrent with the issuance or
renewal by the CEA of a residential earthquake insurance policy. The
bill would also prohibit member insurers from issuing,
delivering, or renewing a policy of residential property insurance in
this state, unless the named insured is provided information on the
availability of residential earthquake insurance from the CEA within
60 days of issuance or renewal of the insured's residential insurance
policy, as provided. The CEA would be required to prepare the forms
of the information required for use by member insurers and submit the
forms to the commissioner for approval. The insurers would be
authorized to provide the notice electronically or by mail.
require a participating insurer, at least once each year, to
provide each of its residential property insureds with marketing
documents produced at the CEA's expense. The bill would make these
provisions operative on January 1, 2016.
This bill would increase the cap on the CEA's operating expenses
to not more than 5% 6% of its premium
income, and exclude certain expenses and costs from being classified
as operating expenses. The bill would also require that a
CEA residential earthquake insurance policy be effective upon receipt
by the member insurer of both the completed CEA-approved application
for the policy, signed by the applicant, and either the annual
premium or the first installment of the annual premium.
This bill would also make these provisions operative on July 1,
2015.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 10083 of the Insurance Code, as amended by
Section 12 of Chapter 369 of the Statutes of 2013, is amended to
read:
10083. (a) The offer of coverage required by Section 10081 may be
made prior to, concurrent with, or within 60 days following the
issuance or renewal of a residential property insurance policy. If
the offer of coverage is mailed to the named insured or applicant, it
shall be mailed to the mailing address shown on the policy of
residential property insurance or on the application. The offer may
be made electronically pursuant to Section 38.5. The offer of
earthquake coverage shall contain the following language in at least
10-point boldface type:
YOUR
"YOUR POLICY DOES NOT PROVIDE COVERAGE AGAINST THE
PERIL OF EARTHQUAKE.
CALIFORNIA LAW REQUIRES THAT EARTHQUAKE COVERAGE BE OFFERED TO YOU
AT YOUR OPTION.
WARNING: THESE COVERAGES MAY DIFFER SUBSTANTIALLY FROM AND PROVIDE
LESS PROTECTION THAN THE COVERAGE PROVIDED BY YOUR HOMEOWNERS'
INSURANCE POLICY. THERE ARE EXCLUSIONS AND LIMITATIONS SUCH AS
OUTBUILDINGS, SWIMMING POOLS, MASONRY FENCES, AND MASONRY CHIMNEYS.
THIS DISCLOSURE FORM CONTAINS ONLY A GENERAL DESCRIPTION OF COVERAGES
AND IS NOT PART OF YOUR EARTHQUAKE INSURANCE POLICY. ONLY THE
SPECIFIC PROVISIONS OF YOUR POLICY WILL DETERMINE WHETHER A
PARTICULAR LOSS IS COVERED AND, IF SO, THE AMOUNT PAYABLE.
THE COVERAGE, SUBJECT TO POLICY PROVISIONS, MAY BE PURCHASED AT
ADDITIONAL COST ON THE FOLLOWING TERMS:
(A) AMOUNT OF DWELLING COVERAGE: ____
(B) APPLICABLE DEDUCTIBLE: ____ IF YOUR LOSS IS BELOW THIS AMOUNT,
YOU MAY NOT RECEIVE ANY PAYMENT FROM YOUR COVERAGE.
YOUR INSURANCE COMPANY OR AGENT WILL PROVIDE WRITTEN NOTICE AS TO
HOW THE DEDUCTIBLE APPLIES TO THE MARKET VALUE OF YOUR COVERAGE, THE
INSURED VALUE OF YOUR COVERAGE, OR THE REPLACEMENT VALUE OF YOUR
COVERAGE.
(C) CONTENTS COVERAGE: ____
IF YOUR LOSS DOES NOT EXCEED THE DEDUCTIBLE FOR THE DWELLING, YOU
WILL NOT RECEIVE ANY PAYMENT FOR THIS COVERAGE.
YOUR INSURANCE COMPANY OR AGENT WILL PROVIDE WRITTEN NOTICE AS TO
HOW THE DEDUCTIBLE APPLIES TO THE AMOUNT YOU RECEIVE PURSUANT TO THIS
COVERAGE.
(D) ADDITIONAL LIVING EXPENSES: ____
(E) RATE OR PREMIUM: ____
YOU MUST ASK THE COMPANY TO ADD EARTHQUAKE COVERAGE WITHIN 30 DAYS
FROM THE DATE OF MAILING OF THIS NOTICE OR IT SHALL BE CONCLUSIVELY
PRESUMED THAT YOU HAVE NOT ACCEPTED THIS OFFER.
THIS COVERAGE SHALL BE EFFECTIVE ON THE DAY YOUR ACCEPTANCE OF
THIS OFFER IS RECEIVED BY US. US."
(b) When the insurer, agent, or broker establishes delivery of the
disclosure form by obtaining the signature of the applicant or
insured, or when an insurer, agent, or broker provides the applicant
with the disclosure form and the applicant does not return a signed
acknowledgment of receipt within 60 days of the date it was provided,
there shall be a conclusive presumption that the insurer, agent, or
broker has complied with the disclosure requirements of this section.
(c) The offer may contain additional provisions not in conflict
with or in derogation of this section.
(d) The commissioner may only approve modifications to the
language prescribed in subdivision (a) if all of the following
conditions are met:
(1) The modifications are not in conflict with or in derogation of
any provision of this section or Section 10089.
(2) The modifications are necessary to ensure that the disclosure
statement accurately reflects the coverage actually provided by the
policy being offered.
(3) The modifications are strictly limited to necessary changes so
that the modified disclosure statement is otherwise identical to the
disclosure statement prescribed in this section.
(e) Use of the language prescribed by this section, or modified
language approved pursuant to subdivision (d), shall constitute
compliance with the requirements of Section 10081 by an insurer
subject thereto.
(f) This section shall remain in effect only until July
1, 2015, January 1, 2016, and as of that date is
repealed, unless a later enacted statute, that is enacted before
July 1, 2015, January 1, 2016, deletes
or extends that date.
