THIS WEEK IN SACRAMENTO

Prepared by Norwood & Associates

August 1, 2026

Legislators Leave Town

Legislators adjourned for a three-week vacation now that the budget standoff has ended. Senate Democrats and Republicans finally cut a deal on Sunday night and promptly adjourned until August 18, 2026. This left the Assembly little choice but to simply accept the Senate package. After a couple days of negotiating minor changes through "trailer" bills used to implement the budget deal, the Assembly adopted the Senate budget and sent it to a relieved Governor Gray Davis who can now focus on the recall election.

Once Legislators return on August 18, it will be a mad dash to the close of session on September 12. This is the time when the crushing backlog of bills finally breaks loose. It is also the time when most shenanigans occur. This will be especially true in the highly charged political atmosphere surrounding the recall election, which will be held less than a month after the close of Session.

In this issue of This Week in Sacramento, we review the key issues which remain to be decided in the next few weeks. In addition, several bills relating to privacy, the growing homeowners' insurance and health insurance crises, which have been defeated, may be resurrected as part of some last minute deal.

Legislators Fiddle While WC Market Melts Down

Twenty workers' compensation insurance reform bills were "gutted and amended" in the Assembly Insurance Committee and the Senate Labor and Industrial Relations Committee and have been sent to conference committee. The substantive language in the bills was deleted and replaced with language stating the Legislature's "intent to improve the workers' compensation system by promoting the efficient delivery of high quality appropriate medical care." The bills were sent to the conference committee as part of a leadership agreement that all the bills will be considered together and a single bill drafted.

A six-person conference committee has been appointed, two Democrats and one Republican from both the Assembly and the Senate. The six-person conference committee will consider all the various workers' compensation insurance bills and issue one bill, called a conference report. The conference report does not go through the typical committee and legislative process, but simply goes to each House for an up or down vote without the opportunity for further amendment.

The Conference committee members include:

Senate:

Senator John Burton (D-San Francisco)

Senator Richard Alarcón (D-San Fernando Valley)

Senator Chuck Poochigian (R-Fresno)

Assembly:

Assembly Member Juan Vargas (D-Chula Vista)

Assembly Member Fabian Nunez (D-Los Angeles).

Assembly Member Ken Maddox (R- Garden Grove)

This latest development could be good or bad for real reform. Fashioning one workers' compensation reform bill eliminates the conflicts and inconsistencies that exist when separate bills are considered out of context. However, conference committees are also often used as dumping grounds for legislation to quietly die or for watering down separate pieces of legislation into one innocuous conference report.

The Democratically controlled Legislature has already killed off most of the aggressive reform package proposed by Republicans. As a result, the very best scenario would be some of these dead issues could be resurrected in the conference report. Odds are, however, the existing bills that made it through the committee process will simply be blended into one conference report. Thus, the legislative session will most likely end with modest reform reducing the cost of medical care in the system. As a result, the workers' compensation system's headlong rush to the edge of the precipice will not be stopped or reversed, but simply slowed.

Privacy Bill Fails

Senator Jackie Speier's four-year effort to prevent businesses from sharing customer information has failed yet again. SB 1 failed to pass out of the Assembly Banking and Finance Committee after it garnered only 3 votes. Most members of the moderate Democratic caucus abstained as a result of the issue becoming increasingly "personal" between the two houses of the Legislature.

Assemblyman Juan Vargas, Chair of the Assembly Insurance Committee, actually cast a "NO" vote. Prior to casting his vote, he objected to Senator Speier's tactics in trying to cajole members to vote for her bill. He also objected to her killing two relatively non-controversial bills by moderate Democrats in her committee as payback for the caucus not supporting SB 1. Senator Speier denied she had any role in killing the bills, and continued to insinuate the Assembly Democrats had been bought by political contributions from the financial services industry.

There was some hope on the part of advocates that a last minute deal could be worked out when Assemblyman John Dutra (D-Fremont) negotiated a set of amendments to the bill. Assemblyman Dutra is a member of the moderate Democratic business caucus, and his endorsement was seen by some as signs that a final compromise had been reached.

