INSURERS: 2003 Insurance-Related Legislation

The following is a summary of insurance-based legislation chaptered in 2003. The list contains high-level summaries of new laws that impact the Department of Insurance, the insurance industry and other affiliated groups, and is for general purposes only. All legislation chaptered in 2003 becomes effective on January 1, 2004, unless otherwise specified.
Full versions of the chaptered bills and in-depth legislative analyses are available on the Legislative Counsel’s Bill Information web page.
State Contracts: Acquisition of Goods or Services. AB 17 (Kehoe), Chapter 752: Prohibits a State agency from entering into a contract for the acquisition of goods or services of $100,000 or greater with a contractor who discriminates, in terms of benefits, between employees with domestic partners and employees with spouses. Every State contract to acquire goods or services must contain a statement that the contractor is in compliance with these provisions. Falsely certifying will subject the contractor to penalties.
Workers’ Compensation: Asbestosis. AB 149 (Cohn), Chapter 831: Applies to firefighters the current law proscribing a one year period after death during which proceedings for specified workers’ compensation benefits may be commenced.
Health Care Provider Contracts. AB 175 (Cohn), Chapter 203: Requires the rights and obligations of a health care provider, when a contracting agent sells, leases, or transfers the contract to a payor, to be governed by the underlying contract between the provider and the contracting agent. Since this bill adds a requirement to provisions governing a health care service plan, a violation of which is a crime, it imposes a State-mandated local program.
Life Insurance: Corporate-Owned Policies. AB 226 (Vargas), Chapter 328: Prohibits an insurer from issuing a corporate-owned life insurance (COLI) policy that designates a California employer as the beneficiary on behalf of a non-exempt employee. Any policy issued prior to the effective date will become void on the next premium payment date or after five years from the effective date of this bill, but not later than January 1, 2010.
Workers’ Compensation. AB 227 (Vargas), Chapter 635: At CIGA’s request, projects to finance costs of insolvent workers’ compensation insurers shall be deemed in the public’s interest and eligible for financing through the California Infrastructure & Economic Development Bank. The total amount of bonds issued to finance public development facilities outstanding at one time shall not exceed $5 billion. Expands the definition of insolvency to include the inability of an insurer to meet financial obligations. Increases the maximum fine for making false or fraudulent statements or claims from $50,000 to $150,000. Requires insurers filing rate approvals for policies incepting January 1, 2004, or later to include a provision for projected savings from the 2003-2004 regular session. Requires the Insurance Commissioner by July 1, 2004, to establish an on-line rate comparison sharing the rates for the 50 highest-producing insurance companies.
Deferred Annuities: Non-forfeiture. AB 284 (Chavez), Chapter 381: Requires annuity contracts to provide that the company grant the paid up annuity benefit upon the written request of the contract owner. Eliminates the requirement applicable to certain contracts that a company reserve the right to defer payment of a cash surrender benefit for a period of six months, and instead allows the company to reserve that right after making a written request and receiving written approval from the Insurance Commissioner. Establishes a uniform "index" method of calculating minimum non-forfeiture amounts in certain contracts. Requires application to contracts issued on or after January 1, 2006, but may be adopted by a company as early as January 1, 2004.
Insurance: Escheat. AB 378 (Steinberg), Chapter 304: Establishes a presumption that unclaimed intangible property payable or distributable in the course of the demutualization of an insurance corporation is abandoned 3 years after either the date of last contact with the policyholder, or date the property became payable/distributable, whichever is earlier. Amends from 5 years to 3 years the timeframe sums payable directly by a bank or financial institution on a certified check would escheat to the State. Any wages or salaries unclaimed for more than 1 year after payable will escheat to the State. If failure to report or deliver unclaimed property to the Controller within the time prescribed, a 12 percent interest rate will be applied, unless the failure is due to a reasonable cause.
Life Insurance: Prior Approval of Contracts. AB 444 (Vargas), Chapter 352: Currently, before a policy, contract, or agreement may be issued or marketed by an insurer domiciled in CA, it must file for approval with the Insurance Commissioner. The approval process, dependent on guaranteeing the value of assets for certain policies, may take from several months to an excess of a year. This bill authorizes the Insurance Commissioner to issue bulletins providing for expedited approval for policies, contracts, or agreements guaranteed by an admitted life insurer, and filed with the Insurance Commissioner with supporting officer’s certificate, actuarial certification & demonstration, and other supporting materials.