SEC. 2. Section 10083 is added to the Insurance Code, to read:
10083. (a) The offer of coverage required by Section 10081 may be
made prior to, concurrent with, or within 60 days following the
issuance or renewal of a residential property insurance policy. If
the offer of coverage is mailed to the named insured or applicant, it
shall be mailed to the mailing address shown on the policy of
residential property insurance or on the application. The offer may
be made electronically pursuant to Section 38.5.
(1) If the offer is made by a nonparticipating insurer as defined
in Section 10089.5, the offer of earthquake coverage shall contain
all of the following language in at least 10-point boldface type:
"Your property; renters; homeowners; condominium;
townhouse; dwelling; landlord; or other term that may describe the
type of companion policy] residential property
insurance policy does not cover earthquake damage to your home
or its contents. To
To cover earthquake damage to your home and its
contents you need to purchase a separate earthquake insurance policy.
The coverage provided by an earthquake insurance policy is different
from, and typically more limited than, the coverage provided by your
property; renters; homeowners; condominium; townhouse;
dwelling; landlord; or other term that may describe the type of
companion policy] residential property insurance
policy. California
California law requires insurance companies to offer
earthquake insurance in conjunction with a residential property
insurance policy. If you do not accept the offer of earthquake
insurance below within 30 days of the mailing of this notice, your
insurance company may shall presume
that you have not accepted this offer of earthquake insurance.
You may purchase earthquake insurance coverage , subject
to policy provisions, at additional cost on all of on
the following terms:
(A) Amount of Dwelling Coverage Insurers may reference Building
Property coverage if a Common Interest Development policy.]:
___________________
(B) Applicable Deductible: ___________________ If your loss is
below this amount, you may not receive any payment for your loss.
(C) Contents Coverage Insurers may reference Personal Property as
that term is in the policy.]: Insurers should include and explain
briefly how the deductible works. Some variation is allowed, but
samples include:
For a Homeowners Policy, the dwelling deductible applies to
Contents Coverage. Nothing will be paid until the dwelling deductible
is met by damage to Coverage A and Coverage B property.
For Renters Policies and Common Interest Development Policies, a
$750 deductible applies to Contents Coverage.]
(D) Additional Living Expenses Insurers may reference Loss of
Use.]: Insurers shall explain briefly if there is a deductible and
how much it is.]
(A) Amount of Dwelling/Building Coverage Limit: ______________
(B) Deductible: ______________
(C) Contents Coverage Limit: ________________
(D) Additional Living Expenses Coverage Limit: _________________
(E) Estimated Annual Premium:_______________
The deductible represents the amount of damage your covered
property must incur before the earthquake insurance coverage begins.
If your covered loss is less than the applicable deductible, you may
not receive any payment.
Contact your insurance agent or your insurance company to obtain
details regarding this offer of earthquake insurance and other
coverage options."
(2) If the offer is made by a participating insurer as defined by
Section 10089.5, the offer of earthquake coverage shall contain all
of the following language in at least 10-point boldface type:
"Your property; renters; homeowners; condominium;
townhouse; dwelling; landlord; or other term that may describe the
type of companion policy] residential property
insurance policy does not cover earthquake damage to your home
or its contents. To
To cover earthquake damage to your home and its
contents you need to purchase a separate earthquake insurance policy.
The coverage provided by an earthquake insurance policy is different
from, and typically more limited than, the coverage provided by your
property; renters; homeowners; condominium; townhouse;
dwelling; landlord; or other term that may describe the type of
companion policy] residential property insurance
policy. California
California law requires insurance companies to offer
earthquake insurance in conjunction with a residential property
insurance policy. If you do not accept the offer of earthquake
insurance below within 30 days of the mailing of this notice, your
insurance company may shall presume
that you have not accepted this offer of earthquake insurance.
You may purchase earthquake insurance coverage , subject
to policy provisions, at additional cost on all of on
the following terms:
(A) Amount of Dwelling Coverage Insurers may reference Building
Property coverage if a Common Interest Development policy.]:
___________________
(B) Applicable Deductible: ___________________ If your loss is
below this amount, you may not receive any payment for your loss.
(C) Contents Coverage Insurers may reference Personal Property as
that term is in the policy.]: Insurers should include and explain
briefly how the deductible works. Some variation is allowed, but
samples include:
For a Homeowners Policy, the dwelling deductible applies to
Contents Coverage. Nothing will be paid until the dwelling deductible
is met by damage to Coverage A and Coverage B property.
For Renters Policies and Common Interest Development Policies, a
$750 deductible applies to Contents Coverage.]
(D) Additional Living Expenses Insurers may reference Loss of
Use.]: Insurers shall explain briefly if there is a deductible and
how much it is.]
(A) Amount of Dwelling/Building Coverage Limit: _______________
(B) Deductible: ______________
(C) Contents Coverage Limit: _______________
(D) Additional Living Expenses Coverage Limit: _____________
(E) Estimated Annual Premium:_______________
For an additional premium, you can choose California Earthquake
Authority (CEA) coverage options such as higher limits for contents
or additional living expenses coverages, increased building code
upgrade limits, or a lower deductible. You can also choose to buy
certain CEA coverages separately.
The deductible represents the amount of damage your covered
property must incur before the earthquake insurance coverage begins.
If your covered loss is less than the applicable deductible, you may
not receive any payment.
If you choose not to accept this offer within the 30-day period,
you may apply for earthquake coverage at a later date.
Your insurance company contracts with the California Earthquake
Authority (CEA) to offer earthquake insurance to its customers. For
an additional premium, you can choose CEA coverage options such as
higher limits for Contents or Additional Living Expenses, increased
building code upgrade limits, or a lower deductible. You can also
choose to buy certain CEA coverages separately.
Contact your insurance agent or your insurance company to obtain
details regarding this offer of earthquake insurance and other
coverage options."
(b) When the insurer, agent, or broker establishes delivery of the
disclosure form by obtaining the signature of the applicant or
insured, or when an insurer, agent, or broker provides the applicant
with the disclosure form and the applicant does not return a signed
acknowledgment of receipt within 60 days of the date it was provided,
there shall be a conclusive presumption that the insurer, agent, or
broker has complied with the disclosure requirements of this section.