The more likely explanation, however, is Assemblyman Dutra, whose district falls within the San Francisco Chronicle coverage area, needed to be on the "right" side of the issue. Assemblyman Dutra most likely will seek a Senate seat, and didn't need the Chronicle bashing him over privacy. The Chronicle has reported and editorialized on the privacy issue with extraordinary fervor. Assemblyman Vargas once characterized the Chronicle's reporting on the privacy debate as "over the top."

The privacy initiative process continues to move forward. Supporters report they have collected enough signatures to qualify for the ballot. They have offered the financial services industry one more chance to negotiate a legislative compromise prior to the close of Session on September 12 before submitting the signatures. The pro-initiative website is www.californiaprivacy.org. The initiative is only two pages long and does not include the voluminous exceptions and compromises contained in SB 1. Its key provision is as follows:

"A financial institution shall not disclose a California consumer's Confidential Consumer Information to another person or entity, including an affiliate, unless the financial institution has obtained, and maintains a record of, the express, affirmative consent of the consumer, or except as provided in this division."

The only exceptions are those necessary to process a transaction or for regulatory or law enforcement purposes. "Confidential Consumer Information" is broadly defined to include virtually everything related to a consumer.

Homeowners' Bill of Rights Fails

Two key components of Insurance Commissioner John Garamendi's "homeowners' bill of rights" failed in the Assembly Insurance Committee. The Committee rejected yet another Senator Jackie Speier bill, SB 64, which codified the Commissioner's "Advisory Notice" limiting the use of claims information in underwriting.

The Commissioner's "Advisory Notice" has also been rejected by the courts as an underground regulation. Accordingly, the Commissioner filed emergency regulations on the subject. A court has refused to enjoin the implementation of the emergency regulations. Thus, the emergency regulations are in effect pending an August 22 hearing. Regardless of what happens at the August 22 hearing, the Department has issued permanent regulations on the subject that will supercede the emergency regulations. The court, however, may still find the Insurance Commissioner does not have statutory authority to justify the regulations, thus possibly invalidating both the emergency and permanent regulations.

The Committee also rejected Senator Martha Escutia's SB 691, which would have enacted a total ban on using credit information for underwriting homeowners' insurance. Many of the opponents said they could live with limitations on the use of credit information, but not a complete ban. They endorsed a model law developed by the National Conference of Insurance Legislators (NCOIL) to ensure credit scores are used fairly and in a nondiscriminatory manner. Senator Escutia refused to budge, and the bill fell three votes short of the amount needed to pass. The Insurance Commissioner, however, continues to use the rate approval process to discourage the use of credit scoring, and further legislative attempts at a complete prohibition are expected.

Legislation Restricting Underwriting Information Passes

Even though components of the Homeowners' Bill of Rights failed, bills changing the underwriting process are expected to be signed by the Governor. AB 81 (Wyland) would prohibit insurers from using information from a centralized claims database which result from a policyholder inquiry regarding coverage for a claim, even though a claim was not filed. AB 1049 (Calderon) also prohibits the consideration of these inquiries for underwriting as long as the inquiry did not result from an event that caused damage to the property or increased risk of loss. However, the bill also prohibits underwriting based on a single "close with no pay" claim in any three-year period.

AB 81 (Wyland) is authored by a Republican and AB 1049 (Calderon) is authored by a Democrat. Both bills passed with bi-partisan support and without a negative vote. The bills passed despite concerns expressed by some legislators that inquiries about coverage and no-pay claims indicate some event occurred, and an insurer should be able to consider that information when projecting future risk of loss. The bills passed, however, as part of a larger strategy to have a moderate response to SB 64 (Speier). SB 64 would prohibit an insurer from non-renewing a homeowner's insurance policy unless the home is uninsurable as determined by regulation. It would also prohibit insurers from considering inquiries about coverage.

Persistency Bill Goes to Governor

SB 841 (Perata), which lets drivers keep their discount for being previously insured even if they change companies, passed the Assembly by a 56-13 vote and is now on the Governor's desk. The Governor has until midnight, August 6, to sign or veto the bill, or it will become law automatically.

