BILL ANALYSIS �
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UNFINISHED BUSINESS
Bill No: SB 1011
Author: Monning (D)
Amended: 8/11/14
Vote: 21
SENATE INSURANCE COMMITTEE : 11-0, 4/9/14
AYES: Monning, Gaines, Corbett, Correa, DeSaulnier, Lieu,
Mitchell, Nielsen, Roth, Torres, Vidak
SENATE FLOOR : 36-0, 5/1/14
AYES: Anderson, Berryhill, Block, Cannella, Corbett, Correa, De
Le�n, DeSaulnier, Evans, Fuller, Gaines, Galgiani, Hancock,
Hernandez, Hill, Hueso, Huff, Jackson, Knight, Lara, Leno,
Lieu, Liu, Mitchell, Monning, Morrell, Nielsen, Padilla,
Pavley, Roth, Steinberg, Torres, Vidak, Walters, Wolk, Wyland
NO VOTE RECORDED: Beall, Calderon, Wright, Yee
ASSEMBLY FLOOR : 79-0, 8/14/14 - See last page for vote
SUBJECT : Nonprofit corporations: self-insurance
SOURCE : Nonprofits Insurance Alliance of California
DIGEST : This bill authorizes certain 501(c)(3) nonprofit
organizations to insure themselves against damage to property
and the losses related to the loss of use of property through a
risk pool arrangement, organizes as a nonprofit benefit
corporation, be in existence for purposes of covering tort
liability for no less than five years, and have accumulated net
assets of not less than $5,000,000. The bill also requires the
CONTINUED
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pooling arrangement to include in every application, on or after
January 1, 2016, a notice that states, among other things, that
the risk pooling contract is not subject to all of the
California insurance laws and is not subject to regulation by
the Insurance Commissioner.
Assembly Amendments require that the pooling arrangement be
organized as a nonprofit public benefit corporation and require
that all corporations participating in the pooling arrangement,
be in existence for purposes of covering tort liability for no
less than five years, and have accumulated net assets of not
less than $5,000,000. Amendments also require the pooling
arrangement to include in every application, on or after January
1, 2016, a specified notice regarding the regulation of the
pool.
ANALYSIS : Existing law:
1.Permits an authorized nonprofit organization that has joined
with two or more other authorized corporations in an
arrangement providing for the pooling of self-insured claims
or losses to insure:
A. Itself against all or any part of any tort liability;
B. Any employee of the corporation against all or any part
of his or her liability for injury resulting from an act or
omission in the scope of employment;
C. Any board member, officer, or volunteer of the
corporation against any liability that may arise from any
act or omission in the scope of participation with the
corporation; and
D. Itself against any loss arising from physical damage to
motor vehicles owned or operated by the corporation.
1.Excludes liabilities covered by workers' compensation
insurance from the types coverage that may be provided, as
well as coverage for employees against punitive or exemplary
damages.
2.Defines "authorized corporation" as any corporation that is
organized chiefly to provide or fund health or human services
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(except hospitals) and qualifies as exempt from taxation under
Section 501(c)(3) of the U.S. Internal Revenue Code.
3.Provides that the pooling arrangement shall not be considered
insurance nor be subject to regulation under the Insurance
Code.
4.Requires initial pooled resources of at least $250,000.
5.Requires all participating corporations to agree to pay
premiums or make other mandatory financial contributions or
commitments necessary to ensure a financially sound risk pool.
This bill:
1.Authorizes certain 501(c)(3) nonprofit organizations to insure
themselves against damage to property and the losses related
to the loss of use of property through a risk pool
arrangement, organized as a nonprofit public benefit
corporation.
2.Specifies that the pool be in existence for purposes of
covering tort liability for no less than five years, and have
accumulated net assets of not less than $5,000,000.
3.Requires the pooling arrangement to include in every
application form for membership and every risk pooling
contract issued or renewed on or after January 1, 2016, in
boldface 10-point type on the front page, a notice that
states, among other things, that the risk pooling contract is
not subject to all of the California insurance laws and is not
subject to regulation by the Insurance Commissioner.
Background
Risk pools authorized by the Corporations Code are a form of
group self-insurance where nonprofit corporations join together
in an arrangement providing for the pooling of self-insured
claims or losses, sometimes referred to as nonprofit risk pools
or charitable risk pools.
In response to the liability insurance crisis that seriously
threated many nonprofit organizations in the 1980s, the
Legislature authorized nonprofits to self-insure through risk
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pools and collectively manage liability risks. Sharing risk in
larger groups that have more predictable and stable claims can
be far less risky than individual self-insurance with small
entities that are vulnerable to insolvency if they experience
catastrophic claims.