(c) The offer may contain additional provisions not in conflict
with or in derogation of this section.
(d) The commissioner may only approve modifications to the
language prescribed in subdivision (a) if all of the following
conditions are met:
(1) The modifications are not in conflict with or in derogation of
any provision of this section or Section 10089.
(2) The modifications are necessary to ensure that the disclosure
statement accurately reflects the coverage actually provided by the
policy being offered.
(3) The modifications are strictly limited to necessary changes so
that the modified disclosure statement is otherwise identical to the
disclosure statement prescribed in this section.
(e) Use of the language prescribed by this section, or modified
language approved pursuant to subdivision (d), shall constitute
compliance with the requirements of Section 10081 by an insurer
subject to the requirements.
(f) This section shall become operative on July 1, 2015.
January 1, 2016.
(g) This section shall remain in effect only until January 1,
2019, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2019, deletes or extends
that date.
SEC. 3. Section 10083 of the Insurance Code, as added by Section
13 of Chapter 369 of the Statutes of 2013, is amended to read:
10083. (a) The offer of coverage required by Section 10081 may be
made prior to, concurrent with, or within 60 days following the
issuance or renewal of a residential property insurance policy. If
the offer of coverage is mailed to the named insured or applicant, it
shall be mailed to the mailing address shown on the policy of
residential property insurance or on the application.
(1) If the offer is made by a nonparticipating insurer as defined
in Section 10089.5, the offer of earthquake coverage shall contain
all of the following language in at least 10-point boldface type:
"Your property; renters; homeowners; condominium;
townhouse; dwelling; landlord; or other term that may describe the
type of companion policy] residential property
insurance policy does not cover earthquake damage to your home
or its contents. To
To cover earthquake damage to your home and its
contents you need to purchase a separate earthquake insurance policy.
The coverage provided by an earthquake insurance policy is different
from, and typically more limited than, the coverage provided by your
property; renters; homeowners; condominium; townhouse;
dwelling; landlord; or other term that may describe the type of
companion policy] residential property insurance
policy. California
California law requires insurance companies to offer
earthquake insurance in conjunction with a residential property
insurance policy. If you do not accept the offer of earthquake
insurance below within 30 days of the mailing of this notice, your
insurance company may shall presume
that you have not accepted this offer of earthquake insurance.
You may purchase earthquake insurance coverage , subject
to policy provisions, at additional cost on all of on
the following terms:
(A) Amount of Dwelling Coverage Insurers may reference Building
Property coverage if a Common Interest Development policy.]:
___________________
(B) Applicable Deductible: ___________________ If your loss is
below this amount, you may not receive any payment for your loss.
(C) Contents Coverage Insurers may reference Personal Property as
that term is in the policy.]: Insurers should include and explain
briefly how the deductible works. Some variation is allowed, but
samples include:
For a Homeowners Policy, the dwelling deductible applies to
Contents Coverage. Nothing will be paid until the dwelling deductible
is met by damage to Coverage A and Coverage B property.
For Renters Policies and Common Interest Development Policies, a
$750 deductible applies to Contents Coverage.]
(D) Additional Living Expenses Insurers may reference Loss of
Use.]: Insurers shall explain briefly if there is a deductible and
how much it is.]
(A) Amount of Dwelling/Building Coverage Limit: _______________
(B) Deductible: ______________
(C) Contents Coverage Limit: _______________
(D) Additional Living Expenses Coverage Limit: _____________
(E) Estimated Annual Premium:_______________
The deductible represents the amount of damage your covered
property must incur before the earthquake insurance coverage begins.
If your covered loss is less than the applicable deductible, you may
not receive any payment.
Contact your insurance agent or your insurance company to obtain
details regarding this offer of earthquake insurance and other
coverage options."
(2) If the offer is made by a participating insurer as defined by
Section 10089.5, the offer of earthquake coverage shall contain all
of the following language in at least 10-point boldface type:
"Your property; renters; homeowners; condominium;
townhouse; dwelling; landlord; or other term that may describe the
type of companion policy] residential property
insurance policy does not cover earthquake damage to your home
or its contents. To
To cover earthquake damage to your home and its
contents you need to purchase a separate earthquake insurance policy.
The coverage provided by an earthquake insurance policy is different
from, and typically more limited than, the coverage provided by your
property; renters; homeowners; condominium; townhouse;
dwelling; landlord; or other term that may describe the type of
companion policy] residential property insurance
policy. California
California law requires insurance companies to offer
earthquake insurance in conjunction with a residential property
insurance policy. If you do not accept the offer of earthquake
insurance below within 30 days of the mailing of this notice, your
insurance company may shall presume
that you have not accepted this offer of earthquake insurance.
You may purchase earthquake insurance coverage , subject
to policy provisions, at additional cost on all of on
the following terms:
(A) Amount of Dwelling Coverage Insurers may reference Building
Property coverage if a Common Interest Development policy.]:
___________________
(B) Applicable Deductible: ___________________ If your loss is
below this amount, you may not receive any payment for your loss.
(C) Contents Coverage Insurers may reference Personal Property as
that term is in the policy.]: Insurers should include and explain
briefly how the deductible works. Some variation is allowed, but
samples include:
For a Homeowners Policy, the dwelling deductible applies to
Contents Coverage. Nothing will be paid until the dwelling deductible
is met by damage to Coverage A and Coverage B property.
For Renters Policies and Common Interest Development Policies, a
$750 deductible applies to Contents Coverage.]
(D) Additional Living Expenses Insurers may reference Loss of
Use.]: Insurers shall explain briefly if there is a deductible and
how much it is.]
(A) Amount of Dwelling/Building Coverage Limit: _______________
(B) Deductible: ______________
(C) Contents Coverage Limit: _______________
(D) Additional Living Expenses Coverage Limit: _____________
(E) Estimated Annual Premium:_______________
For an additional premium, you can choose California Earthquake
Authority (CEA) coverage options such as higher limits for contents
or additional living expenses coverages, increased building code
upgrade limits, or a lower deductible. You can also choose to buy
certain CEA coverages separately.