Existing law has always allowed a consumer's persistency, or loyalty discount, to be transferred to a new insurer. However, recent Department of Insurance regulations now provide a persistency discount can only be provided to an existing customer.

Progressive Democrats oppose the bill because they believe it harms low-income drivers who were previously uninsured. They argue insurance is a "zero-sum" game in which any discount given to one group means the rates of other groups must go up, since insurers will "squeeze out every ounce of profit they can."

Bi-partisan supporters challenged the view insurance is a "zero-sum" game. They argue it is cheaper to provide insurance to customers who continuously maintain their insurance as opposed to those who let coverage lapse frequently. They also point out it benefits the poor by allowing them to take their persistency discounts with them if a competitor offers a cheaper product instead of locking them into the same insurer.

The Department of Insurance and the Foundation for Taxpayer and Consumer Rights opposes the bill, arguing it violates the provisions of Proposition 103 prohibiting penalties for lack of prior insurance. The Governor vetoed a similar bill last year just before the election after it was caught up in the controversy surrounding his fundraising practices. The bill now provides an exception for gaps in coverage not exceeding 90 days and a two-year exception for military personnel.

Universal Health Care Coverage Bills Go to Conference Committee

Four bills with differing versions of universal health insurance passed out of the Assembly and Senate and will be considered in a conference committee. The bills passed only after all the substantive language of the bills was deleted as part of a leadership agreement that all the bills will be considered together and a single bill drafted.

The universal health care coverage conference committee will consider the following bills:

· SB 921 (Kuehl): "Single payer" universal health insurance coverage. This concept would replace the present private insurance system with coverage through a state agency with an elected commissioner. All residents would get guaranteed health insurance.

· SB 2 (Speier & Burton): "Pay or play" coverage. Employers would be required to provide health insurance coverage for their employees or contribute to a state fund that would provide coverage to uninsured workers.

· AB 1527 (Frommer): "Pay or play" coverage.

· AB 1528 (Cohn): "Pay or play" coverage.

At this point it is unclear when, or if, the conference committee will meet. The political dynamics are very fluid, and will most likely hinge on what happens with workers’ compensation insurance reform and the impact of the recall election.

Health Care Rate Regulation Temporarily Stalled

Senator Liz Figueroa, a potential contender for Lieutenant Governor in 2004, has been forced to postpone consideration of her Proposition 103-style rate regulation proposal for health insurance. SB 26 requires the Insurance Commissioner or the Director of the Department of Managed Care to regulate health care premiums, deductibles and co-pays. Consumer advocates would be allowed to intervene in the rate hearings on behalf of the public, and collect an intervener fee for their trouble. It should be no surprise to anyone the Foundation for Consumer and Taxpayer Rights (once known as the Proposition 103 Enforcement Project) and affiliated with Harvey Rosenfield is behind the effort.

SB 26 did not make the deadline for passing out of the Senate Insurance Committee this year. The bill, however, is eligible for consideration next year. The bill is opposed by most employers and health plans. It also helped that the California Medical Association was quietly opposed to the bill. Learning the lessons of history, CMA correctly concluded if health plan rates were regulated, it would increase pressure on its members' fees, and perhaps even lead to regulation of physician fees.

The Foundation for Taxpayer and Consumer Rights is now making noise about running an initiative. They proudly point to their success with Proposition 103, and argue they could do it again with health insurance rates. It may be more difficult, however, to run an initiative proposing health insurance rate regulation. This is not necessarily a populist issue. Unlike auto insurance, the true cost of health insurance is masked for most consumers because it is by and large an employer provided benefit. In addition, the Foundation would have to come up with some serious money to get any attention. Odds are they will try to move SB 26 next year in the Legislature.

Trial Lawyers Kill Shake-down Lawsuit Reforms

The Assembly and Senate Judiciary Committees, infamously sympathetic to the cause of trial lawyers, have squashed all efforts to reform the wildly abused "unfair competition" lawsuits. The Committee actions dashed the hopes and dreams of large and small businesses alike that have been at the receiving end of these shakedown lawsuits. After a decade of reform efforts, this seemed the year some reform might get out of the Legislature's two Judiciary Committees.

