More than 20 new insurance-related bills signed into law by Governor Brown

By Sam Sorich

September 30, 2012, was the deadline for Governor Jerry Brown to take action on bills passed by the California Legislature during the 2012 regular legislative session.

Here are summaries of noteworthy insurance-related bills that were signed into law. All of these new laws will go into effect on January 1, 2013.

Senate Bills

SB 863 increases workers’ compensation permanent disability benefits by an estimated $750 million per year, phased in over a two-year period. The new law changes several aspects of the workers’ compensation system. Among other things, SB 863 creates an independent medical review process for resolving medical care disputes, establishes an independent bill review process for resolving medical billing disagreements, adopts a statute of limitations for workers’ compensation liens, and restricts the reasons that can be used to avoid obtaining treatment within a medical provider network.

SB 1216 conforms California law to the revisions made to the NAIC Credit for Reinsurance Model Law (adopted in 2011). Among other things, SB 1216 establishes criteria that the insurance commissioner is to use in certifying reinsurers; reinsurance provided by certified reinsurers qualifies as an asset or credit against the liabilities of a ceding insurer.

SB 1234 and SB 923 create the California Secure Choice Retirement Savings Investment Board which is charged with conducting a market analysis to determine if the necessary conditions for implementation can be met and then report to the Legislature as to whether a statewide retirement savings plan for private employees, who do not participate in any other type of employer-sponsored retirement savings plan, should be created. The Board’s analysis would have to be paid for by funds made available through a non-profit or private entity, federal funding, or an annual Budget Act appropriation.

SB 1298 establishes conditions for the operation of autonomous vehicles on public roadways for testing purposes. The bill defines “autonomous vehicle” as a vehicle equipped with technology that has the capability to drive a vehicle without the active physical control or monitoring by a human operator.

SB 1448 conforms California law to the revision to the NAIC Insurance Holding Company System Regulatory Model Act (adopted in 2010). Among other things, SB 1448 requires the board of directors of an insurer, which is part of a holding company system, to file a statement affirming that the board is responsible for overseeing corporate governance and internal controls. In addition, SB 1448 authorizes the insurance commissioner to evaluate the enterprise risk related to an insurer that is part of a holding company.

SB 1449 permits the approval of life insurance and annuity products that include the waiver of premium during periods of disability and the waiver of surrender charges if the insured encounters specified medical conditions, disability, or unemployment.

SB 1513 expands the investment options available to the State Compensation Insurance Fund.

Assembly Bills

AB 53 requires each admitted insurer with written California premiums of $100 million or more to submit a report to the insurance commissioner on its minority, women, and disabled veteran-owned business procurement efforts. The first report is due July 1, 2013. An insurer is required to update its report biennially. AB 53 includes a January 1, 2019 sunset date.

AB 999 revises the standards used by the insurance commissioner to approve the rates for long-term care insurance. AB 999 prohibits an insurer from using asset investment yield changes to justify a rate increase for long-term care policies unless the insurer can demonstrate that its return on investments is lower than the maximum valuation interest rate for contract reserves for those policies; or the insurance commissioner determines that a change in interest rates is justified due to changes in laws or regulations that are retroactively applicable to long-term care insurance previously sold in California. AB 999 requires all of the experience on all similar long-term care policy forms issued by an insurer and its affiliates and retained within the affiliated group to be pooled together and used as the basis for determining whether a rate increase is reasonable.

AB 1631 removes the January 1, 2013, repeal date for the existing law which permits a person admitted to the bar of another state to represent a party in a California arbitration proceeding.

AB 1708 authorizes auto insurers to provide proof of insurance coverage in an electronic format that may be displayed on a mobile electronic device. Proof of insurance in this format is allowed to be presented to a peace officer.

AB 1747 requires every life insurance policy to include a provision for a grace period of not less than 60 days from the premium due date; the provision must state that the policy remains in force during the grace period. AB 1747 requires an insurer to provide an applicant for an individual life insurance policy an opportunity to designate at least one person, in addition to the applicant, to receive notice of lapse or termination of a policy for nonpayment of premium. AB 1747 provides that a notice of pending lapse or termination of a life insurance policy is not effective unless the notice is mailed by the insurer to the named policy owner, a designee for an individual life insurance policy, and a known assignee or other person having an interest in the individual life insurance policy, at least 30 days prior to the effective date of policy termination if termination is for nonpayment of premium.

AB 1875 limits the civil deposition of any person to one day of seven hours. The bill specifies exceptions to this limit.