Department of Insurance: Website Disclosure. AB 794 (Frommer), Chapter 310: Requires the Department of Insurance to remove from its website any order or pleading related to a disciplinary proceeding, enforcement action, or restricted license ten years from the date the action is final or the restriction is removed. This does not apply to an enforcement action resulting in the suspension or revocation of a license, or if there are other pending or active disciplinary proceedings or enforcement actions. The removal applies solely to the website, and does not permanently remove this information from public record.
Mortgage Guaranty Insurance: Contingency Reserve. AB 943 (Chavez), Chapter 392: Changes the annual contribution into the contingency reserve to a quarterly contribution, changes the way contributions are calculated, and requires Commissioner approval to make withdrawals when losses exceed 35 percent of the total year-to-date net earned premium. The contingency reserve may not be reduced in a manner that will adversely affect the credit rating or impair the ability to meet future obligations of an insurer.
Automobile Insurance: Service Contracts. AB 984 (Vargas), Chapter 439: Defines a vehicle service contract and clarifies that in order to be considered insurance, the contract must meet certain requirements. The seller of a service contract must be licensed, and is subject to regulatory provisions. If qualified as an insurance policy, it must be pre-approved by the Commissioner, and limitations will be placed on the grounds for claim denials. This bill will be effective on July 1, 2004.
Hate Crime Claims: Reproductive Health Facility AB 996 (Wiggins), Chapter 647: Existing law provides that a commercial property insurance policy, if the insured is a religious, educational, or other nonprofit organization may not be canceled or non-renewed because a claim was made in the preceding 60 months for a loss that was the result of a hate crime. This bill provides that in addition, a premium shall not be excessive or unfairly discriminatory on that basis. This bill makes these provisions applicable to a reproductive health services facility and adds claims due to an anti-reproductive-rights crime to the claims that may not serve as the basis for a cancellation or non-renewal. It also requires an insurer to report a cancellation or non-renewal to the commissioner if the insured has submitted a claim that is the result of an anti-reproductive-rights crime.
Title Insurance: Rates. AB 1005 (Dutra), Chapter 440: Reduces the 30-day public display period currently required for a rate change when the new rate change is a decrease. The bill allows the rate to take effect earlier if the effective date is in the filing, and the new rate has been publicly displayed.
Earthquake Insurance: Available Capital. AB 1048 (Calderon), Chapter 144: Revises the definition of "available capital" so it no longer includes the unearned premium reserve for insurers participating in the California Earthquake Authority. Requires assets equal to the unearned premium reserve to be retained until all policyholder claims and liabilities are paid.
Property Insurance: Underwriting Information. AB 1049 (Calderon), Chapter 442: Prohibits adverse underwriting decisions based on the fact that an individual previously inquired as to the nature and scope of coverage on a policy, but did not file a claim. Applicable when this information is obtained from insurance-support organizations whose primary source of information are insurance institutions.
Life Insurance: Notification. AB 1083 (Cogdill), Chapter 115: Requires an insurer issuing a policy to an applicant, insuring the spouse of the applicant, to obtain the spouse’s signature or ensure that he or she has otherwise been notified in advance of the policy being issued. Prior notification is required on policies exceeding $50,000 issued on or after July 1, 2004.
Insurance: Fraud Information. AB 1099 (Negrete McLeod), Chapter 636: Includes the Employment Development Department as an "authorized governmental agency" as defined in Insurance Code Section 1877.1. This broadens the definition so departments can share information needed to assist in the investigation of workers’ compensation uninsured employer, premium, and provider fraud. This bill also provides the Workers' Compensation Insurance Rating Bureau (WCIRB), the licensed rating organization that receives data from workers’ compensation insurers, with immunity similar to that of insurers who report fraudulent claims to the Department.
Automobile Insurance: Rating Information Disclosures. AB 1181 (Ridley-Thomas), Chapter 360: Requires automobile policies to contain, at issuance and at every renewal, rating information applied by the insurer to determine the premium charged for the policy. The rating disclosure may include factors such as traffic convictions and at-fault accidents (property damage and/or bodily injury), and requires factors such as annual mileage, years of driving experience, zip code where vehicle is garaged, and any discounts or surcharges applied based on the driver or the vehicle. Compliance must be by March 1, 2004.