The deductible represents the amount of damage your covered
property must incur before the earthquake insurance coverage begins.
If your covered loss is less than the applicable deductible, you may
not receive any payment.
If you choose not to accept this offer within the 30-day period,
you may apply for earthquake coverage at a later date.
Your insurance company contracts with the California Earthquake
Authority (CEA) to offer earthquake insurance to its customers. For
an additional premium, you can choose CEA coverage options such as
higher limits for Contents or Additional Living Expenses, increased
building code upgrade limits, or a lower deductible. You can also
choose to buy certain CEA coverages separately.
Contact your insurance agent or your insurance company to obtain
details regarding this offer of earthquake insurance and other
coverage options."
(b) When the insurer, agent, or broker establishes delivery of the
disclosure form by obtaining the signature of the applicant or
insured, or when an insurer, agent, or broker provides the applicant
with the disclosure form and the applicant does not return a signed
acknowledgment of receipt within 60 days of the date it was provided,
there shall be a conclusive presumption that the insurer, agent, or
broker has complied with the disclosure requirements of this section.
(c) The offer may contain additional provisions not in conflict
with or in derogation of this section.
(d) The commissioner may only approve modifications to the
language prescribed in subdivision (a) if all of the following
conditions are met:
(1) The modifications are not in conflict with or in derogation of
any provision of this section or Section 10089.
(2) The modifications are necessary to ensure that the disclosure
statement accurately reflects the coverage actually provided by the
policy being offered.
(3) The modifications are strictly limited to necessary changes so
that the modified disclosure statement is otherwise identical to the
disclosure statement prescribed in this section.
(e) Use of the language prescribed by this section, or modified
language approved pursuant to subdivision (d), shall constitute
compliance with the requirements of Section 10081 by an insurer
subject thereto.
(f) This section shall become operative on January 1, 2019.
SEC. 4. Section 10086 of the Insurance Code, as amended by Section
14 of Chapter 369 of the Statutes of 2013, is amended to read:
10086. (a) If an offer of earthquake coverage is accepted, the
coverage shall be continued at the applicable rates and conditions
for the policy term, provided the policy of residential property
insurance is not terminated by the named insured or insurer.
(1) At any renewal, an insurer may modify the terms and conditions
of an existing policy, rider, or endorsement providing coverage
against loss or damage caused by the peril of earthquake if the
modified terms and conditions provide the minimum coverages required
by Section 10089.
(2) An insurer that modifies the terms and conditions of an
existing policy, rider, or endorsement shall provide the insured with
the renewal notice in a stand-alone disclosure document stating the
changes in the terms and conditions of the insured's existing policy,
rider, or endorsement. The offer of renewal may be made
electronically pursuant to Section 38.5. Proof of mailing of the
disclosure document by first-class mail to a named insured at the
mailing address shown on the policy or application, or proof
consistent with Section 38.5 that the offer of renewal of coverage
was sent to the named insured or applicant by electronic
transmission, creates a conclusive presumption that the disclosure
document was provided. The disclosure shall include the following
statement in 14-point boldface type:
THE
"THE COVERAGE IN THE POLICY WE ARE OFFERING YOU WITH
THIS RENEWAL HAS BEEN REDUCED, AND SUBSTANTIALLY DIFFERS FROM THE
COVERAGES PROVIDED BY YOUR HOMEOWNERS' POLICY. INSURANCE COMPANIES
ARE ALLOWED TO RENEW EARTHQUAKE INSURANCE POLICIES WITH COVERAGE THAT
IS REDUCED FROM THE COVERAGE YOU PREVIOUSLY PURCHASED. YOU MAY
REQUEST A SAMPLE COPY OF THIS NEW POLICY TO REVIEW PRIOR TO MAKING A
DECISION TO ACCEPT THIS RENEWAL, AND WE WILL MAIL OR DELIVER IT TO
YOU WITHIN 14 DAYS OF YOUR REQUEST. A REQUEST FOR THE SAMPLE COPY
SHALL NOT CHANGE OR EXTEND THE POLICY EXPIRATION DATE SPECIFIED IN
THE RENEWAL NOTICE. A SUMMARY OF THE CHANGES IS INCLUDED WITH THIS
NOTICE. NOTICE."
The commissioner shall approve the form of the summary at the time
he or she approves the policy. The summary shall include the
information contained in subdivision (a) of Section 10083, and may be
included with the renewal notice in standard type.
The commissioner may approve substantially similar disclosure
forms if necessary to accurately disclose relevant information to the
policyholder. The commissioner may also approve disclosure forms
substantially similar to the disclosure statement required by Section
10083 if necessary to accurately disclose relevant information to
the policyholder.
(3) If the earthquake coverage is provided by a policy issued by
the California Earthquake Authority, the following disclosure shall
be provided in 14-point boldface type:
CALIFORNIA
"CALIFORNIA EARTHQUAKE AUTHORITY POLICY DISCLOSURE
THIS POLICY IS BEING PURCHASED FROM THE CALIFORNIA EARTHQUAKE
AUTHORITY ("CEA"). THE COVERAGE IN THIS CEA POLICY SUBSTANTIALLY
DIFFERS FROM THE COVERAGES PROVIDED IN YOUR HOMEOWNER'S POLICY. THE
CEA IS NOT PART OF OR ASSOCIATED WITH YOUR HOMEOWNER'S INSURANCE
COMPANY. IF LOSSES AS A RESULT OF AN EARTHQUAKE OR A SERIES OF
EARTHQUAKES EXCEED THE AVAILABLE RESOURCES OF THE CEA, THIS POLICY IS
NOT COVERED BY THE
CALIFORNIA INSURANCE GUARANTY ASSOCIATION. THEREFORE, THE CALIFORNIA
INSURANCE GUARANTY ASSOCIATION WILL NOT PAY YOUR CLAIMS OR PROTECT
YOUR ASSETS IF THE CEA BECOMES INSOLVENT AND IS UNABLE TO MAKE
PAYMENTS AS PROMISED. IN ADDITION, YOUR CEA POLICY MAY BE SUBJECT TO
FUTURE SURCHARGES OF THE POLICY PREMIUM IN CERTAIN CASES WHERE AN
EARTHQUAKE OR SERIES OF EARTHQUAKES HAS EXCEEDED AVAILABLE RESOURCES
TO PAY CLAIMS. IN THAT CASE, THIS MEANS THAT IN ADDITION TO THE
ANNUAL PREMIUM, YOU MAY BE CHARGED UP TO AN ADDITIONAL 20% OF THE
PREMIUM. PREMIUM."