Business & Professions Code §17200, the “Unfair Competition Act,” allows trial lawyers to file lawsuits for anything they deem "unfair," even if they don't have a client and are instead representing the "public interest." Large businesses have been complaining for years the law acts as a tax on the economic system without providing any consumer benefit. They argue trial lawyers file a single lawsuit naming thousands of businesses, hoping to extort a "nuisance value" settlement. Previous efforts at reform have fallen on deaf ears in a democratically controlled legislature fiercely protective of trial lawyers.

This year, however, even the trial lawyers' lobbyists had to blush. The abuses have become so widespread and blatant they garnered the attention of the media. In some highly publicized cases, thousands of nail salons and small restaurants have been sued for minor infractions. The lawyers in the cases have offered to settle with each defendant for $1,000. Controversy has erupted over the lawsuits, with legislators of both parties and the media charging the lawsuits unfairly target unsophisticated small businesses operated by immigrants.

Tort reform, which is typically a Republican issue, suddenly garnered bi-partisan support. Republicans and moderate Democrats introduced several bills on the issue. However, the trial lawyers and their protectors mounted a vigorous defense. They have resisted calls for wholesale reform of the system, arguing the abuses of §17200 are not widespread, and are limited to a few bad actors.

To lend further credence to the argument wholesale reform is not necessary, the Attorney General and the State Bar have sought to deflect attention to one of the allegedly more egregious law firms, Trevor Law Group based in Beverly Hills. The Attorney General is suing the Law Group, and the State Bar has disbarred the lawyers. The firm is reported to have filed more than 3,000 frivolous lawsuits based on §17200 last year.

Faced with all the bad press, and real reform measures authored by a group of bi-partisan legislators, trial lawyers sponsored some weak reform bills to provide additional cover. The bills, AB 95 (Corbett) and SB 122 (Escutia), are authored by the Chairs of the Assembly and Senate Judiciary Committees. The trial lawyers, however, had the shameless audacity to include in the "reform" bills language which would actually increase the amount of damages they can collect in a §17200 lawsuit. The bills allow "disgorgement" of profits from a company regardless of whether a consumer or other business is harmed by an alleged unfair business practice

This provision was inserted to overturn a limitation placed on trial lawyers by the California Supreme Court in Kraus v. Trinity Management Services. The Court concluded disgorgement should only be permitted in class-action lawsuits. The net effect of the new disgorgement remedy in §17200 lawsuits is to increase the settlement value of the lawsuits

The Assembly and Senate Judiciary Committees killed all the Republican authored reform bills. In addition, the Assembly Judiciary Committee killed AB 69 (Correa), authored by a moderate Democrat whose immigrant constituents have been particularly hard hit by the abuse of §17200. The trial lawyer sponsored legislation, naturally, passed. Having failed yet again to obtain relief from the Legislature, a group of businesses is moving forward with an initiative to reign in the abuse.

Agent Disciplinary Record Bill Almost Ready for Governor

AB 794 (Frommer), which would establish guidelines for how long information regarding minor infractions against insurance agents and brokers remains posted on the Department of Insurance website, is pending a final vote in the Senate before heading to the Governor. The Department routinely posts enforcement actions on its website. However, there is no statute or regulation governing this practice. As a result, the Department's practice has been to permanently post even the most minor infractions.

For example, an insurance agent paid a $250 fine in 1977, and that information continues to be posted on the Department's website 26 years later. The fine notation is displayed whenever a customer does an address search for the agent. As a result, this minor violation tarnishes the agent's reputation even though 26 years have gone by without any further regulatory or enforcement action.

We have worked with the Department to develop a reasonable framework for how long minor violations should be posted on the Department's website. Minor violations will remain posted for ten years. However, the violations will only "age-off" if the agent maintains a clean record during that 10-year period. Any enforcement action relating to a suspended or revoked license continues to be permanently posted on the website.

The Department of Insurance supports the bill because it continues to provide consumers with easy access to information about insurance agents and brokers while at the same time cleaning the website of minor items long after they have become irrelevant. The bill also mirrors policies established by other agencies in managing postings regarding their licensees.

* * *

© Copyright 2003 by Norwood & Associates

[email protected]