Property Insurance: Rate Disclosure. AB 1191 (Wiggins), Chapter 571: At policy renewal, requires an insurer to inform an insured in writing of any increase or decrease in annual premium, specify the reason(s) for any change, and provide telephone numbers and contact information to consumers to make inquiries or file a complaint. This bill is effective March 1, 2004.
Non-Resident Licensing: GLBA Conformity. AB 1252 (Jackson), Chapter 217: Existing law provides that a fire and casualty broker-agent license may be issued to a nonresident of California if the nonresident is licensed to transact more than one class of insurance under the laws of the other state or province of Canada. This provision now applies to a nonresident licensed in a territory of the United States. Under existing law, a nonresident applicant who resides in a jurisdiction that grants reciprocity to California residents is exempted from certain education requirements. This bill instead, exempts a nonresident applicant who maintains a license in a jurisdiction that grants reciprocity. In addition, this bill eliminates additional requirements to non-resident applicants for reinsurance intermediary licenses, and renames various continuing education requirements for long-term care insurance agents.
Workers’ Compensation Insurance: Claims Adjusters. AB 1262 (Matthews), Chapter 637: Requires the Insurance Commissioner to adopt regulations setting a minimum standard of training, experience, and skill workers’ compensation claims adjusters must possess. Insurers must certify to the Commissioner that personnel meet these minimum standards.
Motor Clubs: Definitions. AB 1274 (Chavez), Chapter 88: Excludes from the definition of a "motor club," a person selling or furnishing certain discount services, map services, travel services, or other miscellaneous services incidental to any of those services. Exempts those qualifying parties from regulatory provisions as a motor club, but does subject them to other regulations as adopted by the Insurance Commissioner.
Continuity of Care. AB 1286 (Frommer), Chapter 591: Requires a health care service plan to file by March 31, 2004, a written continuity of care policy describing its procedures for the block transfer of enrollees from a terminated provider group or hospital to a new provider group. The policy must include notices it proposes to send to affected enrollees and the process to facilitate completion of covered services. Filings must be submitted 75 or more days prior to the termination of the contract, and enrollees must be provided at least 60 days notice prior to the termination of coverage.
Health Care Quality Improvement and Cost Containment Commission. AB 1528 (Cohn), Chapter 672: Legislature intends to make valid performance information available to encourage hospitals and doctors to provide care that is safe, medically effective, patient-centered, timely, efficient, and equitable. Directs the Governor to convene the California HCQICCC, which will examine and address specified health care issues. On or before January 1, 2005 the commission will report to the Governor and the Legislature making recommendations for health care cost containment.
Workers’ Compensation: Increased Compensation. AB 1557 (Vargas), Chapter 638: An employee is not entitled to increased compensation for an unreasonable delay in provision of medical treatment for a period of time necessary to complete a utilization review process, unless an employer unreasonably delayed or denied medical treatment due to an unreasonable delay in completion of the utilization review process.
Earthquake: Earthquake Grants and Loans Program. AB 1598 (Corbett), Chapter 448: Authorizes the Department to utilize $2.9 million, and all interest calculated daily, in the California Residential Earthquake Recovery Fund (CRERF) to retrofit homes against potential earthquake damage. Also, extends the sunset date of the program from December 1, 2004 to July 1, 2007. As of 6/30/04 the Budget Act of 2004 (Chapter 208/04) reverted the remaining balance in the CRERF to the General Fund.
Life and Annuity: Products Research Authority. AB 1600 (Nakano), Chapter 166: Expands the Insurance Commissioner’s authority to collect statistical data from insurers related to the marketing of life, annuity, and disability products. This data collection process is known as a "data call." Also, provides the Commissioner with enforcement authority for those insurers who do not respond to a data call. Increases the length of time insurers in life and disability insurance, annuity contracts, or related contracts must maintain records for review by the Insurance Commissioner from 2 years to 5 years.