(b) If the offer is not accepted, the insurer or any affiliated
insurer shall be required on an every other year basis to offer
earthquake coverage in connection with any continuation, renewal, or
reinstatement of the policy following any lapse thereof, or with
respect to any other policy that extends, changes, supersedes, or
replaces the policy of residential property insurance. The offer may
be made electronically pursuant to Section 38.5.
(c) Nothing in this section shall preclude the named insured from
terminating the earthquake coverage at any time.
(d) This section shall remain in effect only until July
1, 2015, January 1, 2016, and as of that date is
repealed, unless a later enacted statute, that is enacted before
July 1, 2015, January 1, 2016, deletes
or extends that date.
SEC. 5. Section 10086 is added to the Insurance Code, to read:
10086. (a) If an offer of earthquake coverage, made pursuant to
Section 10081, is accepted, the coverage shall be continued at the
applicable rates and conditions for the policy term, provided the
policy of residential property insurance is not terminated by the
named insured or insurer.
(1) At any renewal, an insurer may modify the terms and conditions
of an existing policy, rider, or endorsement providing coverage
against loss or damage caused by the peril of earthquake if the
modified terms and conditions provide the minimum coverages required
by Section 10089.
(2) An insurer that modifies the terms and conditions of an
existing policy, rider, or endorsement shall provide the insured with
the renewal notice in a stand-alone disclosure document stating the
changes in the terms and conditions of the insured's existing policy,
rider, or endorsement. The offer of renewal may be made
electronically pursuant to Section 38.5. Proof of mailing of the
disclosure document by first-class mail to a named insured at the
mailing address shown on the policy or application, or proof
consistent with Section 38.5 that the offer of renewal of coverage
was sent to the named insured or applicant by electronic
transmission, creates a conclusive presumption that the disclosure
document was provided. The disclosure shall include the following
statement in 14-point boldface type:
"THE COVERAGE IN THE POLICY WE ARE OFFERING YOU WITH THIS RENEWAL
HAS BEEN REDUCED, AND SUBSTANTIALLY DIFFERS FROM THE COVERAGES
PROVIDED BY YOUR HOMEOWNERS' POLICY. INSURANCE COMPANIES ARE ALLOWED
TO RENEW EARTHQUAKE INSURANCE POLICIES WITH COVERAGE THAT IS REDUCED
FROM THE COVERAGE YOU PREVIOUSLY PURCHASED. YOU MAY REQUEST A SAMPLE
COPY OF THIS NEW POLICY TO REVIEW PRIOR TO MAKING A DECISION TO
ACCEPT THIS RENEWAL, AND WE WILL MAIL OR DELIVER IT TO YOU WITHIN 14
DAYS OF YOUR REQUEST. A REQUEST FOR THE SAMPLE COPY SHALL NOT CHANGE
OR EXTEND THE POLICY EXPIRATION DATE SPECIFIED IN THE RENEWAL NOTICE.
A SUMMARY OF THE CHANGES IS INCLUDED WITH THIS NOTICE."
The commissioner shall approve the form of the summary at the time
he or she approves the policy. The summary shall include the
information contained in subdivision (a) of Section 10083, and may be
included with the renewal notice in standard type.
The commissioner may approve substantially similar disclosure
forms if necessary to accurately disclose relevant information to the
policyholder. The commissioner may also approve disclosure forms
substantially similar to the disclosure statement required by Section
10083 if necessary to accurately disclose relevant information to
the policyholder.
(b) If the offer of earthquake coverage made pursuant to Section
10081 is not accepted, the insurer or any affiliated insurer shall be
required on an every other year basis to offer earthquake coverage
in connection with any continuation, renewal, or reinstatement of the
policy following any lapse thereof, or with respect to any other
policy that extends, changes, supersedes, or replaces the policy of
residential property insurance. The offer may be made electronically
pursuant to Section 38.5.
(c) Nothing in this section shall preclude the named insured from
terminating the earthquake coverage at any time.
(d) This section shall become operative on July 1, 2015.
January 1, 2016.
(e) This section shall remain in effect only until January 1,
2019, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2019, deletes or extends
that date.
SEC. 6. Section 10086 of the Insurance Code, as added by Section
15 of Chapter 369 of the Statutes of 2013, is amended to read:
10086. (a) If an offer of earthquake coverage, made pursuant to
Section 10081, is accepted, the coverage shall be continued at the
applicable rates and conditions for the policy term, provided the
policy of residential property insurance is not terminated by the
named insured or insurer.
(1) At any renewal, an insurer may modify the terms and conditions
of an existing policy, rider, or endorsement providing coverage
against loss or damage caused by the peril of earthquake if the
modified terms and conditions provide the minimum coverages required
by Section 10089.
