THIS WEEK IN
Prepared by Norwood & Mattoch
Homeowners Insurance Becoming Big Issue in Legislature
Now that workers’
compensation has been resolved, homeowners insurance is stepping to the forefront
as the next issue to be tackled by the California Legislature.
In February of this year,
Insurance Commissioner John Garamendi praised
However, an increase in
consumer outcry and the beginning of a trend of homeowners filing lawsuits
against their insurance companies claiming that carriers misled them on
coverage has prompted Garamendi to change his
tune. Garamendi
has gone into attack mode and has accused the state’s largest insurers, State
Farm, Allstate and Farmers, of “screwing their customers big-time.” These accusations were a result of three
town-hall meeting Garamendi held in
In response, Garamendi has launched a “strike force” to investigate
accusations that insurers are breaking the Unfair Practices Act, which
regulates how insurance companies settle claims. The “strike force,” which will perform audits
of company records that show patterns of questionable practices, will be
composed of attorneys and consumer advocates.
In addition, Garamendi announced proposed legislation that he said came
out of the town hall meetings. The proposal,
which does not yet have an author, would force insurance companies to go into
mediation with customers who dispute their settlements. Under the proposal, the result would not be
binding on either side.
Garamendi also touted four Department of Insurance sponsored
bills, which he dubbed the “Homeowners Bill of Rights.” Garamendi called on
Governor Schwarzenegger and the Legislature to support the package of
bills. The package includes the
following bills:
AB 2199 (Kehoe)
would set minimum allowable periods for rebuilding after fires. The time limit would be 24 months after a
declared state of emergency and 12 months after a normal house fire.
AB 2962 (Pavley) would prohibit insurance companies from subtracting
labor costs from payouts to replace property.
In addition, the bill would set a uniform measurement for the actual
cash value of property.
SB 1474 (Escutia) would prohibit an insurer from refusing to issue or
renew a homeowners' insurance policy on the basis of claims made by the
applicant or insured, unless the applicant has made 3 or more claims within the
preceding 3-year period.
SB 1855 (Alpert) would require insurance companies to provide price quotes for different
types of homeowners insurance policies at the time of purchase and
renewal. In addition, the bill would
require insurers to explain how they determined the policy limits and to allow
customers to increase or lower limits if they get new or different estimates
for replacement costs.
The Department of Insurance
and industry representatives, including those from the Insurance Agents and
Brokers Legislative Council, The First American Corporation, Nationwide
Insurance Company and Liberty Mutual, are currently discussing possible
amendments to AB 2962 and SB 1855. Industry representatives participated in a
conference call with the Department this week and it appears as though AB 2962
is non-negotiable and will be strongly opposed, while SB 1855 may be amended to
be acceptable to both the Insurance Commissioner and the industry. The Department has also proposed amendments
to AB 2199 and the bill, as currently drafted, address most of the concerns
raised by the industry. All four of the
bills are scheduled to be heard in either the Assembly or Senate Insurance Committee
next week.
The Senate Insurance
Committee heard and passed SB 1315 (Ortiz) this week. SB 1315 would require that insurers seeking
to make a change to the standard fire insurance policy form must file a copy of
the form with the Insurance Commissioner. The bill would also grant the
commissioner the authority to disapprove the form. Chairwoman Jackie Speier
raised several concerns regarding the bill and suggested that the bill be
amended simply to require a “file and use” system on forms. Senator Ortiz stated that she would have her
staff work on amendments to incorporate that type of system. Another member of the committee, Senator Jack
Scott, also raised concerns regarding the bill and stated that, although he voted
for the bill in committee, he would not vote for the bill on the Senate Floor
unless it was tightened up.
The Assembly and Senate
Insurance Committees will hear the Insurance Commissioner’s “Homeowners Bill of
Rights” package and the other homeowners insurance
bills next week.
In addition to the
aforementioned bills, the following homeowners
insurance measures will be heard in the Assembly Insurance Committee on
AB 2399 (Liu) would
prohibit an insurer from refusing to issue or renew a homeowners' policy based
upon the breed of dog owned by the applicant or insured. The bill would allow an insurer to consider a
breed of dog when setting rates for a homeowners' policy if the rate charged is
supported by actuarial data regarding the risk of loss posed by the particular
breed, but would require that a specified discount be granted if the dog has
passed the test for the American Kennel Club Canine Good Citizen certification.