Health Care: Charge Description Master. AB 1627 (Frommer), Chapter 582: Amends the name of the commission designating geographic areas in California with priority unmet medical services needs to the California Healthcare Workforce Policy Commission. By July 1, 2004 requires hospitals to post a notice on the internet, and in the hospital, informing patients that the hospital’s charge description master is available upon request. Hospitals must file a copy of the charge description master with the Office of Statewide Health Planning and Development by July 1, 2004. Any patient may file a claim for failure to comply against a hospital, and be informed of the investigation results.
Health Care: Post-Stabilization Care. AB 1628 (Frommer), Chapter 583: Requires a non-contracting hospital to contact an enrollee’s health care service plan to obtain his or her medical record prior to admitting as an inpatient for post-stabilization care, transferring to a non-contracting hospital for post-stabilization care, or prior to providing post-stabilization care when admitted for medically necessary care. Imposes duties on a health care service plan after being contacted by a hospital, and requires the plan in designated circumstances to reimburse the hospital for post-stabilization care rendered. If a hospital is required to contact the patient’s health care service plan and fails to do so, the hospital cannot bill the patient for post-stabilization care rendered.
Vehicles: Child Passenger Restraint System. AB 1697 (Pavley), Chapter 524: Requires children under 6 years old, or less than 60 pounds, to be secured in the rear seat of a car in a child passenger restraint system meeting federal motor vehicle safety standards. The child can ride in the front seat if properly secured in a child passenger restraint system under specified circumstances (no rear seat, rear seats are side-facing or rear-facing, all rear seats are already occupied by children under 12 years old, medical reasons). The effective date of this bill is January 1, 2005.
Homeowner’s Insurance: Advance Notice of Cancellation. AB 1727 (Assembly Insurance Committee Bill), Chapter 148: Requires insurers to give homeowner policyholders a 20-day advance notice of any insurer-initiated cancellation of a policy, as is required in automobile insurance. Ensures that any homeowner will have a reasonable amount of time in which to purchase a replacement policy, without a lapse in coverage, in the event that the insurer cancels coverage.
Financial Information Privacy Act: SB 1 (Speier), Chapter 241: Requires financial institutions to provide written notice of information sharing practices and opt-out/opt-in form to consumers for sharing non-public personal information with affiliates and non-affiliated third parties. The bill allows certain exceptions to the notice and form requirements. It takes effect on July 1, 2004.
Health Care Coverage: Required Coverage. SB 2 (Burton), Chapter 673: Creates the State Health Purchasing Program, administered by the Managed Risk Medical Insurance Board. Requires the board, for a fee, to arrange health care coverage for employees of certain employers. Employers providing health care coverage directly will receive a credit for the fee. Authorizes the board to coordinate coverage under the program with coverage available under Medi-Cal, Healthy Families Program, and other public programs. Coverage for employees and dependents of large employers will start January 1, 2006, and employees and dependents of medium firms will be covered starting January 1, 2007. Small employers are exempt from providing coverage and the fee. Employee contributions to the health care coverage cannot exceed 20 percent of the employer fee.
Driver Licenses: Social Security Numbers/Identification Cards. SB 60 (Cedillo), Chapter 326: Repeals the current requirement of proving authorized presence in the United States before being allowed to apply for a driver license. Allows for giving either a social security number (SSN), federal individual taxpayer identification number, or other identifier deemed appropriate. The SSN or federal taxpayer identification number is not included on the driver license card because it is not considered public record. Once the person obtains a SSN, he or she must notify the Department of Motor Vehicles. Requires the Department of Justice to conduct a study by January 1, 2005, evaluating the cost and feasibility of developing a biometrics system to prevent a person from obtaining multiple driver licenses.
Workers’ Compensation: Classification Notice. SB 176, (Johnson), Chapter 121: Requires a rating organization to provide written notification to a policyholder at the time it provides notification to the insurer if it changes the classification assignment of the policyholder. The notification requirement may be fulfilled by sending the policyholder a copy of the notice being sent to the insurer.
Long-Term Care: Genetic Testing. SB 200 (Murray), Chapter 408: Prohibits a long-term care insurer from requiring genetic testing for insurability or underwriting purposes until January 1, 2008. Routine physical examinations are still allowed so long as genetic testing is not done.