(2) An insurer that modifies the terms and conditions of an
existing policy, rider, or endorsement shall provide the insured with
the renewal notice in a stand-alone disclosure document stating the
changes in the terms and conditions of the insured's existing policy,
rider, or endorsement. Proof of mailing of the disclosure document
by first-class mail to a named insured at the mailing address shown
on the policy or application creates a conclusive presumption that
the disclosure document was provided. The disclosure shall include
the following statement in 14-point boldface type:
"THE COVERAGE IN THE POLICY WE ARE OFFERING YOU WITH THIS RENEWAL
HAS BEEN REDUCED, AND SUBSTANTIALLY DIFFERS FROM THE COVERAGES
PROVIDED BY YOUR HOMEOWNERS' POLICY. INSURANCE COMPANIES ARE ALLOWED
TO RENEW EARTHQUAKE INSURANCE POLICIES WITH COVERAGE THAT IS REDUCED
FROM THE COVERAGE YOU PREVIOUSLY PURCHASED. YOU MAY REQUEST A SAMPLE
COPY OF THIS NEW POLICY TO REVIEW PRIOR TO MAKING A DECISION TO
ACCEPT THIS RENEWAL, AND WE WILL MAIL OR DELIVER IT TO YOU WITHIN 14
DAYS OF YOUR REQUEST. A REQUEST FOR THE SAMPLE COPY SHALL NOT CHANGE
OR EXTEND THE POLICY EXPIRATION DATE SPECIFIED IN THE RENEWAL NOTICE.
A SUMMARY OF THE CHANGES IS INCLUDED WITH THIS NOTICE."
The commissioner shall approve the form of the summary at the time
he or she approves the policy. The summary shall include the
information contained in subdivision (a) of Section 10083, and may be
included with the renewal notice in standard type.
The commissioner may approve substantially similar disclosure
forms if necessary to accurately disclose relevant information to the
policyholder. The commissioner may also approve disclosure forms
substantially similar to the disclosure statement required by Section
10083 if necessary to accurately disclose relevant information to
the policyholder.
(b) If the offer of earthquake coverage made pursuant to Section
10081 is not accepted, the insurer or any affiliated insurer shall be
required on an every other year basis to offer earthquake coverage
in connection with any continuation, renewal, or reinstatement of the
policy following any lapse thereof, or with respect to any other
policy that extends, changes, supersedes, or replaces the policy of
residential property insurance.
(c) Nothing in this section shall preclude the named insured from
terminating the earthquake coverage at any time.
(d) This section shall become operative on January 1, 2019.
SEC. 7. Section 10089.6 of the Insurance Code is amended to read:
10089.6. (a) There is hereby created the California Earthquake
Authority, which shall be administered under the authority of the
commissioner and have the powers conferred by this chapter. The
authority shall be authorized to transact insurance in this state as
necessary to sell policies of basic residential earthquake insurance
in the manner set forth in Sections 10089.26, 10089.27, and 10089.28.
The authority shall have no authority to transact any other type of
insurance business.
(b) (1) The investments of the authority shall be limited to those
securities eligible under Section 16430 of the Government Code.
(2) The rights, obligations, and duties owed by the authority to
its insureds, beneficiaries of insureds, and applicants for insurance
shall be the same as the rights, obligations, and duties owed by
insurers to its insureds, beneficiaries of insureds
insureds, and applicants for insurance under
common law, regulations, and statutes. The authority shall be liable
to its insureds, beneficiaries of insureds, and applicants for
insurance as an insurer is liable to its insureds, beneficiaries of
insureds, and applicants for insurance under common law, regulations,
and statutes.
(c) The operating expenses of the authority shall be capped at not
more than 3 6 percent of the premium
income received by the authority. The funds shall be available to pay
any advocacy fees awarded in a proceeding under subdivision (c) of
Section 10089.11.
(d) This section shall remain in effect only until July 1, 2015,
and as of that date is repealed, unless a later enacted statute, that
is enacted before July 1, 2015, deletes or extends that date.
(d) For purposes of this section, the term "operating expenses of
the authority" excludes solely the following:
(1) The costs of and transaction expenses associated with
risk-transfer purchases, including the purchase of reinsurance and
with capital-market contracts.
(2) The expense of securing and repaying bonds.
(3) The cost of repayment of bonds guaranteed, insured, or
otherwise backed by any department or agency of the United States or
of this state, or by any private entity.
(4) Payments to third parties for all of the following services
provided to the authority:
(A) Investment.
(B) Loss-modeling.
(C) Legal services.
(5) Costs associated with the authority's efforts to acquaint the
public with and market authority products, promote earthquake
preparedness, and earthquake-loss mitigation under the authority's
duly adopted strategic plan.
(6) Producer compensation.
(7) Participating insurer fees and reimbursement amounts arising
under written contracts.
(8) Amounts paid by the authority to support research in seismic
science and seismic engineering.
(9) Loans, grants, and expenses to support and maintain the
authority's earthquake loss-mitigation goals and programs, whether
conducted by the authority alone or in collaboration with or by other
persons.
(10) The costs of and loss-adjustment expenses associated with
adjusting and paying policyholder claims for earthquake losses that
are incurred by the authority under its earthquake insurance
policies, including all costs and expenses associated with
claim-related litigation, provided that all of those costs and
expenses shall be reported to the Legislature in the manner required
by subdivision (e) of Section 10089.13.
SEC. 8. Section 10089.6 is added to the
Insurance Code, to read:
10089.6. (a) There is hereby created the California Earthquake
Authority, which shall be administered under the authority of the
commissioner and have the powers conferred by this chapter. The
authority shall be authorized to transact insurance in this state as
necessary to sell policies of basic residential earthquake insurance
in the manner set forth in Sections 10089.26, 10089.27, and 10089.28.
The authority shall have no authority to transact any other type of
insurance business.
(b) (1) The investments of the authority shall be limited to those
securities eligible under Section 16430 of the Government Code.
(2) The rights, obligations, and duties owed by the authority to
its insureds, beneficiaries of insureds, and applicants for insurance
shall be the same as the rights, obligations, and duties owed by
insurers to its insureds, beneficiaries of insureds, and applicants
for insurance under common law, regulations, and statutes. The
authority shall be liable to its insureds, beneficiaries of insureds,
and applicants for insurance as an insurer is liable to its
insureds, beneficiaries of insureds, and applicants for insurance
under common law, regulations, and statutes.
(c) The operating expenses of the authority shall be capped at not
more than 5 percent of the premium income received by the authority.
The funds shall be available to pay any advocacy fees awarded in a
proceeding under subdivision (c) of Section 10089.11.
(d) For purposes of this subdivision, the term "operating expenses
of the authority" excludes solely the following:
(1) The costs of and transaction expenses associated with
risk-transfer purchases, including the purchase of reinsurance and
with capital-market contracts.