AB 2444 (Dutton) would require the California FAIR Plan Association to provide an annual
report to the Legislature on policies in force and probable maximum losses in
very high fire hazard severity zones.
The Senate Insurance
Committee is also meeting on
SB 1321 (Ortiz) would require the Insurance Commissioner to consider whether an
insurance company’s rates are excessive relative to the company’s profit
margin. In addition, the bill would
mandate that a public hearing be held, for personal or commercial lines of
insurance, if the proposed rate adjustment exceeds, over the course of one
year, 7% for personal lines and 15% for commercial lines.
SB 1323 (Ortiz) would prohibit an insurer in California from refusing to issue or renew
a homeowners' policy based upon prior claims made by the applicant or insured
under any homeowners' policy, unless the applicant or insured has made more
than 2 of these claims in the previous 2 years.
In addition, the bill would prohibit insurers from using credit ratings,
credit reports, credit scoring models, or credit information to underwrite,
classify, or rate homeowners' insurance policies. It would also prohibit an insurer from refusing
to issue, or nonrenewing or canceling, a homeowners'
policy based upon these types of credit information.
Workers’ Comp Rate Regulation Bill Heard in Senate
Committee
Senator Deborah Ortiz
presented her workers’ compensation rate regulation bill, SB 1466, to the Senate
Labor and Industrial Relations Committee this week. SB 1466 would repeal the existing
rate-regulatory scheme governing workers’ compensation insurance and replace it
with a reconstituted “minimum-rate” law.
Under this proposal, the Insurance Commissioner would approve as
adequate all rates charged for each class of workers’ compensation
insurance. In addition, the bill would
specify that during times of a declared “crisis” in the workers-compensation
market the Commissioner would have the power to set all rates.
Chairman Richard Alarcón, who has been a strong proponent of rate
regulation, asked Senator Ortiz to sign on as a co-author to his rate
regulation bill SBx4 16, which would regulate both excess and minimum rates,
while SB 1466 would only apply to a minimum rate. Senator Ortiz declined the
chairman’s offer and the bill remains in the committee. Interestingly enough, Senator Alarcón’s bill SBx4 16 was put on the suspense file in the
Senate Appropriations Committee. The other
rate regulation bill ABx4 16 (Levine) passed the Assembly, but has not been
assigned to any committees in the Senate.
WCIRB Predictions
The Workers’ Compensation
Insurance Rating Bureau (WCIRB) held a hearing Thursday to provide a
preliminary review of the workers’ compensation reform bill SB 899 (Poochigian). The
rating bureau predicted that employers can anticipate a little relief this
summer from workers’ compensation rates, but the substantial reductions in the
new law may not come until the middle of 2005.
The president of the WCIRB Robert Mike predicted that it will take
months for the state to put together the many critical pieces in the
comprehensive law. But, the WCIRB stated
that by the end of 2005 it is possible that the workers’ compensation system
might only costs $14.25 billion, as measured by the benefits that insurers pay
out.
The WCIRB will present their
forecasts to Commissioner Garamendi on May 13.
New Director Appointed to Division of Workers’
Compensation
Governor Schwarzenegger
appointed Andrea Hoch as the new Administrative
Director of the Division of Workers’ Compensation. Hoch has served in
a variety of positions at the California Department of Justice and was
previously the legal advisor to the Public Employment Relations Board and staff
counsel to the Agricultural Labor Relations Board. Hoch will replace
Richard Gannon.
Department of Insurance Launches New Website
The California Department of
Insurance launched a new website this week for businesses to get an online
comparison of the base rates for workers’ compensation insurance charged by the
state’s top 50 insurance carriers. The
website, which can be found at www.insurance.ca.gov,
will be updated each January and July.
Outsourcing Bills Moving in Senate
Two controversial bills
addressing outsourcing were heard in Senate Committees this week. SB 1451 (Figueroa) were heard in the Senate
Judiciary Committee. SB 1451 would make
a business strictly liable for violations of
The bill was met with heavy
opposition from the California Bankers Association, the California Chamber of
Commerce, the California Manufacturers and Technology Association and various
other financial trade associations who argued that the measure, if passed,
would be preempted by the Gramm-Leach-Bliley Act
(GLBA) and would overlap with last year’s Financial Privacy Act (SB 1, Chapter
241, 2003). In addition, the opponents
stated that they were strongly opposed to the provision which would make the
primary contractor strictly liable for the acts of any independent
contractors. Chairwoman Martha Escutia and Senator Denise Moreno Ducheny
also voiced their concern over the strict liability and, after a lengthy
debate, Senator Figueroa agreed to work with the committee and attempt to
tighten up the provision. In addition,
Senator Figueroa agreed to remove provisions from her bill that overlapped with
the Financial Privacy Act and the GLBA. With
the Senator’s promise to address the concerns brought forth by the committee,
the bill passed with a vote of 4-3.