Insurance Investments: Multiple Employer Welfare Arrangements. SB 212 (Machado), Chapter 320: A multiple employer welfare arrangement (MEWA) is comprised of a group of individuals or employers who associate solely based on participation in a specified industry or profession. This bill allows MEWAs to invest a specified portion of its assets into an open-ended diversified management company that is registered with, and reports to, the Securities and Exchange Commission, and is domiciled within the United States.
Workers’ Compensation. SB 228 (Alarcon), Chapter 639: In order to adopt a medical treatment utilization schedule, this bill requires the Commission on Health, Safety & Workers’ Compensation to survey and evaluate nationally recognized standards of care by July 1, 2004, and issue a report by October 1, 2004. The bill eliminates the Industrial Medical Council and transfers its duties to the administrative director. Also adds outpatient surgery to the list of medical goods/services for which it is unlawful for a physician to refer a person to if he or she has a financial interest in the entity receiving the referral. Requires the administrative director to adopt protocols concerning medical billing and provider fraud. Any person or entity that dispenses medicine and medical supplies must provide a generic equivalent drug, unless falling under designated circumstances. Requires the administrative director to adopt and revise periodically a medical fee schedule for various services. Limits the number of chiropractic and physical therapy visits by an employee per industrial injury. Requires every employer to establish a utilization review process, overseen by the administrative director. Creates guidelines for objecting to a medical determination affecting workers’ compensation benefits.
Health Care: Continuity of Care. SB 244 (Speier), Chapter 590: Requires a health care service plan to file with the Department by March 31, 2004, a written continuity of care policy describing procedures for the block transfer of enrollees from a terminated provider group or hospital to a new provider group or hospital. The block transfer filing must be made at least 75 days prior to the termination, and at least 60 days notice must be given to affected enrollees. Requires the health care service plan to complete covered services for a surgery or procedure recommended and documented by the provider in certain circumstances. Must provide enrollees a specific statement regarding the continuity of care.
Automobile Insurance: Uninsured Motorists. SB 333 (Romero), Chapter 56: Increases, from one year to two years, the permitted time for an insured with uninsured motorist coverage to file a cause of action against an uninsured motorist or to commence arbitration proceedings under his or her uninsured motorist policy.
Health Insurance: Counseling Fees. SB 413 (Speier), Chapter 545: Amends the maximum the California Department of Aging can annually assess on a health care service plan for each person enrolled under a pre-paid Medicare program serving Medicare eligible beneficiaries from $1.00 to $1.20. Additionally, the fee assessment now applies for each enrollee under a Medicare supplement contract, including a Medicare Select contract.
Automobile Insurance: Automotive Repair Dealers. SB 551 (Speier), Chapter 791: Codifies existing regulatory laws prohibiting an insurer from requiring an auto be repaired at a specific auto repair dealer. The insurer can only recommend an auto repair dealer if the insured asks for a referral, or if the insured is informed in advance in writing of the right to choose the repairer of his or her choice. If an insured takes an auto to a shop of his or her own choice, an insurer cannot limit or discount reasonable repair costs based on charged that would have been incurred had the insured gone to the insurer’s chosen shop.
Health Care Service Plans. SB 580 (Senate Insurance Committee), Chapter 12: Changes the maximum amount of reimbursement for administration expenses to $10,000, plus the following, per plan in accordance with the Knox-Keene Health Care Service Plan Act of 1975. Non-specialized health care service plans pay an additional 65 percent of the Department’s costs and expenses, while specialized plans pay 35 percent of costs and expenses. Plans must pay $2,000 plus up to $.0048 per enrollee for reimbursement of its share of reasonably anticipated costs and expenses to be incurred by the Department. This is an urgency statute and is effective immediately.
Medicare Supplement Insurance: Open Enrollment. SB 581 (Senate Insurance Committee), Chapter 13: Clarifies open enrollment provisions applying to supplementary insurance and clarifies requirements applicable to occupational safety and health loss control consultation services maintained by workers compensation insurers. There will be a one-time open enrollment period of 90 days starting on January 1, 2004, for all individuals eligible for Medicare who do not have End Stage Renal Disease, and who didn’t utilize the prior one-time open enrollment beginning on January 1, 2001. Creates an annual open enrollment of 30 days, or more, starting with an individual’s birthday during which an eligible individual may purchase any Medicare supplement.