(2) The expense of securing and repaying bonds.
(3) The cost of repayment of bonds guaranteed, insured, or
otherwise backed by any department or agency of the United States or
of this state, or by any private entity.
(4) Payments to third parties for all of the following services
provided to the authority:
(A) Investment.
(B) Loss-modeling.
(C) Legal services.
(5) Costs associated with the authority's efforts to acquaint the
public with and market authority products, promote earthquake
preparedness, and earthquake-loss mitigation under the authority's
duly adopted strategic plan.
(6) Producer compensation.
(7) Participating insurer fees and reimbursement amounts arising
under written contracts.
(8) Amounts paid by the authority to support research in seismic
science and seismic engineering.
(9) Loans, grants, and expenses to support and maintain the
authority's earthquake loss-mitigation goals and programs, whether
conducted by the authority alone or in collaboration with or by other
persons.
(10) The costs of and loss-adjustment expenses associated with
adjusting and paying policyholder claims for earthquake losses that
are incurred by the authority under its earthquake insurance
policies, including all costs and expenses associated with
claim-related litigation, provided that all of those costs and
expenses shall be reported to the Legislature in the manner required
by subdivision (e) of Section 10089.13.
(e) This section shall become operative on July 1, 2015.
SEC. 9. SEC. 8. Section 10089.26 of
the Insurance Code is amended to read:
10089.26. (a) The authority shall issue policies of basic
residential earthquake insurance, including an option for
earthquake loss assessment policies for individual condominium unit
properties, to any owner of a qualifying residential property, as
long as the owner has secured a policy of residential property
insurance from a participating insurer.
(1) For purposes of this section, earthquake loss assessment
coverage shall be issued in a minimum amount of fifty thousand
dollars ($50,000) for individual condominium units valued at more
than one hundred thirty-five thousand dollars ($135,000). Earthquake
loss assessment coverage shall be issued in a minimum amount of
twenty-five thousand dollars ($25,000) for individual condominium
units of one hundred thirty-five thousand dollars ($135,000) in value
or less. The value of the land shall be excluded when determining
the value of the condominium, as it relates to the earthquake loss
assessment coverage offered by the authority.
(2) The panel shall submit to the board, and the board shall
approve, rates for earthquake loss assessment coverage that
reasonably balance the earthquake loss assessment coverages offered
and the potential exposure to earthquake loss resulting from an
earthquake loss assessment policy as compared to the coverages
offered and the potential exposure to earthquake loss resulting from
residential property other than individual condominium policies.
It is the intent of the Legislature, to the extent practicable,
that rates charged by the authority to condominium loss assessment
policyholders and residential property owner policyholders are
treated equitably, and that a proportionate share of premiums is paid
for potential exposure to loss, to the authority.
(b) Nothing in this section shall prohibit a participating or
nonparticipating insurer from offering a condominium earthquake loss
assessment policy for different amounts of coverage other than those
offered by the authority.
(c) This section shall remain in effect only until July 1, 2015,
and as of that date is repealed, unless a later enacted statute, that
is enacted before July 1, 2015, deletes or extends that date.
SEC. 10. Section 10089.26 is added to the
Insurance Code, to read:
10089.26. (a) (1) The authority shall issue policies of basic
residential earthquake insurance, including earthquake loss
assessment policies for individual condominium unit properties, to
any owner of a qualifying residential property, as long as the owner
has secured a policy of residential property insurance from a
participating insurer.
(2) A policy of residential earthquake insurance written by the
authority shall be effective upon receipt by the participating
insurer of both of the following:
(A) The completed authority-approved application for the policy,
signed by the applicant.
(B) Either the annual premium or the first installment of the
annual premium.
(b) For purposes of this section, earthquake loss assessment
coverage shall be issued in a minimum amount of fifty thousand
dollars ($50,000) for individual condominium units valued at more
than one hundred thirty-five thousand dollars ($135,000). Earthquake
loss assessment coverage shall be issued in a minimum amount of
twenty-five thousand dollars ($25,000) for individual condominium
units of one hundred thirty-five thousand dollars ($135,000) in value
or less. The value of the land shall be excluded when determining
the value of the condominium, as it relates to the earthquake loss
assessment coverage offered by the authority.
(c) The panel shall submit to the board, and the board shall
approve, rates for earthquake loss assessment coverage that
reasonably balance the earthquake loss assessment coverages offered
and the potential exposure to earthquake loss resulting from an
earthquake loss assessment policy as compared to the coverages
offered and the potential exposure to earthquake loss resulting from
residential property other than individual condominium policies.
(d) It is the intent of the Legislature, to the extent
practicable, that rates charged by the authority to condominium loss
assessment policyholders and residential property owner policyholders
are treated equitably, and that a proportionate share of the premium
is paid for potential exposure to loss, to the authority.
(e) Nothing in this section shall prohibit a participating or
nonparticipating insurer from offering a condominium earthquake loss
assessment policy for different amounts of coverage other than those
offered by the authority.
(f) This section shall become operative on July 1, 2015.
SEC. 11. SEC. 9. Section 10089.28 of
the Insurance Code is amended to read:
10089.28. (a) All policies of residential earthquake insurance
provided by the authority shall be written by the authority.
Authority policies shall be marketed and policyholders serviced by
the participating insurer that writes the underlying policy of
residential property insurance, and participating insurers shall be
reasonably compensated for the claims and policyholder services they
provide on behalf of the authority. Authority services may be
performed on behalf of the authority in any reasonable manner by the
participating insurer that is in compliance with statutory,
regulatory, and case laws regarding claims handling practices;
provided, however, where the authority has promulgated specific
procedures to govern its operations, the participating insurer shall
conform its practices to those procedures. The authority procedures
shall comply with statutory, regulatory, and case law governing
claims handling practices. Nothing in this provision shall be deemed
or construed to affect any duty or liability of the authority or
participating carrier as set forth in paragraphs (2) and (3) of
subdivision (e) of Section 10089.7.