AB 1888 allows a person who has a commercial driver’s license to attend a traffic violator school for a traffic offense while operating a passenger car, a light duty truck, or a motorcycle.  Attendance at the school prevents the offense from being counted as a point for determining whether the driver is presumed to be a negligent operator who is subject to license revocation. However, attendance at the school does not bar the disclosure of the offense to insurers for underwriting or rating purposes.

AB 2084 establishes new permitted types of blanket insurance policies and expands the list of eligible policyholders who can purchase blanket insurance.  

AB 2138 gives the insurance commissioner the authority to require every admitted disability insurer, and every other entity liable for any loss due to health insurance fraud, to pay an annual maximum fee of 20 cents for each insured under an individual or group insurance policy it issues in California. The fee is to be used to fund increased investigation and prosecution of fraudulent disability insurance claims. Under current law, the maximum fee is 10 cents. AB 2138 allows an insurer to recoup the fee through a surcharge on premiums or by including the fee in the insurer’s rates.

AB 2160 requires the California insurance commissioner to treat a domestic insurer’s investment in a company that has business operations in Iran as a non-admitted asset. We recently blogged on the passage of AB 2160 here.

AB 2219 removes the January 1, 2013, repeal date for the existing law which requires a contractor with a C-39 roofing classification to obtain and maintain workers’ compensation insurance even if he or she has no employees. AB 2219 also removes the January 1, 2013, repeal date for the existing law which requires an insurer that issues a workers’ compensation insurance policy to a roofing contractor, who holds a C-39 license, to perform an annual payroll audit for the contractor. AB 2219 adds the requirement that the insurer’s audit must include an in-person visit to the place of business of the roofing contractor to verify whether the number of employees reported by the contractor is accurate.     

AB 2298 prohibits an insurer that issues or renews a private passenger auto insurance policy to a peace officer or a firefighter from increasing the premium for the policy because the peace officer or firefighter was involved in an accident while operating his or her private passenger auto in the performance of his or her duty at the request or direction of his or her employer. AB 2298 provides that in the event of a loss or injury that occurs as a result of an accident during any time period when the private passenger auto is operated by the peace officer or firefighter and is used by him or her at the request or direction of the employer in the performance of the employee’s duty, the auto’s owner shall have no liability.

AB 2301 modifies the definition of “covered claims” in the Insurance Code article relating to the California Insurance Guarantee Association (CIGA) to make clear that a covered claim is one which is presented to the liquidator in the state of domicile of the insolvent insurer or to CIGA.  

AB 2303 is the Department of Insurance’s omnibus bill which addresses a variety of matters, including applications for non-resident surplus lines broker licenses, pre-licensing requirements for bail agents, the creation of a limited lines license for crop insurance adjusters, and changes to the conservation and liquidation process. AB 2303 abolishes the advisory committee on automobile insurance fraud within the Fraud Division of the Department of Insurance. AB 2303 also repeals the provision that excludes policies that have been effect less than 60 days from the statute which governs the cancellation of private passenger auto insurance policies.

AB 2354 revises the licensing requirements for travel insurance agents.

AB 2406 requires the Department of Insurance to publish on the Department’s website all requests by a person or group representing the interests of consumers for compensation relating to intervention in a proceeding on an insurer rate filing or participation in other proceedings. Findings on such requests also must be published on the website.

Originally posted to Barger & Wolen's Insurance Litigation & Regulatory Law Blog.

Podcast: Impact of Recent California Legislation

Sam Sorich recently participated on an A.M. Best podcast where he addressed recent legislation passed by the State of California, and the potential impact of these bills on insureds and the upcoming election.

You can listen to the podcast here.

Originally posted to Barger & Wolen's Insurance Litigation & Regulatory Law blog.

California Workers' Compensation Looms as a Major 2012 Legislative Issue

by Samuel Sorich

On March 28, two California legislative committees met to hear concerns about the California workers’ compensation system. The chairs of the committees declared that the hearing was the Legislature’s first-step in this year’s effort to solve problems that plague the system.

During the joint hearing of the Assembly Insurance Committee and the Senate Labor & Industrial Relations Committee, stakeholders in the California workers’ compensation system identified problems and gave their perspectives on how those problems should be addressed.

Representatives of the California Workers’ Compensation Institute outlined the increase in workers’ compensation costs. In the years immediately after the enactment of the 2003 and 2004 reform laws, the total loss per indemnity claim decreased. However, in recent years, workers’ compensation claim costs have been increasing. The total loss for an indemnity claim is higher today than prior to the enactment of the 2003-2004 reforms. Institute data show that escalating medical costs are driving the increase in claim costs. Increasing costs are affecting insurers. The most current accident year combined loss and expense ratios are at 130.