Insurance: Unfair Acts by a Producer. SB 618 (Scott), Chapter 546: Provides increased protection for seniors from insurance agents or insurers who commit specific abusive acts. Fines imposed for misrepresenting information, or violating senior insurance laws are increased, licenses can be suspended for actions expected to cause significant harm to seniors, and a hearing addressing the misconduct will be held within 90 days of the complaint. Seniors are given 30 days to review disability policies, during which time policies may be returned for cancellation.
Annuities: Life Insurance: Required Disclosures and Prohibited Sales Practices. SB 620 (Scott), Chapter 547: Enacts additional protections regarding the marketing of life insurance and annuity products to senior citizens. Specifically, this law: (1) creates new training requirements for insurance agents and brokers, (2) requires additional disclosures for life insurance and annuity products, (3) imposes restrictions on the sale of life insurance and annuities in the home of a senior, (4) identifies "unnecessary replacement" scenarios for existing policies, (5) prohibits insurance agents, brokers, and solicitors who are not attorneys from sharing commissions or other compensation with attorneys, and (7) prohibits the sale of an annuity to a senior (or voids a sale) if the senior is erroneously informed that the investment would help them qualify for Medi-Cal.
Long-Term Care Facilities: Medi-Cal Reimbursement. SB 686 (Ortiz), Chapter 899: Requires insurers issuing liability policies to long-term health care facilities, residential care facilities, or doctors providing or overseeing medical services to those in care facilities, to notify the Department if it intends to cease, withdraw, or substantially withdraw from the market. Insurers must report by July 1 of each year certain information regarding those policies (number of policies, total amount of premium, total number of claims received/paid/denied, etc.). Allows the Insurance Commissioner to authorize the formation of a market assistance program to help secure liability insurance for these facilities if coverage is not available in the voluntary insurance market. Most provisions shall only be implemented if funds for their purposes are available in the Insurance Fund.
Health Insurance: Mexican Health Plans. SB 798 (Cedillo), Chapter 417: Requires the Director of the Managed Health Care Department to immediately notify a health care service plan if it ceases to operate legally in Mexico. The health care plan shall, within 45 days, show compliance with the laws of Mexico. If unable to do so after 45 days, it will be notified that no new enrollees may be accepted, and the plan is given 180 days to either comply with the laws of Mexico, or become a licensed health care service plan. After 180 days, if no compliance licensing is shown, the Director is required to issue an order requiring the plan to cease and desist operations in California.
Automobile Insurance: Rates: Persistency. SB 841 (Perata), Chapter 169: Allows an insurer to use persistency of auto insurance coverage with that insurer, an affiliate, or another insurer as an optional rating factor. Persistency exists even if there has been a lapse of up to 2 years due to absence from the State while in the military, or up to 90 days within the last 5 years for any other reason. This is an urgency statute, effective immediately as of August 2, 2003.
Health Care: Language Assistance. SB 853 (Escutia), Chapter 713: Requires the Department to adopt, by January 1, 2006, regulations establishing standards and requirements to provide health care service plan enrollees access to language assistance. Additionally, requires regular review for compliance and recommendations, and a contract between the health care service plan and the health care service provider to ensure compliance.
Workers’ Compensation: Insurance Policies. SB 1007 (Speier), Chapter 641: Expands the definition of "common trade or business" to include specified types of manufacturing facilities as identified in the North American Industry Classification System.
Resources: Fee and Regulation Changes. SB 1049 (Senate Budget and Fiscal Review Committee), Chapter 741: Requires amendments of fees and regulations in the following areas: sport and commercial fishing licensing, pesticide regulation and safety, seismic safety, fire protection and suppression in State responsibility areas, electric utility licenses and renewals, and water resources. Specifically, the Department is required to assess certain insurers a prorated percentage of premiums earned on property exposures for both commercial and residential insurance policies to fund the Seismic Safety Commission.
Holocaust Survivors: International Commission on Holocaust Era Insurance Claims. ACR 74 (Steinberg), Chapter 97: Resolution requiring Holocaust related funds obtained by the ICHEIC to be promptly distributed to Holocaust survivors living in poverty, to meet the basic needs of food, shelter, and medical care. The California State Legislature requests the Insurance Commissioner use his seat on the ICHEIC to implement the intent of this resolution.