Senator Joseph Dunn presented
SB 1492 in the Senate Labor and Industrial Relations Committee. This bill, sponsored by the AFL-CIO, would
prohibit any work involving information that is private or essential to
homeland security from being performed at a work site outside of the
There are approximately 14
bills that have been introduced relating to outsourcing; however, due to the
complexity of this issue many of the measures are still being drafted.
“Sue Your Boss” Law Modification Measures Heard in
Senate Labor Committee
Two bills that would modify
last year’s infamous “sue your boss law” SB 796 (Dunn, Chapter 906, 2003), was
heard before the Senate Labor and Industrial Relations Committee this week. SB
1861 (Ashburn), sponsored by the California Chamber of Commerce, would
provide a review mechanism that helps
check frivolous lawsuits by requiring state Labor Agency review of alleged
Labor Code violations before a private enforcement lawsuit may be filed. This measure, although strongly supported by
numerous employer trade organizations, failed with a vote of 3-4. The bill was granted reconsideration;
however, it will be very difficult to pass this bill out this Democratic
committee.
Senator Dunn has also
introduced a bill that would make a minor change to his bill from last
year. SB 1809 addresses an issue raised
by opponents of SB 796 who asserted that it provided no discretion to reduce
the penalties under the law and that insignificant or
inadvertent violations could lead to astronomical penalties. SB 1809 would remedy this issue by providing
that only the Labor and Workforce Development Agency or any of its subordinate
agencies or employees may recover a civil penalty for the violation of a
posting or notice requirement of the Labor Code. The bill passed out of the committee with a
vote of 7-1.
Court Orders Insurers to Release Records
The California Supreme Court
ruled Monday that the state must give the public access to reports that could
help determine whether the insurance industry is discriminating against
individuals in low-income areas (redlining).
In a unanimous ruling the court said Commissioner Garamendi
was required to release information about the policies that insurers write in
different zip codes around the state.
The ruling came in a lawsuit filed against the State by State Farm
Insurance Companies who argued that the information was proprietary and should
be kept private.
Bill Actions
The following bills were
heard in the Assembly Appropriations Committee this week:
AB 2384 (Nakano): Requires that all life insurance and annuity contract forms be filed
with the California Department of Insurance prior to issuance. Conforms the payment of credit life and accidental death
insurance benefits to the laws regarding payment of life insurance benefits. Vote:
20-0
AB 2557 (Koretz): Increases civil penalties from $1,000 to $50,000 and
criminal penalties from six months
in a county jail to one year for selling
insurance without a license. Requires licensees to notify the Insurance
Commissioner within 30 days when certain applicant background information
changes. Vote: 20-0
The following bill was heard
in the Senate Insurance Committee:
SB 1500 (Speier): Requires all applicants for an original registration
or the transfer of registration of an automobile to, within 15 days of the
application, to submit certain financial responsibility documents, including
proof of automobile insurance coverage.
Requires automobile insurers in
The following bills passed
off the Assembly Floor this week:
AB 1955 (Vargas): This bill authorizes a for-profit life insurance company to be licensed
as a not-for-profit company. Vote: 72-0
AB 2161 (Reyes): Expands consumer protections with regard to the sale of structured
settlements, deletes the 2005 sunset on the court approval requirement, limits
application of the statute to California residents and eliminates the
requirement that the purchaser report to the Attorney General regarding the
results of its petition for court approval. Vote: 72-0
AB 2490 (Maddox): Allows agents placing personal lines insurance coverage through a
surplus lines broker to utilize the same procedure as is current law for
commercial lines of insurance. Vote: 80-0
The following bill passed the
Senate Transportation Committee:
SB 1585 (Bowen): Makes it an infraction for an individual under 18 years of age to use a
cell phone while driving. Vote: 7-4
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