Insurance Commissioner Dave Jones observed that the high combined ratios will probably result in a rise in workers’ compensation insurance rates. The commissioner expressed concern about the higher premiums that may be charged to employers. In wrestling with workers’’ compensation issues, the Legislature has operated under the theory that a dollar increase in benefits should be accompanied by a dollar in savings in the workers’ compensation system. Commissioner Jones explained that because of the sharp increase in costs, that theory is no longer useful. It appears that it will take more than one dollar in savings to offset a dollar in benefit increase.

Christine Baker, director of the Department of Industrial Relations, testified that her department is seeking comprehensive workers’ compensation reforms that achieve both cost savings and benefit increases. Baker explained that such comprehensive reforms will require both legislative and regulatory changes. The Division of Workers’ Compensation is conducting public forums throughout the state aimed at reaching a consensus on the changes that should be made.

Frank Neuhauser, professor at the University of California at Berkeley argued that the 2003-2004 reforms have reduced compensation paid to injured workers. Neuhauser said the reforms resulted in a 61% decrease in overall compensation. He stated that workers who are not represented by attorneys have been especially affected by the decline in compensation paid.

A representative of the California Federation of Labor accused insurers of undermining the workers’ compensation administrative process and delaying medical treatment for injured workers. The Federation called for the prior approval of workers’ compensation insurance rates and significant adjustments to the permanent disability rating schedule.

A representative of Grimway Farms, which is self-insured for workers’ compensation, challenged the allegation that high costs can be solved by stricter insurance regulation. As a self-insurer, Grimway is facing the same increase in workers’ compensation costs as insurers. The Grimway representative complained that there are too many lawyers in the workers’ compensation system.  A representative of public schools urged the adoption of measures to reduce the number of workers’ compensation liens.

A representative of the California Medical Association asserted that further restrictions on fees that may be charged for workers’ compensation medical treatment would lead to a reduction in access to care. A representative of the California Society of Industrial Medicine and Surgery complained about delays in utilization reviews and the administration of medical provider networks.

At the close of the hearing, Senator Ted Lieu, chair of the Senate Labor & Industrial Relations Committee, and Assembly Member Jose Solorio, chair of the Assembly Insurance Committee, said that they are committed to achieving both workers’ compensation savings and workers’ compensation benefit increases. The committee chairs said that they will proceed in an honest, cautious and transparent manner.

Originally published on Barger & Wolen's Insurance Litigation & Regulatory Law blog.

An Insurance Agent Who Portrays Herself As Expert Owes a Heightened Duty of Care to the Insured

In Williams v. Hilb, Rogal & Hobbs Insurance Services of California, Inc., __ Cal. App. 4th __, 2009 WL 2872403 (September 9, 2009), the court held that an insurance agent who portrays herself as having expertise in the particular insurance sought by an insured may owe the insured a heightened duty of care. Further, the failure of an insured to read the policy does not, as a matter of law, render the insured’s reliance on the agent’s advice unjustifiable.

This case involved a franchise business owner’s purchase of an “insurance package” that did not contain workers’ compensation insurance, which, under California law, is mandatory. The owners discovered their lack of coverage following a fire that severely injured an employee. The employee sued the owners who in turn sued the insurance agent for negligence for failing to provide the appropriate insurance necessary for their business. In her defense, the agent argued that she did not have a duty to volunteer additional or different insurance coverage and that insured was bound by the “clear and conspicuous” terms of the policy even if they failed to read or understand them. However, the court was not convinced by these arguments.

In most situations, an insurance agent does not have a duty to volunteer that an insured should procure different or additional coverage and only has a duty to procure the insurance requested. However, the court deviated from this rule because the agent held herself out to be an expert in the type of insurance needed to run the Plaintiff’s business. Specifically, the agent advertised herself as having sold insurance packages to numerous other franchisees, participated in the risk analysis with the underwriters, visited various operating facilitates and proclaimed to the insured that she “was the expert on the product necessary to satisfy [Plaintiff’s] insurance needs.” Since the agent held herself out to be an expert, she owed the insured a heightened duty of care to provide adequate insurance. This included providing workers’ compensation insurance, which the agent testified that she knew was required in California.

The court also addressed a defense asserted by the insurance agent that the business owners were negligent in not reading the policy. Other courts have stated that the insured has a duty to read the policy and will be bound by “clear and conspicuous provisions.” However, the court distinguished this case by highlighting the fact that here, the insurance agent owed a heightened duty of care. Based on the heightened duty of care, there was an issue of fact as to whether the Plaintiff reasonably relied on the insurance agent’s self-proclaimed expertise. Therefore, the Plaintiff’s negligence was not established as a matter of law. Further, the court stated that whether an insured has a duty to read the policy cannot be addressed “without an analysis of the surrounding facts.”