California law treats these risk pools as a form of
self-insurance not subject to the Insurance Code or regulation
by the Department of Insurance. Additionally, these pools do
not participate in the California Insurance Guarantee
Association and are not subject to a standard administrative
enforcement processes, including solvency regulation or claims
handling review.
Although not explicitly required in statute, in practice, all
known existing nonprofit risk pools are organized as public
benefit corporations regulated by the Attorney General. Any
person with a grievance can file a complaint with the Attorney
General who has the power to investigate and bring an action to
enforce applicable law. Directors and officers must act in the
best interest of the nonprofit and may be liable for breaches of
duty (which is why directors and officers insurance is often
critical to recruiting qualified board members).
There are two known nonprofit risk pools in California.
NonProfits United, administers a vehicle insurance pool that
only provides commercial automobile coverage. Nonprofits
Insurance Alliance of California, the sponsor of the bill, is
the only known nonprofit risk pool that provides liability
coverage directly and property insurance through a fronting
agreement with an admitted insurer. Members of both risk pools
elect their respective boards of directors and require that at
least a majority of the board be selected from the membership.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local:
No
SUPPORT : (Verified 8/13/14)
Nonprofits' Insurance Alliance of California (source)
Alegria Community Living
Bill Wilson Center, Santa Clara
Boys & Girls Clubs of Central Sonoma County
Boys & Girls Clubs of Fresno County
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Boys & Girls Clubs of Garden Grove
California Association of Nonprofits
Child Advocates of Placer County
Children's Services Network, Fresno
Community Bridges/Puentes de la Comunidad, Aptos
Community Action Partnership of Orange County
Cooper Fellowship, Inc. - Santa Ana
Diane Cooper-Puckett, Executive Director, The Peg Taylor Center
for Adult Day Health Care - Chico
Grandparents as Parents - Canoga Park
La Cl�nica, Oakland
Lassen Family Services
Lilliput Children's Services, Citrus Heights
NEO Law Group
Novato Youth Center
San Diego Center for Children
Shields for Families - Los Angeles
Suzanne Cross, Board Member, Coro Center for Civic Leadership
and Unite to
Light
Terra Nova Counseling - Citrus Heights
Turning Point of Central California - Visalia
Venice Community Housing Corporation
Victor Treatment Centers & Victor Community Support Services -
Chico
ARGUMENTS IN SUPPORT : According to the author, during the
1980s, the property and casualty insurance markets experienced a
severe shortage of affordable liability coverage. Nonprofit
organizations were particularly vulnerable because many of their
exposures are unique and unfamiliar to commercial insurers.
Faced with huge increases in liability insurance premiums,
nonprofit organizations were forced to drastically cut services
and staff, use scarce reserves, raise fees, and even close their
doors. In 1986, the Legislature responded by enacting
California Corporations Code Section 5005.1 and authorizing a
new form of group self-insurance specific to 501(c)(3) entities
that provide or fund health and human services, sometimes
referred to as a "nonprofit risk pool." Under that law, these
organizations could band together to share their risk
collectively, pool their resources to cover potential
liabilities, and develop techniques and programs to avoid losses
altogether. These organizations have successfully self-insured
liability and commercial auto coverage, including coverage for
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vehicle property damage, for 25 years.
Typically, property and casualty insurance for small to
mid-sized organizations is provided together in a package
policy. However, a nonprofit risk pool, must establish a
complex fronting agreement with a commercial insurer to be able
to offer property insurance. This bifurcation makes meeting the
needs of risk pool members more expensive and unnecessarily
cumbersome for the nonprofits and their insurance advisors, and
restricts the nonprofit risk pool from prudently diversifying
the risks of liability with property damage coverage.
ASSEMBLY FLOOR : 79-0, 08/14/14
AYES: Achadjian, Alejo, Allen, Ammiano, Bigelow, Bloom,
Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian
Calderon, Campos, Chau, Ch�vez, Chesbro, Conway, Cooley,
Dababneh, Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox,
Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon,
Gorell, Gray, Grove, Hagman, Hall, Harkey, Roger Hern�ndez,
Holden, Jones, Jones-Sawyer, Levine, Linder, Logue, Lowenthal,
Maienschein, Mansoor, Medina, Melendez, Mullin, Muratsuchi,
Nazarian, Nestande, Olsen, Pan, Patterson, Perea, John A.
P�rez, V. Manuel P�rez, Quirk, Quirk-Silva, Rendon,
Ridley-Thomas, Rodriguez, Salas, Skinner, Stone, Ting, Wagner,
Waldron, Weber, Wieckowski, Wilk, Williams, Yamada, Atkins
NO VOTE RECORDED: Vacancy
AL:nl 8/15/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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