(b) The participating insurer shall notify each of its insureds
that the authority is the provider of earthquake coverage under the
policy. The form and method of notice shall meet standards
established by the commissioner by regulation. The authority shall
provide to participating insurers appropriate applications and forms
and shall maintain records of all policies written, moneys received,
and claims paid.
(c) The duty of an agent or broker to investigate the financial
condition of the authority before placement of insurance shall be the
same as the duty of an agent or broker to investigate the financial
condition of an admitted insurer before placement of a policy of
insurance.
(d) This section shall remain in effect only until July
1, 2015, January 1, 2016, and as of that date is
repealed, unless a later enacted statute, that is enacted before
July 1, 2015, January 1, 2016, deletes
or extends that date.
SEC. 12. SEC. 10. Section 10089.28
is added to the Insurance Code, to read:
10089.28. (a) All policies of residential earthquake insurance
provided by the authority shall be written by the authority.
Authority policies shall be marketed and policyholders serviced by
the participating insurer that writes the underlying policy of
residential property insurance, and participating insurers shall be
reasonably compensated for the claims and policyholder services they
provide on behalf of the authority. Authority services may be
performed on behalf of the authority in any reasonable manner by the
participating insurer that is in compliance with statutory,
regulatory, and case law regarding claims handling practices;
provided, however, where the authority has promulgated specific
procedures to govern its operations, the participating insurer shall
conform its practices to those procedures. The authority procedures
shall comply with statutory, regulatory, and case law governing
claims handling practices. Nothing in this provision shall be deemed
or construed to affect any duty or liability of the authority or
participating carrier as set forth in paragraphs (2) and (3) of
subdivision (e) of Section 10089.7.
(b) Concurrent with the issuance or renewal by the authority of a
residential earthquake insurance policy, the participating
insurer shall provide the following disclosure shall
be provided to the insured in 14-point boldface type:
"California Earthquake Authority Policy Disclosure
You have purchased a California Earthquake Authority (CEA)
earthquake insurance policy, which can help you cover the cost of
repairing damage to your property and possessions caused by an
earthquake.
The CEA is not part of your homeowners' insurance company.
Please keep in mind these important things about your CEA
insurance policy:
1. CEA policy coverages are different from the coverages provided
in your homeowners' insurance policy. For example, this policy does
not cover earthquake damage to swimming pools, and it may provide
more limited coverage for chimneys, outbuildings, and masonry fences.
These are examples of possible differences between your CEA policy
and your homeowners' policy, and you should consult your CEA policy
to understand the types of losses that are limited or excluded and
those that are covered.
2. If CEA's liability for earthquake losses exceeds the CEA's
available resources the CEA may reduce its payment to you or pay you
in installments. This policy is not covered by the California
Insurance Guarantee Association, and therefore, the California
Insurance Guarantee Association will not pay your claims if the CEA
becomes insolvent and is unable to make payments as promised.
3. In certain cases, your CEA policy premium may be subject to
future surcharges if the CEA's obligations to pay earthquake losses
rise to a pre-defined level. In that case, in addition to your annual
premium you may be charged up to an additional 20% of that premium."
(c) The authority shall provide to participating insurers
appropriate applications and forms and shall maintain records of all
policies written, moneys received, and claims paid.
(d) The duty of an agent or broker to investigate the financial
condition of the authority before placement of insurance shall be the
same as the duty of an agent or broker to investigate the financial
condition of an admitted insurer before placement of a policy of
insurance.
(e) This section shall become operative on July 1, 2015.
January 1, 2016.
SEC. 13.
Section 10089.42 is added to the Insurance Code,
to read:
10089.42. (a) A policy of residential property insurance shall
not be issued, delivered, or renewed in this state, by any
participating insurer unless the named insured is provided
information on the availability of residential earthquake insurance
from the authority within 60 days of issuance or renewal of the
insured's residential insurance policy. The information required by
this subdivision shall do all of the following:
(1) Notify the insured that the residential property insurance
policy does not provide coverage for loss or damage caused by the
peril of earthquake.
(2) Disclose that the insured can apply at any time through the
participating insurer for insurance issued by the authority that
covers loss or damage caused by the peril of earthquake.
(3) Notify the insured that a policy of residential earthquake
insurance from the authority provides different protection, and in
some cases less protection, than the residential property insurance
policy.
(4) Inform the insured of the amounts of premium and deductible
applicable to base-limits authority earthquake insurance coverage.
(5) Direct the insured to an Internet Web site maintained by the
participating insurer or by the authority, or jointly by both, where
the insured can obtain premium estimates and information on
additional earthquake insurance coverages, coverage limits,
deductibles, and other policy and coverage features for a residential
earthquake insurance policy from the authority.
(6) Direct the insured to an Internet Web site or toll-free
telephone number, or both, where the insured can be referred to or
speak with a representative or broker-agent of the participating
insurer who can facilitate the preparation and receipt of an
application for residential earthquake insurance written by the
authority.
(b) The participating insurer may, but shall not be required to,
provide the information required under this section to any insured
who has purchased through that participating insurer, and has in
force, a residential earthquake insurance policy written by the
authority.
(c) The authority shall prepare forms of the information required
for use by participating insurers and submit them to the commissioner
for approval. The commissioner shall approve a form if it accurately
discloses the information required by subdivision (a). The forms are
not required to be reproduced in identical form to the disclosures
and advice set forth in subdivision (a), and they may contain
provisions additional to those set forth in subdivision (a) if the
additional provisions do not conflict with this section.
(d) (1) The information required by this section may be made
electronically pursuant to Section 38.5.
(2) Proof of mailing of any information required by this section
by first-class mail to a named insured at the mailing address shown
on the policy or application, or proof consistent with Section 38.5
that the information was sent to the named insured or applicant by
electronic transmission, creates a conclusive presumption that the
information required by this section was provided.
(e) This section shall become operative on July 1, 2015.
SEC. 11. Section 10089.42 is added to the
Insurance Code , to read:
10089.42. (a) At least once each year a participating insurer
shall provide each of its residential property insureds with
marketing documents produced at the authority's expense.
(b) This section shall become operative on January 1, 2016.